As filed with the Securities and Exchange Commission on February 28, 1996.
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. 35 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 36 /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, 1996.
Total number of pages: 52
Index to Exhibits is located on page: 48
<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 ........................................
INVESTMENT POLICIES****,
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,
CUSTODIAN,
INDEPENDENT ACCOUNTANTS
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.
** Incorporated by reference.
*** Relates only to The REvest Growth & Income Fund, a series of
the Trust.
****Relates only to Royce GiftShares Fund, a series of the Trust.
<PAGE>
PROSPECTUS
February 27, 1996
The REvest
Growth & Income
Fund
A No-Load Mutual Fund
Managed by
Royce, Ebright & Associates, Inc.
A Series of The Royce Fund
<PAGE>
The REvest Growth & Income Fund
PROSPECTUS -- February 27, 1996
___________________________________________________________________________
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
___________________________________________________________________________
INVESTMENT ADVISER INFORMATION -- 1-800-277-5573
___________________________________________________________________________
SHAREHOLDER SERVICES -- 1-800-841-1180
___________________________________________________________________________
INVESTMENT
OBJECTIVES AND
POLICIES
The REvest Growth & Income Fund (the "Fund") primarily seeks long-term
growth and secondarily current income by investing in a broadly diversified
portfolio of common stocks and convertible securities of small and medium-
sized companies viewed by the Fund's investment adviser as having
attractive financial characteristics and/or growth prospects and selected
on a value basis. There can be no assurance that the Fund will achieve its
objectives.
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 nine series. This Prospectus relates to The REvest Growth &
Income 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 February 27,
1996 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 2
Investment Performance 3
Investment Objectives 3
Investment Policies 3
Investment Risks 4
Investment Limitations 4
Management of the Trust 5
Size Limitations 5
General Information 6
Page
Dividends, Distributions and Taxes 6
Net Asset Value Per Share 7
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares 7
Choosing a Distribution Option 9
Important Account Information 9
Redeeming Your Shares 10
Exchange Privilege 12
Transferring Ownership 12
Other Services 12
___________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
___________________________________________________
FUND EXPENSES
The Fund is no-load and has no 12b-1 fees
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
Redemption Fee -- 1 Year or More
After Initial Purchase None
Early Redemption Fee --
Less Than 1 Year After Initial Purchase 1%
Annual Fund Operating Expenses*
Management Fees 1.00%
Other Expenses .30%
Total Operating Expenses 1.30%
___________________
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.
The following examples illustrate the expenses that you would incur on a
$1,000 investment over various periods, assuming a 5% annual rate of return
and redemption at the end of each period.
1 Year 3 Years 5 Years 10 Years
$13 $41 $71 $157
*The investment adviser has committed to reduce its management fees to the
extent necessary to maintain total operating expenses at or below 1.50% for
the period ending December 1996. See also "SIZE LIMITATIONS."
These examples should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown.
______________________________________________
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
The following financial highlights are part of the Fund's financial
statements and have been audited by Coopers & Lybrand L.L.P., independent
accountants. Such financial statements and Coopers & Lybrand L.L.P.'s
reports on them are included in the Fund's Annual Report to Shareholders
for 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
Annual Report to Shareholders for 1995, which may be obtained without
charge by calling Investor Information.
8/1/94
Year Ended to
12/31/95 12/31/94
Net Asset Value, Beginning of Period $9.66 $10.00
Income from Investment Operations
Net investment income 0.18 0.04
Net gains (losses) on securities (both
realized and unrealized) 1.38 (0.33)
Total from Investment
Operations 1.56 (0.29)
Less Distributions
Dividends (from net
investment income) (0.17) (0.05)
Distributions (from capital gains) (0.32) 0.00
Total Distributions (0.49) (0.05)
Net Asset Value, End of Period $10.73 $9.66
Total Return 16.2% -2.90%
Ratios/Supplemental Data
Net Assets, End of Period (000's) $35,804 $21,676
Ratio of Expenses to
Average Net Assets (a) 1.30% 1.42%*
Ratio of Net Investment Income
to Average Net Assets (a) 1.73% 1.45%*
Portfolio Turnover Rate 53% 5%
___________________
* Annualized.
(a) Expenses for 1994 are shown after fee waiver by the adviser. Absent
such waiver, the ratio of expenses to average net assets for the Fund would
have been 1.78%.
<PAGE>
______________________________________________
INVESTMENT PERFORMANCE
Total return is the change in value over a given period for a continuous
shareholder, assuming reinvestment of dividends and capital gains
From time to time, 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 and assumes
redemption at the end of the 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. Both rates of return assume the
reinvestment of all net investment income dividends and capital gains
distributions . The figures do not reflect the Fund's early redemption fee
because it applies only to redemptions in accounts open for less than one
year.
The Fund's average annual total return for the periods ended December 31,
1995 were:
One Year Since Inception*
16.2% 8.9%
*August 1, 1994
______________________________________________
INVESTMENT OBJECTIVES
The REvest Growth & Income Fund primarily seeks long-term growth and
secondarily current income by investing in a broadly diversified portfolio
of common stocks and convertible securities of small and medium-sized
companies viewed by the Fund's investment adviser as having attractive
financial characteristics and/or growth prospects and selected on a value
basis. Since certain risks are inherent in owning any security, there can
be no assurance that the Fund will achieve its objectives.
The investment objectives of primarily long-term growth and secondarily
current income are fundamental and may not be changed without the approval
of a majority of the Fund's 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
Royce, Ebright & Associates, Inc. ("RE&A"), the Fund's investment adviser,
uses a "value" method in managing the Fund's assets. In its selection
process, RE&A considers a company's cash flows, its balance sheet quality,
an understanding of various internal returns indicative of profitability
and its growth prospects in trying to relate such factors to the price of a
given security. With regard to each portfolio security, RE&A seeks to
identify a "valuation discrepancy" between the security's price and its
value, based on an appraisal of its financial characteristics and/or growth
prospects. The portfolio, therefore, is a collection of securities that
RE&A believes have all been purchased at a discount to their real
"business worth". RE&A be-lieves that profits can come both from the
continued success and growth of each portfolio company as well as the
eventual elimination of each security's valuation discrepancy.
The Fund invests primarily in small and medium-sized companies
The Fund invests primarily in small and medium-sized companies. RE&A
believes that there are many high quality companies in the "small-cap" and
"mid-cap" sectors that have above average growth prospects but are not
widely followed or understood by investors. RE&A seeks to identify and
invest in such companies when their securities can be purchased at
appropriate discounts to RE&A's assessment of their "business worth".
In accordance with its objectives of seeking primarily long-term growth
(realized and unrealized) and secondarily current income, the Fund will
normally invest at least 90% of its assets in common stocks, convertible
preferred stocks and convertible bonds. At least 80% of these securities
will be income-producing, and 80% of these securities will be issued by
companies with stock market capitalizations between $200,000,000 and
$2,000,000,000 at the
<PAGE>
time of investment. The Fund will normally have a weighted average
market capitalization size in excess of $500,000,000. The remainder of
the Fund's assets may be invested in securities with lower or higher
market capitalizations, non-dividend paying common stocks and non-
convertible fixed income securities. The securities in which the Fund
invests may be traded on securities exchanges or in the over-the-counter
market. While most of the Fund's securities will be income-producing, the
composite yield of the Fund's securities may be either higher or lower
than the composite yield of the stocks in the S & P 500 Index.
______________________________________________
INVESTMENT RISKS
The Fund is subject to certain investment risks
As a mutual fund investing primarily in common stocks and/or securities
convertible into common stocks, the Fund is subject to market risk, that
is, the possibility that common stock prices will decline over short or
even extended periods. The Fund may invest in securities of companies that
are not well-known to the investing public, may not have significant
institutional ownership and may have cyclical, static or only moderate
growth prospects. The stocks of such companies may be more volatile in
price and have lower trading volumes than the larger capitalization stocks
included in the S&P 500 Index. Accordingly, RE&A's investment method
requires a long-term investment horizon. The Fund should not be used to
play short-term swings in the market.
______________________________________________
INVESTMENT LIMITATIONS
The Fund has adopted a number of fundamental policies
The Fund has adopted a number of fundamental policies, 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 policies 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.
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.
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
defensive investment policy, its investment objectives may not be achieved.
Foreign securities
The Fund may invest up to 5% of its net assets in debt and/or equity
securities of foreign issuers. Foreign investments involve certain risks,
such as political or economic instability of the issuer or of the country
of issue, fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to greater
fluctuations in price than the securities of U.S. corporations, and there
may be less publicly available information about their operations. Foreign
companies may not be subject to accounting standards or governmental
<PAGE>
supervision comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors such as the Fund.
Lower-rated debt securities
The Fund may also invest no more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities, which are below investment
grade. The Fund does not expect to invest in non-convertible debt
securities that are rated lower than Caa by Moody's Investors Service, Inc.
or CCC by Standard & Poor's Corporation or, if unrated, determined to be of
comparable quality.
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.
______________________________________________
MANAGEMENT OF THE TRUST
Royce, Ebright & Associates, Inc. is responsible for the management of the
Fund's portfolio
The Trust's business and affairs are managed under the direction of its
Board of Trustees. Royce, Ebright & Associates, Inc. (RE&A), the Fund's
investment adviser, is responsible for the management of the Fund's
portfolio, subject to the authority of the Board of Trustees. RE&A was
organized in June 1994, and became the Fund's investment adviser on August
1, 1994, when the Fund commenced operations. Thomas R. Ebright is the
President and Treasurer, a director and the principal shareholder of RE&A.
He is also a Vice President and member of the senior investment staff of
Quest Advisory Corp. ("Quest"), the investment adviser for the Trust's
eight other series. Charles M. Royce, President, Secretary, Treasurer and
sole director and sole voting shareholder of Quest, and a trust for various
members of his family are shareholders of RE&A. The Fund's portfolio is
managed by Mr. Ebright, who is solely responsible for RE&A's investment
management activities.
As compensation for its services to the Fund, RE&A is entitled to receive
annual advisory fees of 1% of the Fund's average net assets. These fees are
payable monthly from the assets of the Fund and are higher than those paid
by other funds with similar investment objectives. For 1995, the fees paid
to RE&A by the Fund were 1.00% of its average net assets.
Brokerage Allocation
RE&A selects the brokers who execute the purchases and sales of the Fund's
portfolio securities and may place orders with brokers who provide
brokerage and research services to RE&A. RE&A is authorized, in
recognition of the value of brokerage and research services provided, to
pay commissions to a broker in excess of the amounts which another broker
might have charged for the same transaction.
Distribution
Quest Distributors, Inc. ("QDI"), which is wholly-owned by Charles M.
Royce, acts as distributor of the Fund's shares.
______________________________________________
SIZE LIMITATIONS
If the Fund's assets total $350,000,000 or more on December 31 of any year,
then the Fund will, commencing on March 1 of the next year, cease selling
shares to any new investors and will not resume selling its shares to new
investors unless and until its assets total $250,000,000 or less on the
last day of any subsequent calendar quarter, in which case it may resume
sales to new investors on the first day of the next calendar quarter and
continue them subject to the $350,000,000 limitation. In addition, prior
to August 1, 1997, shares of the Fund may be offered and sold only to
investors who are customers of certain broker-dealers or clients of certain
investment advisors that have been pre-approved by QDI and to certain other
classes of investors. These limitations will cause the Fund's ratio of
total operating expenses to average net assets to be higher than it would
be in their absence.
<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. 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 the securities, cash and other assets of the Fund is
State Street Bank and Trust Company. State Street, through its agent
National Financial Data Services ("NFDS"), also serves as the Fund's
Transfer Agent. Coopers & Lybrand L.L.P. serves as independent accountants
for the Fund
______________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends are paid quarterly and capital gain distributions are made in
December
The Fund pays dividends from net investment income quarterly 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 will 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 as
long-term capital gains, regardless of how long the shareholder has held
Fund shares. If a shareholder disposes of shares held for six months or
less at a loss, such loss will be treated as a long-term capital loss to
the extent of any long-term capital gains reported by the shareholder with
respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize
a capital gain or capital loss. The Fund will report to redeeming
shareholders the proceeds of their redemptions. However, because the tax
consequences of a redemption will also depend on the shareholder's basis in
the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a
redemption.
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.
<PAGE>
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.
The 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.
______________________________________________
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND PURCHASING SHARES
The Fund's shares are offered on a no-load basis. To open a new account
other than an IRA or 403(b)(7) account, either by mail, by telephone, by
wire or through broker-dealers, simply complete and return the Account
Application. Separate forms must be used for opening IRA's or 403(b)(7)
accounts; please call Investor Information at 1-800-221-4268 if you need
these forms. Please indicate the amount you wish to invest. Your initial
purchase must be at least $10,000, except for IRA's and accounts
establishing an Automatic Investment Plan, which have $500 minimums. If
you need assistance with the Account Application Form or have any questions
about the Fund, please call Investor Information at 1-800-221-4268.
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 Form
NEW ACCOUNT
Please include the amount of your initial investment on the Application
Form, make your check payable to The REvest Growth & Income Fund, and mail
to:
The Royce Funds
P.O. Box 419012
Kansas City, MO 64141-6012
<PAGE>
For express or registered mail, send to:
The Royce Funds
c/o National Financial Data Services
1004 Baltimore, 5th Floor
Kansas City, MO 64105
ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
Additional investments should include the Invest-by-Mail remittance form
attached to your Fund confirmation statements. Please make your check
payable to The REvest Growth & Income Fund, write your account number on
your check and, using the return envelope provided, mail to the address
indicated on the Invest-by-Mail form.
All written requests should be mailed to one of the addresses indicated for
new accounts.
___________________
Purchasing By Telephone:
To open an account by telephone, you should call Investor Information (1-
800-221-4268) before 4:00 p.m., Eastern time. You will be given a
confirming order number for your purchase. This number must be placed on
your completed Application before mailing. If a completed and signed
Application is not received on an account opened by telephone, the account
may be subject to backup withholding of Federal income taxes.
Subsequent telephone purchases ($500 minimum) may also be made by calling
Investor Information. For all telephone purchases, payment is due within
three business days and may be made by wire or personal, business or bank
check, subject to collection.
___________________
Purchasing By Wire:
Before Wiring: - For a new account, please contact Investor Services at 1-
800-221-4268.
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: The REvest Growth & Income 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, complete the Account Application Form and mail it to the
"New Account" address above after completing your wire arrangement. Note:
Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
___________________
Purchasing By Express Service:
You can purchase shares automatically or at your discretion through the
following options:
Expedited Purchase Option permits you, at your discretion, to transfer
funds ($100 minimum and $200,000 maximum) from your bank account to
purchase shares in your Royce Fund account by telephone.
Automatic Investment Plan allows you to make regular, automatic transfers
($50 minimum) from your bank account to purchase shares in your Royce Fund
account on the monthly schedule you select.
To establish the Expedited Purchase Option and/or Automatic Investment
Plan, please provide the appropriate information on the Account Application
Form and attach a voided check. We will send you a confirmation of Express
Service activation. Please wait three weeks before using the service.
To make an Expedited Purchase, please call Shareholder Services at 1-800-
841-1180 before 4:00 p.m., Eastern time.
<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 (Automated Clearing House)
available to its employees. You may terminate participation in these
programs by giving written notice to your employer or government agency, as
appropriate. The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial
institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for
Direct Deposit form, which may be obtained from Investor Information by
calling 1-800-221-4268.
______________________________________________
CHOOSING A DISTRIBUTION OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option--Both net investment income 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 Form. If
you want to add 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, you may incur an expense to replace it.
Broker/Dealer Purchases
If you purchase Fund shares through a registered broker-dealer or
investment adviser, the broker-dealer or adviser may charge a service fee.
Telephone Transactions
Neither the Fund nor its transfer agent will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The transfer agent uses certain procedures 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
instructions.
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
<PAGE>
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 share purchases are credited to your
account. 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
Requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012,
Kansas City, MO 64141-6012. (For express or registered mail, send your
request to The Royce Funds, c/o National Financial Data Services, 1004
Baltimore, 5th Floor, Kansas City, MO 64105.) The redemption price of
shares will be their net asset value next determined after NFDS has
received all required documents in Good Order.
Definition of Good Order
Good Order means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the
account.
4. Signature guarantees if the value of the shares being redeemed exceeds
$50,000 or if the payment is to be sent to an address other than the
address of record or is to be made to a payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the
case of retirement plans, corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as it pertains to your
request, please call Shareholder Services at 1-800-841-1180.
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
<PAGE>
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 Form 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.
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 and is used to offset the costs
associated with redemptions. No redemption fee will be payable on an
exchange into another Royce fund or by shareholders who are (a) employees
or representatives of the Trust or RE&A 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, or (d) 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.
<PAGE>
EXCHANGE PRIVILEGE
Exchanges between series of the Trust and with other open-end Royce funds
are permitted by telephone or by mail. An exchange is treated as a
redemption and purchase; therefore, you could realize a taxable gain or
loss on the transaction. Exchanges are accepted only if the registrations
and the tax identification numbers of the two accounts are identical.
Minimum investment requirements must be met when opening a new account by
exchange, and exchanges may be made only for shares of a series or fund
then offering its shares for sale in your state of residence. The Trust
reserves the right to revise or terminate the exchange privilege at any
time.
TRANSFERRING OWNERSHIP
You may transfer the ownership of any of your Fund shares to another person
by writing to: The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City,
MO 64141-6012. The request must be in Good Order (see "Redeeming Your
Shares - Definition of Good Order"). Before mailing your request, please
contact Shareholder Services (1-800-841-1180) for full instructions.
OTHER SERVICES
For more information about any of these services, please call Investor
Information at 1-800-221-4268.
Statements and Reports
A statement will be sent to you each time you have a transaction in your
account and at year-end. Financial reports will be mailed semi-annually.
To reduce expenses, only one copy of most shareholder reports may be
mailed to a household. Please call Investor Information if you need
additional copies.
Tax-Sheltered Retirement 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 Trust only after an investor has
consulted with a tax adviser or attorney. Information about the plans and
the appropriate forms may be obtained from Investor Information at
1-800-221-4268.
The Royce Fund
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
Investment Adviser
Royce, Ebright & Associates, Inc.
Thomas R. Ebright, President
50 Portland Pier
Portland, ME 04101
Distributor
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and Treasurer
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Asst. Secretary
Susan I. Grant, Secretary
<PAGE>
[Full page graphic of the reverse side of 30 dollar coins
arranged in a 6 x 5 rectangle.]
<PAGE>
Royce, Ebright & Associates, Inc.
Investment Adviser
50 Portland Pier
Portland, ME 04101-4721
(207) 774-7455 (800) 277-5573
Fax (207) 772-7370
REvest
GROWTH & INCOME FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(800) 221-4268
A SERIES OF THE ROYCE FUND
<PAGE>
The REvest Growth & Income Fund
STATEMENT OF ADDITIONAL INFORMATION
The REvest Growth & Income Fund (the "Fund") is one of nine
professionally-managed portfolios or series of THE ROYCE FUND (the
"Trust"), a Massachusetts business trust and an open-end registered
investment company. Each series has distinct investment
objectives, policies and/or bases for investing, and a
shareholder's interest is limited to the series in which the
shareholder owns shares. The nine series are:
Royce Value Fund
Royce Premier Fund
Royce Equity Income Fund
Royce Micro-Cap Fund
Royce Low-Priced Stock Fund
Royce Total Return Fund
Royce Global Services Fund
Royce GiftShares Fund
The REvest Growth & Income Fund
This Statement of Additional Information relates only to the
Fund. The other series are covered by their own separate Statement
of Additional Information.
The Fund is designed for long-term investors, including those
who wish to use its shares 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
Prospectus for the Fund (dated February 27, 1996). Please retain
this document for future reference. The audited financial
statements included in the Annual Report to Shareholders of the
Fund for the fiscal period ended December 31, 1995 are incorporated
herein by reference. To obtain an additional copy of the Fund's
Prospectus or Annual Report or a copy of the Prospectus or Annual
Report to Shareholders for any of the Trust's other series, please
call Investor Information at 1-800-221-4268.
Investment Adviser Transfer Agent
Royce, Ebright and Associates, Inc. ("RE&A")
State Street Bank and Trust Company
c/o National Financial Data Services
Distributor Custodian
Quest Distributors, Inc. ("QDI") State Street Bank and Trust Company
February 27, 1996
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS. . . . . . . . . . . . . . 2
RISK FACTORS AND SPECIAL CONSIDERATIONS. . . . . . . . . . . . 3
MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . 7
PRINCIPAL HOLDERS OF SHARES. . . . . . . . . . . . . . . . . . 8
INVESTMENT ADVISORY SERVICES . . . . . . . . . . . . . . . . . 9
DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . 10
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . 11
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 11
PRICING OF SHARES BEING OFFERED. . . . . . . . . . . . . . . . 12
REDEMPTIONS IN KIND. . . . . . . . . . . . . . . . . . . . . . 12
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DESCRIPTION OF THE TRUST . . . . . . . . . . . . . . . . . . . 15
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement
those set forth in the Fund's Prospectus. Unless otherwise noted,
whenever an investment policy or limitation states a maximum
percentage of the 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.
The 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 the Fund.
The Fund may not, as a matter of fundamental policy:
1. Issue any senior securities;
2. Purchase securities on margin or write call options
on its portfolio securities;
3. Sell securities short;
4. Borrow money, except from banks as a temporary
measure for extraordinary or emergency purposes in
an amount not exceeding 5% of its total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 5% of its total assets in the
securities of foreign issuers;
7. Invest in restricted securities or in repurchase
agreements which mature in more than seven days;
8. Invest more than 10% of its assets in securities
without readily available market quotations (i.e.,
illiquid securities);
9. Invest, with respect to 75% of its total assets,
more than 5% of its assets in the securities of any
one issuer (except U.S. Government securities);
10. Invest more than 25% of its assets in any one industry;
11. Acquire more than 10% of the outstanding voting
securities of any one issuer;
12. Purchase or sell real estate or real estate
mortgage loans or invest in the securities of real
estate companies unless such securities are
publicly-traded;
13. Purchase or sell commodities or commodity
contracts;
<PAGE>
14. Make loans, except for purchases of portions of
issues of publicly-distributed bonds, debentures
and other securities, whether or not such purchases
are made upon the original issuance of such
securities, and except that the Fund may loan up to
5% of its 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; or
18. Purchase any warrants, rights or options, except
that the Fund may, if no value is assigned thereto,
acquire warrants in units with or attached to debt
securities or non-convertible preferred stock.
The Fund may not, 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Fund's Rights as Stockholder
As noted above, the Fund may not invest in a company for the
purpose of exercising control of management. However, the 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 RE&A 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 the 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 the Fund could be involved in lawsuits related to
such activities. RE&A will monitor such activities with a view to
mitigating, to the
<PAGE>
extent possible, the risk of litigation against the Fund and the
risk of actual liability if the Fund is involved in litigation.
However, no guarantee can be made that litigation against the Fund
will not be undertaken or liabilities incurred.
The 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 RE&A
and the Trust's Board of Trustees determine this to be in the best
interests of the Fund's shareholders.
Securities Lending
The Fund may lend up to 5% of its 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 Fund's custodian and
who are deemed by it to be of good standing. Furthermore, such
loans will be made only if, in RE&A's judgment, the consideration
to be earned from such loans would justify the risk.
RE&A understands that it is the current view of the staff of
the Securities and Exchange Commission that the 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
The Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated
from Ba to Ca by Moody's Investors Service, Inc. or from BB to D by
Standard & Poor's Corporation or may be unrated. These securities
have poor protection with respect to the payment of interest and
repayment of principal and may be in default as to the payment of
principal or interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due
to changes in the issuer's capacity to pay. The market prices of
lower-rated (high-risk) debt securities may fluctuate more than
those of higher-rated debt securities and may decline significantly
in periods of general economic difficulty, which may follow periods
of rising interest rates.
While the market for lower-rated (high-risk) corporate debt
securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic increase
in the use of such securities to fund highly leveraged corporate
acquisitions and restructurings. Past experience may not provide
an accurate indication of the future performance of the high-
yield/high-risk bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-
rated (high-risk) debt securities that defaulted rose significantly
above prior levels.
The market for lower-rated (high-risk) debt securities may be
thinner and less active than that for higher-rated debt securities,
which can adversely affect the prices at which the former are sold.
If market
<PAGE>
quotations cease to be readily available for a lower- rated
(high-risk) debt security in which the 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 the 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, RE&A's research and credit analysis may play
an important part in managing securities of this type for the Fund.
In considering such investments for the Fund, RE&A 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. RE&A'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
The Fund may invest up to 5% of its total assets in the
securities of foreign issuers. Foreign investments can involve
significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in or indexed to
foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can
be highly volatile. Many foreign countries lack uniform accounting
and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable
information regarding an issuer's financial condition and
operations. In addition, the costs of foreign investing, including
withholding taxes, brokerage commissions and custodial costs, are
generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than
U.S. markets. Foreign issuers, brokers and securities markets may
be subject to less government supervision. Foreign security
trading practices, including those involving the release of assets
in advance of payment, may involve increased risks in the event of
a failed trade or the insolvency of a broker-dealer, and may
involve substantial delays. It may also be difficult to enforce
legal rights in foreign countries.
Investing abroad also involves different political and
economic risks. Foreign investments may be affected by actions of
foreign governments adverse to the interests of U.S. investors,
including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars or other government intervention. There may be a greater
possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic or social
instability, military action or unrest or adverse diplomatic
developments. There is no assurance that RE&A will be able to
anticipate these potential events or counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may have
relatively unstable governments, economies based on only a few
industries and securities markets that trade a small number of
securities.
American Depositary Receipts (ADRs) are certificates held in
trust by a bank or similar financial institution evidencing
ownership of shares of a foreign-based issuer. Designed for use in
U.S. securities
<PAGE>
markets, ADRs are alternatives to the purchase of the underlying
foreign securities in their national markets and currencies.
ADR facilities may be established as either unsponsored or
sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the
practices of market participants. A depository may establish an
unsponsored facility without participation by (or even necessarily
the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-
objection from such issuer prior to the establishment of the
facility. Holders of unsponsored ADRs generally bear all the costs
of such facilities. The depository usually charges fees upon the
deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash
distributions and the performance of other services. The
depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities.
Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depository.
The deposit agreement sets out the rights and responsibilities of
the issuer, the depository and the ADR holders. With sponsored
facilities, the issuer of the deposited securities generally will
bear some of the costs relating to the facility (such as deposit
and withdrawal fees). Under the terms of most sponsored
arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions and to provide
shareholder communications and other information to the ADR holders
at the request of the issuer of the deposited securities.
Repurchase Agreements
In a repurchase agreement, the 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 Fund 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.
Portfolio Turnover
The Fund will not trade in securities for short-term profits,
but, when circumstances warrant, securities may be sold without
regard to the length of time held. For the year ended December 31,
1995 and the period from August 1, 1994 (commencement of
operations) through December 31, 1994, the Fund's portfolio
turnover rates were 53% and 5%, respectively. The Fund's portfolio
turnover rate for 1994, its start-up period, was low because the
Fund was establishing a portfolio. Higher portfolio turnover rates
will increase the Fund's transaction costs, including brokerage
commissions.
* * *
<PAGE>
RE&A believes that the Fund is suitable for investment only by
persons 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:
Name and Address Position Held Principal Occupations During Past 5 Years
with the Trust
Charles M. Royce* (56)Trustee, President, Secretary, Treasurer and sole
1414 Avenue of the President and director and sole voting shareholder of
Americas Treasurer Quest Advisory Corp. ("Quest"), the
New York, NY 10019 investment adviser for the Trust's
other series; 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 (56) 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.
David L. Meister (56) Trustee Consultant to the communications
111 Marquez Place industry since January 1993; Executive
Pacific Palisades, CA 90272 officer of Digital Planet Inc. from
April 1991 to December 1992; and
consultant to the communications and
television industry from August 1990 to
April 1991.
<PAGE>
Name and Address Position Held Principal Occupations During Past 5 Years
with the Trust
Vice President
Jack E. Fockler, Jr.* (37) Vice President (since August 1993) and
1414 Avenue of the Americas senior associate of Quest, having been
New York, NY 10019 employed by Quest since October 1989;
Vice President of the Trust, PMF, RVT
and OTCM since April 1995; Vice
President of QDI since November 1995;
and general partner of QMC since July
1993.
Vice President
W. Whitney George* (37) Vice President (since August 1993) and
1414 Avenue of the Americas senior analyst of Quest, having been
New York, NY 10019 employed by Quest since October 1991;
Vice President of the Trust, PMF, RVT
and OTCM since April 1995; and general
partner of QMC since January 1992.
Daniel A. O'Byrne* (34) Vice President of Quest since May
1414 Avenue of the Americas 1994, having been employed by Quest
New York, NY 10019 since October 1986; Vice President of
Vice President the Trust, PMF, RVT and OTCM since July
and 1994.
Assistant
Secretary
Susan I. Grant* (42) Secretary Senior Counsel and Chief Compliance
1414 Avenue of the Americas Officer of Quest and Secretary of the
New York, NY 10019 Trust, PMF, RVT and OTCM since August
1994; 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 Fund and for conducting post-audit
reviews of its financial condition with such auditors.
For the year ended December 31, 1995, 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:
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 February 20, 1996, the following persons were known to
the Trust to be the beneficial owners of 5% or more of the
outstanding shares of the Fund:
<PAGE>
Number Type of Percentage of
Name and Address of Shares Ownership Outstanding Shares
The Carlisle Companies 377,693 Beneficial 12.0%
Defined Benefit Retirement Plan
250 South Clinton Street
Suite 201
Syracuse, NY 13202
AZ Ritzman Associates 254,584 Beneficial 8.1%
Profit Sharing Trust
1714 North Second Street
Harrisburg, PA 17102
Jackson Clinic PA 167,211 Beneficial 5.3%
Restated Money Purchase Plan
111 Highway 70 East
Dickson, TN 30755
As of such date, all of the trustees and officers of the Trust
as a group owned approximately 0.3% of the Fund's outstanding
shares, and all of the directors, officers and employees of the
Fund's investment adviser owned approximately 2.4% of the Fund's
outstanding shares.
INVESTMENT ADVISORY SERVICES
Services Provided by RE&A
As compensation for its services under the Investment Advisory
Agreement for the Fund, RE&A is entitled to receive 1.00% per annum
of the Fund's average net assets. Such fees, which are payable
monthly from the assets of the Fund, are higher than those paid by
most other mutual funds with similar investment objectives.
Under the Investment Advisory Agreement, RE&A (i) determines
the composition of the 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 the 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 Agreement.
The Trust pays all administrative and other costs and expenses
attributable to its operations and transactions, including, without
limitation, transfer agent and custodian fees; legal,
administrative and clerical services; rent for its office space and
facilities; auditing; preparation, printing and distribution of its
prospectuses, 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.
<PAGE>
For the year ended December 31, 1995 and the period from
August 1, 1994 (commencement of operations) through December 31,
1994, RE&A received advisory fees from the Fund of $320,761 and
$34,925 (net of $19,821 waived by RE&A), respectively.
Portfolio Management
The Fund's portfolio is managed by Thomas R. Ebright, who is
solely responsible for its investment management activity. Mr.
Ebright is President, Treasurer and a director and principal
shareholder of RE&A; a Vice President of Quest; a trustee/director
of PMF, RVT and, since September 1993, OTCM; Vice President since
November 1995 (President until October 1995) and Treasurer of QDI;
general partner of QMC and its predecessor until 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. In the event
Mr. Ebright is unable to carry out his responsibilities, the
Trust's Board of Trustees will consider what action should be taken
in connection with the management of the Fund's portfolio.
Neither Quest nor any of its directors, officers or employees,
as such, furnishes any investment advice to the Fund or to RE&A.
Limitation on Fund Expenses
RE&A has agreed, in connection with the Trust's qualification
of the Fund's shares for sale in California, to reduce its
investment advisory fee for the Fund monthly to the extent that the
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 the 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 the 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").
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the
custodian for the securities, cash and other assets of the Fund and
the transfer agent and dividend disbursing agent for the Fund's
shares, but it does not participate in the 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 the 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.
<PAGE>
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
RE&A is responsible for selecting the brokers who, as agents
for the Fund, effect the purchases and sales of the Fund's
portfolio securities. No broker is selected to effect a securities
transaction for the Fund unless such broker is believed by RE&A 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, RE&A 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. RE&A 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 RE&A upon the brokerage and/or research services
provided by such broker.
RE&A is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement
for the Fund, 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.
RE&A may also place the 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 the
Fund's brokerage business be placed with QDI.
RE&A's purchase and sale orders for the Fund's portfolio
securities are generally placed with broker-dealers through Quest,
and RE&A is obligated to reimburse Quest for any additional out-of-
pocket costs and expenses incurred by Quest in rendering this
service.
Even though investment decisions for the Fund are made by RE&A
independently from those made by Quest and/or QMC for their managed
accounts, securities of the same issuer may be purchased, held or
sold by more than one of such accounts. When the Fund and one or
more of the Quest and/or QMC managed 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 by Quest to be equitable to each. In
some cases, this procedures may adversely affect the price paid or
received by the Fund or the size of the position obtainable for the
Fund.
For the year ended December 31, 1995 and the period from
August 1, 1994 (commencement of operations) through December 31,
1994, the Fund paid brokerage commissions of $120,862 and $64,624,
respectively. For the same periods, the aggregate amounts of
brokerage transactions of the Fund having a research component were
$23,404,622 and $12,725,137, respectively, and the amounts of
commissions paid by the Fund for such transactions were $87,718 and
$50,469, respectively.
The Fund did not acquire any securities of its regular brokers
and dealers, as defined in the 1940 Act, or of their parents,
during the year ended December 31, 1995.
<PAGE>
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of the Fund's shares is
based on its current net asset value per share. See "Net Asset
Value Per Share" in the Fund's Prospectus.
As set forth under "Net Asset Value Per Share," the Fund's
custodian determines the net asset value per Fund share 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, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which
would, in the judgment of the Board of Trustees or management, make
it undesirable for the 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
The 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, the 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, the 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.
If the Fund were to be unable to satisfy the 90% distribution
requirement or otherwise were to fail to qualify as a RIC in any
year, the Fund would be subject to tax in such year on all of its
taxable income, whether or not the Fund made any distributions to
stockholders. To qualify again as a RIC in a subsequent year, the
Fund would be required to distribute to shareholders as an ordinary
income dividend, its earnings and profits attributable to non-RIC
years (less any interest charge hereinafter described), and also
would be required to pay to the Internal Revenue Service ("IRS") an
interest charge on 50% of such earnings and profits. In addition,
if the Fund failed to qualify as a RIC for a period greater than
one taxable year, then, except as provided in regulations to be
promulgated, the Fund would be required to recognize and pay tax on
any net built-in gains (the excess of aggregate gains, including
items of income, over aggregate losses that would have been
realized if the Fund had been liquidated) in order to qualify as a
RIC in a subsequent year.
A non-deductible 4% excise tax will be imposed on the Fund to
the extent that it 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
<PAGE>
October 31 of such calendar year (or the Fund's actual taxable year
ending December 31, if elected) and (iii) certain other amounts not
distributed in previous years. To avoid the application of this tax,
the Fund will endeavor to distribute substantially all of its
ordinary income and capital gain net income during the calendar year
in which such income is earned and such gains are recognized.
The 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 the 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 the Fund's
investments in foreign securities, such regulations could restrict
the 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 the 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 the Fund's cash available for
distribution to shareholders. It is currently anticipated that the
Fund will not be eligible to elect to "pass through" such taxes to
its shareholders for purposes of enabling them to claim foreign tax
credits or other U.S. income tax benefits with respect to such
taxes.
If the Fund invests in stock of a so-called passive foreign
investment company ("PFIC"), it may be subject to Federal income
tax on a portion of any "excess distribution" with respect to, or
gain from the disposition of, such stock. The tax would be
determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The amount so
allocated to any taxable year of the Fund prior to the taxable year
in which the excess distribution or disposition occurs would be
taxed to the Fund at the highest marginal income tax rate in effect
for such years, and the tax would be further increased by an
interest charge. The amount allocated to the taxable year of the
distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be
taxable to the Fund to the extent distributed by the Fund as a
dividend to shareholders.
The Fund may be able to make an election, in lieu of being
taxable in the manner described above, 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. The Fund may make either of these elections with
respect to its investments (if any) in PFICs.
Investments of the 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, if the Fund were to acquire
securities issued at a discount, the Fund would 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.
<PAGE>
Distributions
For Federal income tax purposes, distributions by the 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 or long-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 and to an amount so designated by the
Fund. 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 the Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement,
distributions by the 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 includible in income, currently are
taxed at a lower maximum marginal Federal income tax rate than
ordinary income.
Distributions by the Fund in excess of its current and
accumulated earnings and profits will reduce a shareholder's basis
in Fund shares (and, to that extent, will not be taxable) and, to
the extent such distributions exceed the shareholder's basis, will
be taxable as capital gain assuming the shareholder holds Fund
shares as capital assets.
A distribution will be treated as paid during a calendar year
if it is declared in October, November or December of the year to
shareholders of record in such month and paid by January 31 of the
following year. Such distributions will be taxable to such
shareholders as if received by them on December 31, even if not
paid to them until January. In addition, certain other
distributions made after the close of a taxable year of the 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
distributions would be taxable to the shareholders in the taxable
year in which they were 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.
<PAGE>
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 consequences to them
of investing in the Fund.
Timing of Purchases and Distributions
At the time of an investor's purchase, the Fund's net asset
value may reflect undistributed income or capital gains or net
unrealized appreciation of securities held by the Fund. A
subsequent distribution to the investor of such amounts, although
it may in effect constitute a return of his or its investment in an
economic sense, would be taxable to the shareholder as ordinary
income or capital gain as described above. Investors should
carefully consider the tax consequences of purchasing Fund shares
just prior to a distribution as they will receive a distribution
that is taxable to them.
Sales or Redemptions of Shares
Gain or loss recognized by a shareholder upon the sale,
redemption or other taxable disposition of Fund shares (provided
that such shares are held by the shareholder as a capital asset)
will be treated as capital gain or loss, measured by the difference
between the adjusted basis of the shares and the amount realized on
the sale or exchange. Such gain or loss will be long-term capital
gain or loss if the shares disposed of were held for more than one
year. A loss will be disallowed to the extent that the shares
disposed of are replaced (including by receiving shares upon the
reinvestment of distributions) within a period of 61 days,
beginning 30 days before and ending 30 days after the sale of the
shares. In such a case, the basis of the shares acquired will be
increased to reflect the disallowed loss. A loss recognized upon
the sale, redemption or other taxable disposition of shares held
for 6 months or less will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received
with respect to such shares.
* * *
The foregoing relates to Federal income taxation.
Distributions, as well as any gains from a sale, redemption or
other taxable disposition of Fund shares, also may be subject to
state and local taxes. Under current law, so long as the Fund
qualifies for the Federal income tax treatment described above, it
is believed that the Fund will not be liable for any corporate
excise 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. (The 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.
<PAGE>
Three of the four Trustees currently in office were elected by
the Trust's predecessor's stockholders. There will normally be no
meeting of shareholders for the election of Trustees until less
than a majority of such Trustees remain in office, at which time
the Trustees will call a shareholders' meeting for the election of
Trustees. In addition, Trustees may be removed from office by
written consents signed by the holders of a majority of the
outstanding shares of the Trust and filed with the Trust's
custodian or by a vote of the holders of a majority of the
outstanding shares of the Trust at a meeting duly called for this
purpose upon the written request of holders of at least 10% of the
Trust's outstanding shares. Upon the written request of 10 or more
shareholders of the Trust, who have been shareholders for at least
6 months and who hold shares constituting at least 1% of the
Trust's outstanding shares, stating that such shareholders wish to
communicate with the Trust's other shareholders for the purpose of
obtaining the necessary signatures to demand a meeting to consider
the removal of a Trustee, the Trust is required (at the expense of
the requesting shareholders) to provide a list of its shareholders
or to distribute appropriate materials. Except as provided above,
the Trustees may continue to hold office and appoint their
successors.
Shares are freely transferable, are entitled to distributions
as declared by the Trustees and, in liquidation of the Trust, are
entitled to receive net assets of their series. Shareholders have
no preemptive rights. The Trust's fiscal year ends on December 31.
Shareholder Liability
Under Massachusetts law, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally
liable for the obligations of the Trust. However, the Declaration
of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed
by the Trust or the Trustees. The Declaration of Trust provides
for indemnification out of a series' property for all losses and
expenses of any shareholder of that series held liable on account
of being or having been a shareholder. Thus, the risk of
shareholders incurring financial loss on account of shareholder
liability is limited to circumstances in which their particular
series was unable to meet its obligations.
PERFORMANCE DATA
The Fund's performance may be quoted in various ways. All
performance information supplied for the Fund is historical and is
not intended to indicate future returns. The Fund's share price
and total returns fluctuate in response to market conditions and
other factors, and the value of the Fund's shares when redeemed may
be more or less than their original cost.
Total Return Calculations
Total returns quoted reflect all aspects of the 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 the Fund's
<PAGE>
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, the Fund's
unaveraged or cumulative total return, 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 the Fund's total returns for the
periods indicated. Such total returns reflect all income earned by
the Fund, any appreciation or depreciation of its assets and all
expenses incurred by the Fund for the stated periods. The table
compares the Fund's total returns to the records of the Russell
2000 Index (Russell 2000) and the Standard & Poor's 500 Composite
Stock Price Index (S&P 500) over the same periods. The comparison
to the Russell 2000 shows how the Fund's 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 Fund's total returns
compared to the record of a broad average of common stock prices.
The Fund has the ability to invest in securities not included in
the indices, and its investment portfolio 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 Fund,
their returns do not include the effect of paying brokerage
commissions and other costs and expenses of investing in a mutual
fund.
Period Ended
December 31, 1995 Russell 2000 S&P 500
1 Year Total Return 16.2% 28.4% 37.5%
Average Annual Total Return since 8-1-94
(commencement of operations) 8.9% 3.3% 1.6%
During the year ended December 31, 1995, a hypothetical
$10,000 investment in the Fund would have grown to $11,283,
assuming all distributions were reinvested.
The Fund's performance may be compared in advertisements to
the performance of other mutual funds in general or to the
performance of particular types of mutual funds, especially those
with similar investment objectives. Such comparisons may be
expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. ("Lipper"), an independent service that monitors and
ranks the performance of registered investment companies. Money
market funds and municipal funds are not included in the Lipper
survey. The Lipper performance analysis ranks funds on the basis
of total return, assuming reinvestment of distributions, but does
not take sales charges or redemption fees payable by shareholders
into consideration and is prepared without regard to tax
consequences.
The Lipper Growth & Income Fund Index is an equally-weighted
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 S&P 500 Composite Stock Price Index is an unmanaged list
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 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 based on
price appreciation or depreciation and includes dividends.
RE&A may, from time to time, compare the performance of common
stocks, especially small and medium capitalization stocks, to the
performance of other forms of investment over periods of time.
From time to time, in reports and promotional literature, the
Fund's performance 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.
The Fund's performance may also be compared to those of other
compilations or indices.
Advertising for the Fund 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 Fund 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 $2,000 annual investment earning a taxable
return of 8% annually would have an after-tax value of $177,887
after thirty years, assuming tax was deducted from the return each
year at a 28% rate. An equivalent tax-deferred investment would
have a value of $244,692 after thirty years.
<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 Premier Fund
for the three years ended December 31, 1994
(audited), of Royce Equity Income Fund for the five
years ended December 31, 1994 (audited), of 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), 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) and of The REvest
Growth & Income Fund for the period from August 1,
1994 (commencement of operations) through December
31, 1994 (audited) and for the year ended December
31, 1995 (audited).
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
or, in the case of The REvest Growth & Income Fund, for the fiscal
year ended December 31, 1995, 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 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;
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
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 Equity Income Fund -- Schedule of Investments
at December 31, 1994;
Royce Equity Income Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Equity Income Fund -- Statement of Changes in
Net Assets for the years ended December 31, 1994
and 1993;
Royce Equity Income Fund -- Statement of Operations
for the year ended December 31, 1994;
Royce Equity Income Fund -- Financial Highlights
for the years ended December 31, 1994, 1993, 1992,
1991 and 1990;
Royce Equity Income Fund -- Notes to Financial
Statements -- Report of Independent Accountants
dated February 1, 1995;
Royce 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;
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Total Return Fund -- Schedule of Investments
at December 31, 1994;
Royce Total Return Fund -- Statement of Assets and
Liabilities at December 31, 1994;
Royce Total Return Fund -- Statement of Changes in
Net Assets for the year ended December 31, 1994 and
the period December 15, 1993 through December 31,
1993;
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).
The REvest Growth & Income Fund -- Schedule of
Investments at December 31, 1995;
The REvest Growth & Income Fund -- Statement of
Assets and Liabilities at December 31, 1995;
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
The REvest Growth & Income Fund -- Statement of
Changes in Net Assets for the year ended December
31, 1995 and for the period August 1, 1994 through
December 31, 1994;
The REvest Growth & Income Fund -- Statement of
Operations at December 31, 1995;
The REvest Growth & Income Fund -- Financial
Highlights for the year ended December 31, 1995 and
for the period August 1, 1994 through December 31,
1994;
The REvest Growth & Income Fund -- Notes to
Financial Statements -- Report of Independent
Accountants dated February 7, 1996.
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 (3), (6), (7),
(9) through (12) and (14) 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, 32, 33 and 34 thereto and are incorporated by
reference herein.
(11) Consent of Coopers & Lybrand L.L.P.
(16) Schedule For Computation Of Performance Quotations Provided
in Item 22.
(17) Financial Data Schedule.
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 January 31, 1996, the number of record holders of
shares of each Fund of the Registrant was as follows:
Title of Fund Number of Record
Holders
Royce Value Fund 8,160
Royce Premier Fund 12,353
<PAGE>
Item 26. Number of Holders of Securities (Continued)
Title of Fund Number of Record Holders
Royce Equity Income Fund 1,967
Royce Micro-Cap Fund 6,117
Royce Low-Priced Stock Fund 203
Royce Total Return Fund 41
Royce Global Services Fund 44
The REvest Growth and Income Fund 440
Royce GiftShares Fund 1
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 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:
<PAGE>
Item 27. Indemnification (Continued)
(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
(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).
<PAGE>
Item 27. Indemnification (Continued)
(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 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
<PAGE>
Item 27. Indemnification (Continued)
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 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.
<PAGE>
Item 27. Indemnification (Continued)
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 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
<PAGE>
Item 27. Indemnification (Continued)
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
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
<PAGE>
Item 31. Management Services (Continued)
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:
1995: $335,180
1994: $309,492
1993: $224,234
Item 32. Undertakings
Registrant hereby undertakes to file a post-effective
amendment for Royce GiftShares Fund, using financial statements
which need not be certified, within four to six months from the
effective date of Registrant's post-effective amendment to its
registration statement which created that series.
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.
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.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
(11) Consent of Coopers & Lybrand L.L.P. 49
(16) Schedule For Computation Of Performance 50
Quotations Provided in Item 22
(17) Financial Data Schedule 51
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of The Royce Fund and
Shareholders of The REvest Growth & Income Fund:
We hereby consent to the following with respect to Post-Effective
Amendment No. 35 to the Registration Statement on Form N-1A (File No.
2-80348) under the Securities Act of 1933, as amended, of The REvest
Growth & Income Fund, a series of The Royce Fund:
1. The inclusion of our report dated February 7, 1996 accompanying the
Annual Report of The REvest Growth & Income Fund for the year ended
December 31, 1995, in the Statement of Additional Information.
2. The reference to our firm under the heading "Independent
Accountants" in the Statement of Additional Information.
3. The reference to our firm under the headings "Financial Highlights"
and "General Information" in the Prospectus.
/s/ Coopers & Lybrand L.L. P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 26, 1996
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial
investment in The REvest Growth & Income Fund of the Trust by
applying the "Annual Total Return" and the "Average Annual Total
Return" percentages set forth in Item 22 of this Registration
Statement to the following total return formula:
P x ((1+T)to the nth power) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of the
1, 5 or 10 year or other periods at the end of
the 1, 5 or 10 year or other periods.
The REvest Growth & Income Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period
ended December 31, 1995:
$1,000 x ((1+ .1623)to the first power) = $1,162.30 ERV
(b) ERV of a $1,000 investment for the period from
the Fund's inception on August 1, 1994 through
December 31, 1995:
$1,000 x ((1+ .0889)to the 1.42 power) = $1,128.30 ERV
<PAGE>
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 33297684
[INVESTMENTS-AT-VALUE] 35823693
[RECEIVABLES] 87422
[ASSETS-OTHER] 2259
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 35913374
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 109493
[TOTAL-LIABILITIES] 109493
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 33274006
[SHARES-COMMON-STOCK] 3336
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (6056)
[ACCUMULATED-NET-GAINS] 6586
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2526009
[NET-ASSETS] 35803881
[DIVIDEND-INCOME] 807850
[INTEREST-INCOME] 153573
[OTHER-INCOME] 0
[EXPENSES-NET] 411360
[NET-INVESTMENT-INCOME] 550063
[REALIZED-GAINS-CURRENT] 1063263
<PAGE>
[APPREC-INCREASE-CURRENT] 3079868
[NET-CHANGE-FROM-OPS] 4693194
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 525810
[DISTRIBUTIONS-OF-GAINS] 1034263
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1147378
[NUMBER-OF-SHARES-REDEEMED] 204573
[SHARES-REINVESTED] 149814
[NET-CHANGE-IN-ASSETS] 14127541
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 320761
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 411360
[AVERAGE-NET-ASSETS] 31748908
[PER-SHARE-NAV-BEGIN] 9.66
[PER-SHARE-NII] 0.18
[PER-SHARE-GAIN-APPREC] 1.38
[PER-SHARE-DIVIDEND] 0.17
[PER-SHARE-DISTRIBUTIONS] 0.32
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.73
[EXPENSE-RATIO] 1.30
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268
February 27, 1996
Document Control: Filing Desk
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Royce Fund
File No.s 2-80348 & 811-3599
Gentlemen:
Enclosed herewith for filing under the Securities Act of 1933,
as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended (the "1940 Act"), is Post-Effective Amendment No.
35 under the 1933 Act and Amendment No. 36 under the 1940 Act to
the Registration Statement on Form N-1A of The Royce Fund (the
"Fund"), including exhibits, in connection with one series of the
Fund, The REvest Growth & Income Fund ("REvest"). The filing
indicates manual signatures and has been marked to reflect changes,
as described below.
The enclosed Amendment is being filed to become effective
immediately upon filing pursuant to paragraph (b) of Rule 485 under
the 1933 Act. The opinion required for filing under Rule 485(b) is
also enclosed.
The enclosed Amendment contains, among other documents, the
separate Prospectus and Statement of Additional Information for
REvest, which are marked to show changes from REvest's Prospectus
and Statement of Additional Information contained in Post-Effective
Amendment No. 31, which was filed with the Commission on February
7, 1995. All other changes marked are from the Fund's most recent
Post-Effective Amendment, Post-Effective Amendment No. 34, filed
with the Commission on November 22, 1995.
Any communications regarding this filing may be directed to
the undersigned.
Sincerely,
/s/ Susan I. Grant
Susan I. Grant
Secretary
SIG:am
C:\WPWIN\QUEST\ROYCE\N1A\PEA35.LTR
<PAGE>
