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As filed with the Securities and Exchange Commission on May 1, 1996.
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Registration No. 2-80348
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ______ [ ]
Post-Effective Amendment No. 36 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 37 [X]
(Check appropriate box or boxes)
THE ROYCE FUND
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(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 355-7311
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Charles M. Royce, President
The Royce Fund
1414 Avenue of the Americas, New York, New York 10019
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(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: 168
Index to Exhibits is located on page: 150
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CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
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Item of Form N-1A CAPTION or Location in Prospectus
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Part A
I. Cover Page.............................. Cover Page
II. Synopsis................................ FUND EXPENSES
III. Condensed Financial Information......... FINANCIAL HIGHLIGHTS
IV. General Description of Registrant....... INVESTMENT OBJECTIVES,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
SIZE LIMITATIONS***,
GENERAL INFORMATION
V. Management of the Fund.................. MANAGEMENT OF THE TRUST,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance...................... *
VI. Capital Stock and Other Securities. .... GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES, IMPORTANT ACCOUNT INFORMATION,
REDEEMING YOUR SHARES,
TRANSFERRING OWNERSHIP,
OTHER SERVICES
VII. Purchase of Securities Being
Offered ............................ 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............. *
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<CAPTION>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
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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..................... **
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* 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.
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THE ROYCE FUNDS
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ROYCE VALUE FUND
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PROSPECTUS -- APRIL 30, 1996
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NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-221-4268
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SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR
SERVICES -- 1-800-33-ROYCE
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INVESTMENT OBJECTIVE AND Royce Value Fund (the 'Fund') is a series of The Royce Fund (the 'Trust'), a diversified,
POLICIES open-end management investment company. Its investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective primarily through investments in
common stocks and securities convertible into common stocks of small companies selected on a
value basis. There can be no assurance that the Fund will achieve its objective.
The Trust is currently offering shares of nine series. This Prospectus relates to Royce Value
Fund only.
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ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information that you should know about the Fund
before you invest. It should be retained for future reference. A 'Statement of Additional
Information' containing further information about the Fund and the Trust has been filed with
the Securities and Exchange Commission. The Statement is dated April 30, 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.
If you are viewing the electronic version of this Prospectus through an online computer
service, you may request a printed version free of charge by calling Investor Information.
The E-mail address for The Royce Funds is [email protected] and the Internet Home Page
is http://www.roycefunds.com
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<TABLE>
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TABLE OF CONTENTS Page
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Fund Expenses..................................... 2
Financial Highlights.............................. 3
Fund Performance and Volatility................... 3
Investment Objective.............................. 4
Investment Policies............................... 5
Investment Risks.................................. 5
Investment Limitations............................ 5
Management of the Trust........................... 6
General Information............................... 7
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Page
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Dividends, Distributions and Taxes................ 8
Net Asset Value Per Share......................... 9
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.......... 9
Choosing a Distribution Option.................... 11
Important Account Information..................... 12
Redeeming Your Shares............................. 12
Exchange Privilege................................ 15
Transferring Ownership............................ 15
Other Services.................................... 15
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND EXPENSES The following table illustrates all expenses and fees that you would incur as a shareholder
of the Fund.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...................................................... None
Sales Load Imposed on Reinvested Dividends........................................... None
Deferred Sales Load.................................................................. None
Redemption Fee -- on purchases held for 1 year or more............................... None
Early Redemption Fee -- on purchases held for less than 1 year....................... 1%
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Annual Fund Operating Expenses
Management Fees..................................................................... .85%
12b-1 Fees (after waiver)........................................................... .63%
Other Expenses...................................................................... .28%
Total Operating Expenses............................................................ 1.76%
The purpose of the above table is to assist you in understanding the various costs and
expenses that you would bear directly or indirectly as an investor in the Fund. Management
fees would be .86%, 12b-1 fees would be 1% and total operating expenses would be 2.14%
without the waivers of management fees by Quest Advisory Corp. ('Quest'), the Fund's
investment adviser, and of 12b-1 fees by Quest Distributors, Inc. ('QDI'), the Fund's
distributor. See 'Management of the Trust -- Distribution.'
The following examples illustrate the expenses that you would incur on a $1,000 investment
over various periods, assuming a 5% annual rate of return and redemption at the end of each
period.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
$18 $55 $95 $207
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THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR
PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
Long-term shareholders of the Fund may pay more than the economic equivalent of the maximum
front-end sales charge of 6.25% of the amount invested permitted by the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
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FINANCIAL HIGHLIGHTS The following financial highlights are part of the Fund's financial statements and have been
(For a share out- audited by Coopers & Lybrand L.L.P., independent accountants. The Fund's financial statements
standing through- and Coopers & Lybrand L.L.P.'s reports on them are included in the Fund's Annual Reports to
out each year) Shareholders and are incorporated by reference into the Statement of Additional Information
and this Prospectus. Further information about the Fund's performance is contained elsewhere
in this Prospectus and in the Fund's Annual Report to Shareholders for 1995, which may be
obtained without charge by calling Investor Information.
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<CAPTION>
Year ended December 31,
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1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........ $9.11 $9.73 $9.51 $8.83 $6.96 $8.48 $7.99 $6.81 $8.33 $8.70
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INCOME FROM INVESTMENT OPERATIONS
Net investment income(a).............. 0.05 0.07 0.05 0.04 0.09 0.14 0.17 0.11 0.09 0.05
Net gains (losses) on securities (both
realized and unrealized)............ 1.65 (0.23) 0.97 1.37 2.05 (1.29) 1.10 1.49 (.02) 0.50
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total from Investment
Operations...................... 1.70 (0.16) 1.02 1.41 2.14 (1.15) 1.27 1.60 .07 0.55
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LESS DISTRIBUTIONS
Dividends (from net investment
income)............................. (0.05) (0.05) (0.05) (0.04) (0.09) (0.15) (0.18) (0.12) (0.17) (0.04)
Distributions (from capital gains).... (0.74) (0.41) (0.75) (0.69) (0.18) (0.22) (0.60) (0.30) (1.42) (0.88)
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
Total Distributions............... (0.79) (0.46) (0.80) (0.73) (0.27) (0.37) (0.78) (0.42) (1.59) (0.92)
------ ------ ------ ------ ------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.............. $10.02 $9.11 $9.73 $9.51 $8.83 $6.96 $8.48 $7.99 $6.81 $8.33
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TOTAL RETURN.............................. 18.7 % -1.6 % 10.7 % 16.0 % 30.8% -13.6 % 15.9 % 23.6 % 0.6 % 6.5 %
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RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (millions).... $ 167 $ 167 $ 186 $ 178 $ 167 $ 148 $ 193 $ 169 $ 140 $ 147
Ratio of Expenses to Average Net
Assets(b)........................... 1.76 % 1.80 % 1.84 % 1.88 % 1.69% 1.88 % 1.87 % 1.88 % 1.88 % 1.98 %
Ratio of Net Investment Income to
Average Net Assets.................. 0.46 % 0.67 % 0.43 % 0.42 % 1.00% 1.77 % 1.84 % 1.36 % 0.97 % .67 %
Portfolio Turnover Rate............... 14 % 22 % 31 % 28 % 25% 18 % 31 % 22 % 41 % 28 %
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(a) Net investment income is shown after waivers of fees by the investment
adviser and distributor. The per share effect of these waivers is $.04 for the
year ended December 31, 1995; $.03 for each of the years ended December 31,
1994, 1993 and 1992; and $.04 for the year ended December 31, 1991.
(b) Expense ratio before waiver of fees by the investment adviser and
distributor would have been 2.14%, 2.16%, 2.15%, 2.15% and 2.20% for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
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FUND From time to time, the Fund may include in communications to current or prospective
PERFORMANCE shareholders figures reflecting total return over various time periods. 'Total return' is the
AND VOLATILITY rate of return on an amount invested in the Fund from the beginning to the end of the stated
Total return is the period. 'Average annual total return' is the annual compounded percentage change in the value
change in value over a of an amount invested in the Fund from the beginning until the end of the stated period.
given time period,
assuming reinvestment of Total returns are historical measures of past performance and are not intended to indicate
dividends and capital future performance. Total returns assume the reinvestment of all net investment income
gains distributions dividends and capital gains distributions. The figures do not reflect the Fund's early
redemption fee because it applies only to redemptions of share purchases held for less than
one year.
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The S&P 500 is a widely recognized, unmanaged index of large company stocks. The S&P 500
figures below, which are presented for comparison to the Fund's performance, also assume the
reinvestment of all dividends paid by the stocks in the index.
The Fund's average annual total returns (%) for the periods ended December 31, were:
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<CAPTION>
1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C> <C>
18.7 -1.6 10.7 16.0 30.8
RVF Annual total return..................................
37.5 1.3 10.0 7.7 30.5
S&P 500 annual total return..............................
14.4 7.4 -- -- --
RVF 5 year average annual total return...................
10.0 10.8 -- -- --
RVF 10 year average annual total return..................
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'Risk' defined as the The relative risk of investing in a particular fund should be considered in addition to the
volatility of a fund's total returns of the fund. Risk, in terms of how volatile an investor's returns have been,
total returns over time can be measured in a number of ways, including standard deviation and beta.
Standard deviation measures the range of performance within which a fund's total returns have
fallen. The lower the standard deviation of the fund, the less volatile and more
consistent the fund's monthly total returns have been over that period. When the standard
deviation of a fund is lower than the standard deviation of an index such as the S&P 500,
the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If the fund has a beta greater than 1.00, it
has been more volatile than the index; if its beta is less than 1.00, it has been less
volatile than the index.
These measures of risk, which are historical in nature and subject to change monthly, are
more fully described in the Statement of Additional Information. For the three year period
ended December 31, 1995, standard deviation and beta for the Fund and S&P 500 (Source:
Morningstar, Inc.) were:
</TABLE>
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<CAPTION>
STANDARD
DEVIATION BETA
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<S> <C> <C>
6.43 .61
Royce Value Fund..........................
7.96 1.00
S&P 500...................................
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Investors evaluating these and other quantitative measures of risk should understand that the
risk profiles of the Fund's portfolio may change over time, and that none of such measures
are predictive of future volatility.
The investment risks associated with the types of securities in which the Fund may invest are
described below -- see 'Investment Risks.'
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INVESTMENT OBJECTIVE ROYCE VALUE FUND'S investment objective is long-term capital appreciation, primarily through
investments in securities of small companies. Production of income is incidental to this
objective. Since certain risks are inherent in owning any security, there can be no assurance
that the Fund will achieve its objective.
This investment objective of long-term capital appreciation is fundamental and may not be
changed without the approval of a majority of the Fund's outstanding voting shares.
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4
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INVESTMENT POLICIES Quest Advisory Corp. ('Quest'), the Fund's investment adviser, uses a 'value' method in
managing the Fund's assets. In its selection process, Quest puts primary emphasis on various
The Fund invests on a internal returns indicative of profitability, balance sheet quality, cash flows and the
'value' basis relationships that these factors have to the current price of a given security. This is in
contrast to other methods that primarily focus on the future prospects of a company and
concentrate on high growth or emerging growth companies.
The Fund invests Quest's value method is based on its belief that the securities of certain small companies
primarily in small may sell at a discount from its estimate of such companies' 'private worth,' that is, what a
companies knowledgeable buyer would pay for the entire company. Quest attempts to identify and invest
in these securities for the Fund, with the expectation that this 'value discount' will narrow
over time and thus provide capital appreciation for the Fund.
Normally, the Fund will invest at least 65% of its assets in common stocks, convertible
preferred stocks and convertible bonds of small companies with stock market capitalizations
under $750,000,000 at the time of investment. The remainder of its assets may be invested in
securities of companies with higher stock market capitalizations and non-convertible
preferred stocks and debt securities. The securities in which the Fund invests may be traded
on securities exchanges or in the over-the-counter market.
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INVESTMENT RISKS As a mutual fund investing primarily in common stocks and/or securities convertible into
common stocks, the Fund is subject to market risk, that is, the possibility that common stock
The Fund is subject to prices will decline over short or even extended periods. The Fund invests a substantial
certain investment risks portion of its assets in securities of small and/or micro-cap companies. Such companies may
not be well-known to the investing public, may not have significant institutional ownership
and may have cyclical, static or only moderate growth prospects. In addition, the securities
of such companies may be more volatile in price, have wider spreads between their bid and ask
prices and have significantly lower trading volumes than the larger capitalization stocks
included in the S&P 500 Index. Thus, the Fund's purchases and sales of such securities may
have a greater impact on their market prices than would be the case with larger
capitalization stocks. Accordingly, Quest's investment method requires a long-term investment
horizon, and the Fund should not be used to play short-term swings in the market.
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INVESTMENT LIMITATIONS The Fund has adopted certain fundamental limitations, designed to reduce its exposure to
specific situations, which may not be changed without the approval of a majority of its
The Fund has outstanding voting shares, as that term is defined in the Investment Company Act of 1940 (the
adopted certain '1940 Act'). These limitations are set forth in the Statement of Additional Information and
fundamental provide, among other things, that the Fund will not:
limitations
(a) invest more than 5% of its assets in the securities of any one issuer, excluding
obligations of the U.S. Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of management.
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5
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OTHER INVESTMENT In addition to investing primarily in the equity and fixed income securities described above,
PRACTICES: the Fund may follow a number of additional investment practices.
Short-term fixed income The Fund may invest in short-term fixed income securities for temporary defensive purposes,
securities to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions.
These securities consist of United States Treasury bills, domestic bank certificates of
deposit, high-quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security to the Fund at one
price and agrees to repurchase it at the Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a value equal to or in excess of the
value of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should the Fund implement a temporary investment policy, its investment
objective may not be achieved.
Foreign securities The Fund may invest up to 10% of its assets in debt and/or equity securities of foreign
issuers. Foreign investments involve certain risks, such as political or economic instability
of the issuer or of the country of issue, fluctuating exchange rates and the possibility of
imposition of exchange controls. These securities may also be subject to greater fluctuations
in price than the securities of U.S. corporations, and there may be less publicly available
information about their operations. Foreign companies may not be subject to accounting
standards or governmental supervision comparable to U.S. companies, and foreign markets may
be less liquid or more volatile than U.S. markets and may offer less protection to investors
such as the Fund.
Lower-rated debt The Fund may invest up to 35% of its assets in debt securities in the lowest category of
securities investment grade debt. These bonds may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than is the case with higher grade bonds. The Fund may
also invest no more than 5% of its net assets in lower-rated (high-risk) non-convertible debt
securities, which are below investment grade.
Portfolio turnover Although the Fund generally seeks to invest for the long term, it retains the right to sell
securities regardless of how long they have been held. The Fund's annual portfolio turnover
rates are shown in the 'Financial Highlights.' Portfolio turnover rates for the Fund have
averaged 26% over the past 10 years. A 25% turnover rate occurs, for example, if one-fourth
of the Fund's portfolio securities are replaced in one year.
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MANAGEMENT OF THE TRUST The Trust's business and affairs are managed under the direction of its Board of Trustees.
Quest, the Fund's investment adviser, is responsible for the management of the Fund's
Quest Advisory Corp. is portfolio, subject to the authority of the Board of Trustees. Quest was organized in 1967 and
responsible for the has been the Fund's adviser since its inception. Charles M. Royce, Quest's President, Chief
management of the Fund's Investment Officer and sole voting shareholder since 1972, is primarily responsible for
portfolio supervising Quest's investment management activities. Mr. Royce is assisted by Jack E.
Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, both of whom participate in the
investment management activities, with their specific responsibilities varying from time to
time. Quest is also the investment adviser to Pennsylvania Mutual Fund, to Royce Equity
Income, Premier, Micro-Cap, Low-Priced Stock, Total Return, Global Services and GiftShares
Funds, which are other series of the Trust, and to other investment and non-investment
company accounts.
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6
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As compensation for its services to the Fund, Quest is entitled to receive annual advisory
fees of 1% of the first $50 million of the Fund's average net assets; .875% of the next $50
million of average net assets; and .75% of average net assets in excess of $100 million.
These fees are payable monthly from the assets of the Fund and are higher than those paid by
other funds with similar investment objectives. For 1995, the fees paid to Quest by the Fund
were .85% of its average net assets.
Brokerage Allocation Quest 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
Quest. Quest is authorized, in recognition of the value of brokerage and research services
provided, to pay commissions to a broker in excess of the amount which another broker might
have charged for the same transaction.
Distribution Quest Distributors, Inc. ('QDI'), which is wholly-owned by Charles M. Royce, acts as
distributor of the Fund's shares. Shares of the Fund are available through certain broker-
dealers having agreements with QDI and, from time to time and in management's sole
discretion, directly from the Fund. The Trust has adopted a distribution plan for the Fund
pursuant to Rule 12b-1. The plan provides for payment to QDI of fees not to exceed 1% per
annum of the Fund's average net assets, which may be used for payment of sales commissions
and other fees to those who introduce investors to the Fund and various other promotional,
sales-related and servicing costs and expenses. The fees payable by the Fund to QDI have been
allocated between asset-based sales charges and personal service and/or account maintenance
fees, so that not more than .25% per annum is payable as a personal service and/or account
maintenance fee and not more than .75% per annum is payable as an asset-based sales charge.
For 1995, the fees paid to QDI by the Fund were .63% of its average net assets. The fees
payable by the Fund are higher than the fees paid by most other mutual funds which use their
own assets to promote the sale of their shares.
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GENERAL INFORMATION The Royce Fund (the 'Trust') is a Massachusetts business trust registered with the Securities
and Exchange Commission as a diversified, open-end management investment company. The
Trustees have the authority to issue an unlimited number of shares of beneficial interest,
without shareholder approval, and these shares may be divided into an unlimited number of
series. Shareholders are entitled to one vote per share. Shares vote by individual series on
all matters, except that shares are voted in the aggregate and not by individual series when
required by the 1940 Act and that if the Trustees determine that a matter affects only one
series, then only shareholders of that series are entitled to vote on that matter.
Meetings of shareholders will not be held except as required by the 1940 Act or other
applicable law. A meeting will be held to vote on the removal of a Trustee or Trustees of the
Trust if requested in writing by the holders of not less than 10% of the outstanding shares
of the Trust.
The Trust expects to call a special meeting of shareholders, to be held in June 1996, for the
purpose of, among other matters, converting the Trust from a Massachusetts business trust to
a Delaware business trust.
The custodian for 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.
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7
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DIVIDENDS, DISTRIBUTIONS The Fund pays dividends from net investment income and distributes its net realized capital
AND TAXES gains annually in December. Dividends and distributions will be automatically reinvested in
additional shares of the Fund unless the shareholder chooses otherwise.
Dividends and capital
gains distributions are Shareholders will receive information annually as to the tax status of distributions made by
made in December the Fund for the calendar year. For Federal income tax purposes, all distributions by the
Fund are taxable to shareholders when declared, whether received in cash or reinvested in
shares. Distributions paid from the Fund's net investment income and short-term capital gains
are taxable to shareholders as ordinary income dividends. A portion of the Fund's dividends
may qualify for the corporate dividends-received deduction, subject to certain limitations.
The portion of the Fund's dividends qualifying for such deduction is generally limited to the
aggregate taxable dividends received by the Fund from domestic corporations.
Distributions paid from long-term capital gains of the Fund are treated by a shareholder for
Federal income tax purposes as long-term capital gains, regardless of how long the
shareholder has held Fund shares. If a shareholder disposes of shares held for six months or
less at a loss, such loss 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 gain distributions and
redemptions paid to non-corporate shareholders who have not complied with Internal Revenue
Service taxpayer identification regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to backup
withholding.
The discussion of Federal income taxes above is for general information only. The Statement
of Additional Information includes an additional description of Federal income tax aspects
that may be relevant to a shareholder. Shareholders may also be subject to state and local
taxes on their investment. Investors should consult their own tax advisers concerning the tax
consequences of an investment in the Fund.
</TABLE>
8
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THE ROYCE FUNDS -- ROYCE VALUE FUND
ACCOUNT APPLICATION FORM
- ---------------------------------------------
- - Mail to: The Royce Funds c/o NFDS - For help with this application,
- - PO Box 419012, - or for more information,
- - Kansas City, MO 64141-6012 - call us at (800) 221-4268
- - -
- ---------------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
</TABLE>
PLEASE READ THE INSTRUCTIONS ON THE REVERSE SIDE BEFORE YOU COMPLETE THIS FORM.
PLEASE DO NOT USE THIS APPLICATION TO OPEN A ROYCE FUND SPONSORED IRA OR
403(b)(7) RETIREMENT PLAN ACCOUNT.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
[ ] INDIVIDUAL OR JOINT ACCOUNT
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- ---------------------------------------------------------------
Owner's Name: First, Initial, Last
______-______-________
Owner's Social Security Number
- ---------------------------------------------------------------
Joint Owner's Name: First, Initial, Last
JOINT ACCOUNTS WILL BE REGISTERED AS JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP UNLESS OTHERWISE INDICATED.
[ ] GIFT OR TRANSFER TO MINOR
- ---------------------------------------------------------------
Custodian's Name (One name only: First, Initial, Last)
- ---------------------------------------------------------------
Name (One name only: First, Initial, Last)
______-______-________
Minor's Social Security Number
under the ___________________________ Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] TRUST (Including Corporate Retirement Plans)
- ---------------------------------------------------------------
Trustee Name(s)
- ---------------------------------------------------------------
Name of Trust or Retirement Plan
- ---------------------------------------------------------------
Date of Trust Agreement
- ---------------------------------------------------------------
For Benefit Of (Name, if applicable)
- ---------------------------------------------------------------
Social Security Number or Taxpayer ID Number
[ ] OTHER ENTITIES
Type: [ ] Corporation [ ] Partnership [ ] Nominee
[ ] Foundation [ ] Charitable Organization
[ ] Other (_____________________________________________)
- ---------------------------------------------------------------
Name of Entity
____-______________ [ ] Tax-Exempt Entity Under
Taxpayer ID Number IRS Sec. 501(c)3)
</TABLE>
- ---------------------------------------------------------------
2 MAILING ADDRESS
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- ---------------------------------------------------------------
Street or PO Box Number
- ---------------------------------------------------------------
City State Zip
- -------------------------------- -----------------------------
Daytime Phone Evening Phone
</TABLE>
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
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- ---------------------------------------------------------------
Representative Name Rep. Number
- ---------------------------------------------------------------
Firm Phone
- ---------------------------------------------------------------
Address State Zip
</TABLE>
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
$______________________________
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) _____________________________________________________________________
Telephone order number _______________________________________________________
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
If no box is checked, all income dividends and capital gain distributions will
be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- ---------------------------------------------------------------
7 EXPRESS SERVICE
To arrange for Express Service, please provide the information below. Passbook
savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] AUTOMATIC INVESTMENT PLAN: On the ____ day each [ ] month [ ] quarter,
transfer $___________ from my bank account to purchase shares in my Royce
Fund account ($50 minimum). I wish to begin my plan in __________ (select
month).
[ ] AUTOMATIC WITHDRAWAL PLAN: On the ____ day each month, redeem and transfer
$___________ from my Royce Fund account to my bank account ($100 minimum).
[ ] EXPEDITED PURCHASES AND REDEMPTIONS: To purchase or redeem shares at any
time, using a bank account to clear the transaction ($100 minimum).
[ ] WIRE REDEMPTIONS: To have redemption proceeds wired to my commercial bank
($1,000 minimum).
(APPLICATION MUST BE SIGNED ON REVERSE SIDE)
<PAGE>
<PAGE>
- ---------------------------------------------------------------
8 SIGNATURE (Please be sure to sign below)
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written or telephone instructions reasonably believed to be genuine and in
accordance with the procedures described in the Prospectus.
As required by Federal law, I (we) certify under penalties of perjury (1) that
the Social Security or Taxpayer Identification Number provided above is correct
and (2) that the IRS has never notified me (us) that I am (we are) subject to
31% backup withholding, or has notified me (us) that I am (we are) no longer
subject to such backup withholding. (Note: if part (2) of this sentence is not
true in your case, please strike out that part before signing.
CHECK ONE:
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[ ] U.S. Citizen [ ] Resident Alien [ ] Non-Resident Alien ________________________________
(Country of Citizenship)
</TABLE>
________________________________________________________________________________
Signature of Owner, Trustee or Custodian Date
________________________________________________________________________________
Signature of Joint Owner or Co-trustee (if any) Date
- ---------------------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION
Please provide the information exactly as you wish it to appear on your account
(e.g., as your name appears on your other legal/financial records such as your
bank account, will, etc.). Please provide your Taxpayer Identification Number to
avoid withholding of taxes. For most individuals, this is your Social Security
Number.
- ---------------------------------------------------------------
2 MAILING ADDRESS
Please provide your complete mailing address.
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
This section should be completed by your financial adviser or dealer if
applicable.
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
Please indicate the dollar amount you wish to invest. Minimum initial investment
is $2,000 ($500 minimum for accounts opened with an Automatic Investment Plan).
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
Checks should be made payable to Royce Value Fund. If you have placed a
telephone order to open your account and purchase shares, please include the
order number on the application. Payment is due within 3 business days after
placing the order.
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
All distributions will be reinvested if a box is not checked.
- ---------------------------------------------------------------
7 EXPRESS SERVICE
Express Service is a convenient way to purchase or sell shares automatically or
at your discretion. You may choose from the following Express Service options:
AUTOMATIC INVESTMENT PLAN -- automatically purchases shares in your Royce Fund
account by transferring money from your bank account on a monthly or quarterly
basis.
AUTOMATIC WITHDRAWAL PLAN -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
EXPEDITED PURCHASES AND REDEMPTIONS -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
WIRE REDEMPTIONS -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions in
lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and ATTACH A
VOIDED CHECK. Passbook accounts are not eligible for Express Service, and your
bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/ withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and an
Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- ---------------------------------------------------------------
8 SIGNATURE
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
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- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER Fund shares are purchased and redeemed at their net asset value per share next determined
SHARE after an order is received by the Fund's transfer agent or an authorized service agent or
sub-agent. Net asset value per share is determined by dividing the total value of the Fund's
Net asset value per investments and other assets, less any liabilities, by the number of outstanding shares of
share (NAV) is the Fund. Net asset value per share is calculated at the close of regular trading on the New
determined each day the York Stock Exchange on each day the Exchange is open for business.
New York Stock Exchange
is open In determining net asset value, securities listed on an exchange or the Nasdaq National
Market System are valued on the basis of the last reported sale price prior to the time the
valuation is made or, if no sale is reported for that day, at their bid price for exchange-
listed securities and at the average of their bid and ask prices for Nasdaq securities.
Quotations are taken from the market where the security is primarily traded. Other over-
the-counter securities for which market quotations are readily available are valued at their
bid price. Securities for which market quotations are not readily available are valued at
their fair value under procedures established and supervised by the Board of Trustees. Bonds
and other fixed income securities may be valued by reference to other securities with
comparable ratings, interest rates and maturities, using established independent pricing
services.
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER GUIDE
OPENING AN ACCOUNT AND New accounts (other than IRA or 403(b)(7) accounts) can be opened either by mail, by
PURCHASING SHARES telephone, by wire or through broker-dealers. An Account Application must be completed and
returned, regardless of the method selected. If you need assistance with the Account
Application or have any questions about the Fund, please call Investor Information. NOTE: For
certain types of account registrations (e.g., corporations, partnerships, foundations,
associations, other organizations, trusts or powers of attorney), please call Investor
Information to determine if you need to provide additional forms with your application.
</TABLE>
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Minimum Initial TYPE OF ACCOUNT MINIMUM
Investments --------------------------------------------------------------------------- -------
Regular accounts $2,000
IRAs* $ 500
Accounts established with Automatic Investment Plan or Direct Deposit Plan $ 500
403(b)(7) accounts* None
Additional Investments Subsequent investments may be made by mail ($50 minimum), telephone ($500 minimum), wire or
Express Service (a system of electronic funds transfer from your bank account).
</TABLE>
- ------------
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor
Information at 1-800-221-4268 if you need these
forms.
9
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PURCHASING BY MAIL ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Complete and sign the Please include the amount of your initial Additional investments should include the
enclosed Account investment on the Application Form, make your Invest-by-Mail remittance form attached to
Application Form check payable to Royce Value Fund, and mail your Fund account confirmation statements.
to: Please make your check payable to Royce Value
The Royce Funds Fund, write your account number on your check
c/o NFDS and, using the return envelope provided, mail
P.O. Box 419012 to the address indicated on the
Kansas City, MO 64141-6012 Invest-by-Mail form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
--------------------------------------------------------------------------------------------
PURCHASING BY TELEPHONE To open an account by telephone, you should Subsequent telephone purchases ($500 minimum)
call Investor Information (1-800-221-4268) may also be made by calling Investor
before 4:00 p.m., Eastern time. You will be Information. For all telephone purchases,
given a confirming order number for your payment is due within three business days and
purchase. This number must be placed on your may be made by wire or personal, business or
completed Application before mailing. If a bank check, subject to collection.
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.
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---------------------------------------------------------------------------------------------
PURCHASING BY WIRE Money should be wired to:
BEFORE WIRING: State Street Bank and Trust Company
For a new account, ABA 011000028 DDA 9904-712-8
please contact Ref: Royce Value Fund
Investor Services at Order Number or Account Number
1-800-221-4268 Account Name
To ensure proper receipt, please be sure your bank includes the name of the Fund and your
order number (for telephone purchases) or account number. If you are opening a new account,
you must call Investor Information to obtain an order number, and complete the Account
Application Form and mail it to the 'New Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
</TABLE>
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---------------------------------------------------------------------------------------------
PURCHASING BY You can purchase shares automatically or at your discretion through the following options:
EXPRESS SERVICE
EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds ($100 minimum
and $200,000 maximum) from your bank account to purchase shares in your Royce Fund account by
telephone or computer online access.
</TABLE>
10
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AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or Automatic Investment Plan, please provide
the appropriate information on the Account Application Form and ATTACH A VOIDED CHECK. We
will send you a confirmation of Express Service activation. Please wait three weeks before
using the service.
To make an Expedited Purchase, other than through computer online access, please call
Shareholder Services at 1-800-841-1180 before 4:00 p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have investments ($50
minimum) made from your net payroll or government check into your existing Royce Fund account
each pay period. Your employer must have direct deposit capabilities through ACH (Automated
Clearing House) available to its employees. You may terminate participation in these programs
by giving written notice to your employer or government agency, as appropriate. The Fund is
not responsible for the efficiency of the employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct Deposit
form, which may be obtained from Investor Information by calling 1-800-221-4268.
---------------------------------------------------------------------------------------------
PURCHASING THROUGH A If you purchase shares of the Fund through a program of services offered or administered by a
BROKER broker-dealer, financial institution or other service provider, you should read the program
materials provided by the service provider, including information regarding fees which may be
charged, in conjunction with this Prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of services
offered. When shares of a Fund are purchased in this way, the service provider, rather than
the customer, may be the shareholder of record of the shares. Certain service providers may
receive compensation from the Fund, QDI and/or Quest for providing such services.
Applications submitted by broker-dealers should be mailed to the Fund's office at 1414 Avenue
of the Americas, New York, NY 10019.
- -----------------------------------------------------------------------------------------------------------------------
CHOOSING A DISTRIBUTION You may select one of three distribution options:
OPTION 1. Automatic Reinvestment Option -- Both 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.
</TABLE>
11
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- -----------------------------------------------------------------------------------------------------------------------
IMPORTANT ACCOUNT The easiest way to establish optional services on your account is to select the options you
INFORMATION desire when you complete your Account Application Form. If you want to add or change
shareholder options later, you may need to provide additional information and a signature
guarantee. Please call Shareholder Services at 1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature guarantee on certain written
transaction requests. A signature guarantee verifies the authenticity of your signature and
may be obtained from banks, brokerage firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon request. If a certificate is lost, stolen
or destroyed, you may incur an expense to replace it.
Telephone and Online Neither the Fund nor its transfer agent will be liable for following instructions
Access Transactions communicated by telephone or computer online access that are reasonably believed to be
genuine. The transfer agent uses certain procedures designed to confirm that telephone and
computer online access instructions are genuine, which may include requiring some form of
personal identification prior to acting on the instructions, providing written confirmation
of the transaction and/or recording incoming calls, and if it does not follow such
procedures, the Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment is not received for any telephone or
computer online access purchase, the transaction will be cancelled and you will be
responsible for any loss the Fund incurs. If you are already a shareholder, the Fund can
redeem shares from any identically registered account in the Trust as reimbursement for any
loss incurred.
Trade date for purchases Your TRADE DATE is the date on which shares are credited to your account. If your purchase is
made by telephone, computer online access, check, Federal Funds wire or exchange and is
received by the close of regular trading on the New York Stock Exchange (generally 4:00 p.m.,
Eastern time), your trade date is the date of receipt. If your purchase is received after the
close of regular trading on the Exchange, your trade date is the next business day. Your
shares are purchased at the net asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign checks, the
Fund will accept only a foreign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a United States correspondent bank.
The Trust reserves the right to suspend the offering of Fund shares to new investors. The
Trust also reserves the right to reject any specific purchase request.
- -----------------------------------------------------------------------------------------------------------------------
REDEEMING YOUR SHARES You may redeem any portion of your account at any time. You may request a redemption in
writing or by telephone. Redemption proceeds normally will be sent within two business days
after the receipt of the request in Good Order.
REDEEMING BY MAIL Redemption requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas
City, MO 64141-6012. (For express or registered mail, send your request to The Royce Funds,
c/o National Financial Data Services, 1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
</TABLE>
12
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The redemption price of shares will be their net asset value next determined after NFDS or an
authorized service agent or sub-agent 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. If
preapproved, higher maximums may apply for institutional accounts. To redeem shares by
telephone, you or your pre-authorized representative may call
Shareholder Services at 1-800-841-1180. Redemption requests received by telephone prior to
the close of regular trading on the New York Stock Exchange (generally 4:00 p.m., Eastern
time) are processed on the day of receipt; redemption requests received by telephone after
the close of regular trading on the Exchange are processed on the business day following
receipt.
Telephone redemption service is not available for Trust-sponsored retirement plan accounts or
if certificates are held. TELEPHONE REDEMPTIONS WILL NOT BE PERMITTED FOR A PERIOD OF SIXTY
DAYS AFTER A CHANGE IN THE ADDRESS OF RECORD. See also 'Important Account
Information -- Telephone Transactions.'
---------------------------------------------------------------------------------------------
REDEEMING BY EXPRESS If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be automatically
SERVICE redeemed from your Fund account and the proceeds transferred to your bank account according
to the schedule you have selected. You must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from your Fund
account by telephone and transfer the proceeds directly to your bank account. You may elect
Express Service on the Account Application Form or call Shareholder Services at
1-800-841-1180 for an Express Service application.
---------------------------------------------------------------------------------------------
EARLY REDEMPTION In order to discourage short-term trading, the Fund assesses an early redemption fee of 1% on
FEE redemptions of share purchases held for less than one year. Purchases of Fund shares prior to
July 1, 1996 are exempt from the fee. Redemption fees will be paid to the Fund, out of the
redemption proceeds otherwise payable to the shareholder, to help offset transaction costs.
</TABLE>
13
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The Fund will use the 'first-in, first-out' (FIFO) method to determine the one year holding
period. Under this method, the date of the redemption will be compared with the earliest
purchase date of the share purchases held in the account. If this holding period is less than
one year, the fee will be assessed. In determining 'one year,' the Fund will use the
anniversary month of a transaction. Thus, shares purchased in August 1996, for example, will
be subject to the fee if they are redeemed prior to August 1997. If they are redeemed on or
after August 1, 1997, they will not be subject to the fee.
No redemption fee will be payable on shares acquired through reinvestment, on an exchange
into another Royce fund or by shareholders who are: (a) employees or representatives of the
Fund, Quest, QDI or broker-dealers having agreements with QDI, or members of their immediate
families or employee benefit plans for such individuals or entities; (b) participants in the
Automatic Withdrawal Plan; (c) certain Trust-approved Group Investment Plans and charitable
organizations; (d) profit-sharing trusts, corporations or other institutional investors who
are investment advisory clients of Quest; (e) clients of other registered investment advisers
who are also broker-dealers having agreements with QDI or affiliates of such broker-dealers;
or (f) omnibus and other similar account customers of certain Trust-approved broker-dealers
and other institutions.
---------------------------------------------------------------------------------------------
IMPORTANT REDEMPTION If you are redeeming shares recently purchased by check, Express Service Expedited Purchase
INFORMATION or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment
for the purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined after your request has been
received by the transfer agent in Good Order. The Trust reserves the right to revise or
terminate the telephone redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times when the New York
Stock Exchange is closed or under any emergency circumstances as determined by the Securities
and Exchange Commission.
Although the Trust will normally make redemptions in cash, it may cause the Fund to redeem in
kind under certain circumstances.
</TABLE>
14
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MINIMUM ACCOUNT BALANCE Due to the relatively high cost of maintaining smaller accounts, the Trust reserves the right
REQUIREMENT to involuntarily redeem shares in any Fund account that falls below the minimum initial
investment due to redemptions by the shareholder. If at any time the balance in an account
does not have a value at least equal to the minimum initial investment, or if an Automatic
Investment Plan is discontinued before an account reaches the minimum investment that would
otherwise be required, you may be notified that the value of your account is below the Fund's
minimum account balance requirement. You would then have sixty days to increase your account
balance before the account is liquidated. Proceeds would be promptly paid to the shareholder.
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE PRIVILEGE Exchanges between series of the Trust and with other open-end Royce funds are permitted by
telephone, computer online access or 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 confirmation statement will be sent to you each time you have a transaction in your account
and semi-annually. Financial reports will be mailed semi-annually. To reduce expenses, only
one copy of most shareholder reports may be mailed to a household. Please call Investor
Information if you need additional copies.
Tax-sheltered Retirement Shares of the Fund are available for purchase in connection with certain types of tax-
Plans sheltered retirement plans, including Individual Retirement Accounts (IRA's) for individuals
and 403(b)(7) Plans for employees of certain tax-exempt organizations.
These plans should be established with the 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.
</TABLE>
15
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__________________________________ __________________________________
THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected]
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
DISTRIBUTOR
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Asst. Secretary
Susan I. Grant, Secretary
__________________________________ __________________________________
__________________________________ __________________________________
THE ROYCE FUNDS
------------------------------------------------------
ROYCE VALUE
FUND
PROSPECTUS
APRIL 30, 1996
__________________________________ __________________________________
[Logo]
<PAGE>
<PAGE>
The Royce Funds
- ------------------------------------------------------------------------------
Royce Premier Fund Royce Micro-Cap Fund
Royce Equity Income Fund Royce GiftShares Fund
Royce Low-Priced Stock Fund
- ------------------------------------------------------------------------------
PROSPECTUS -- April 30, 1996
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NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
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SHAREHOLDER SERVICES--1-800-841-1180 INVESTMENT ADVISOR SERVICES--1-800-33-ROYCE
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Royce Premier Fund, Royce Equity Income Fund, Royce Micro-Cap Fund, Royce
Low-Priced Stock Fund and Royce GiftShares Fund (the 'Funds') are no-load series
of The Royce Fund (the 'Trust'), a diversified, open-end management investment
company. The Funds have in common an investment focus on small companies that
are selected on a value basis. The Trust is currently offering shares of nine
series. This Prospectus relates to the above Funds only.
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TABLE OF CONTENTS
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Page
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Fund Expenses........................... 2
Financial Highlights.................... 3
Fund Performance and Volatility......... 5
Investment Objectives................... 6
Investment Policies..................... 7
Investment Risks........................ 8
Investment Limitations.................. 10
Management of the Trust................. 11
General Information..................... 12
Royce GiftShares Fund Investors......... 13
Dividends, Distributions and Taxes...... 14
<CAPTION>
Page
<S> <C>
Net Asset Value Per Share............... 16
SHAREHOLDER GUIDE
Opening an Account and Purchasing
Shares................................ 16
Choosing a Distribution Option.......... 19
Important Account Information........... 19
Redeeming Your Shares................... 20
Exchange Privilege...................... 23
Transferring Ownership.................. 23
Other Services.......................... 23
</TABLE>
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<TABLE>
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ABOUT THIS This Prospectus sets forth concisely the information that
PROSPECTUS you should know about a Fund before you invest. It should be
retained for future reference. A 'Statement of Additional
Information' containing further information about the Funds
and the Trust has been filed with the Securities and
Exchange Commission. The Statement is dated April 30, 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.
If you are viewing the electronic version of this Prospectus
through an on-line computer service, you may request a
printed version free of charge by calling Investor
Information. The E-mail address for The Royce Funds is
[email protected] and the Internet Home Page is
http://www.roycefunds.com
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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FUND EXPENSES The following table illustrates all expenses and fees that
you would incur as a shareholder of the Funds. Annual fund
operating expenses for Royce GiftShares Fund are estimated.
Shareholder Transaction Expenses and Other Costs
<TABLE>
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The Funds are Sales Load Imposed on Purchases..................................... None
no-load and no Sales Load Imposed on Reinvested Dividends.......................... None
12b-1 fees are Deferred Sales Load................................................. None
being charged Redemption Fee -- on purchases held for 1 year or more................ None
Early Redemption Fee -- on purchases held for less than 1 year...... 1%*
Trustee's Annual Fee (Royce GiftShares Fund only)................... $50
</TABLE>
Annual Fund Operating Expenses
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<TABLE>
<CAPTION>
Total
Management Operating
Fees** (after 12b-1 Fees** Other Expenses**
waivers) (after waivers) Expenses (after waivers)
-------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Royce Premier Fund..... 1.00% None .25% 1.25%
Royce Equity Income
Fund................... .91% None .33% 1.24%
Royce Micro-Cap Fund... 1.45% None .49% 1.94%
Royce Low-Priced Stock
Fund................... .25% .00% 1.72% 1.97%
Royce GiftShares Fund.. .00% None 1.99% 1.99%
</TABLE>
The purpose of the above tables is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
the Funds. The following examples illustrate the expenses that you would incur
on a $1,000 investment over various periods, assuming a 5% annual rate of return
and redemption at the end of each period.
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years Years
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<S> <C> <C> <C> <C>
Royce Premier Fund.......... $ 13 $ 40 $ 69 $ 151
Royce Equity Income Fund.... 13 39 68 150
Royce Micro-Cap Fund........ 20 61 105 226
Royce Low-Priced Stock Fund. 20 62 106 230
Royce GiftShares Fund***.... 20 62
</TABLE>
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* Early redemption fee does not apply to Royce GiftShares Fund.
** Management fees would have been 1.00%, 1.50%, 1.50% and 1.25% for Royce
Equity Income, Micro-Cap, Low-Priced Stock and GiftShares Funds,
respectively, 12b-1 fees would have been .25% for Royce Low-Priced Stock
Fund and total operating expenses would have been 1.33%, 1.97%, 3.47% and
3.24% for Royce Equity Income, Micro-Cap, Low-Priced Stock and GiftShares
Funds, respectively, without waivers of management fees by Quest Advisory
Corp. ('Quest'), the Funds' investment adviser, and of 12b-1 fees by Quest
Distributors, Inc. ('QDI'), the Funds' distributor. Quest and QDI have
committed to waive their fees on Royce Micro-Cap, Low-Priced Stock and
GiftShares Funds through December 31, 1996 to the extent necessary to
maintain total operating expenses at or below 1.99%.
*** Exclusive of Royce GiftShares Fund's $50 annual trustee's fee per account.
For trust accounts opened during 1996, Quest will pay that portion of the
currently effective annual trustee's fee in excess of $50 per account and
the trustee's fees for establishing and terminating the accounts.
These examples should not be considered representations of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown.
2
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FINANCIAL The following financial highlights are part of the Funds'
HIGHLIGHTS financial statements and have been audited by Coopers & Lybrand
L.L.P., independent accountants. The Funds' financial statements
and Coopers & Lybrand L.L.P.'s reports on them are included in
the Funds' Annual Reports to Shareholders and are incorporated by
reference into the Statement of Additional Information and this
Prospectus. Further information about the Funds' performance is
contained elsewhere in this prospectus and in the Funds' Annual
Reports to Shareholders for 1995, which may be obtained without
charge by calling Investor Information.
<TABLE>
<CAPTION>
Royce Premier
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Year ended December 31,
--------------------------------------------------
1995 1994 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 6.48 $ 6.41 $ 5.52 $ 5.00
----- ----- ----- -----
Income from Investment
Operations
Net investment income (loss)(1) 0.10 0.06 0.02 0.02
Net gains (losses) on
securities (both realized
and unrealized).......... 1.05 0.15 1.03 0.77
----- ----- ----- -----
Total from Investment
Operations........... 1.15 0.21 1.05 0.79
----- ----- ----- -----
Less Distributions
Dividends (from net
investment income)....... (0.09) (0.05) (0.02) (0.02)
Distributions (from capital
gains)................... (0.42) (0.09) (0.14) (0.25)
----- ----- ----- -----
Total Distributions.... (0.51) (0.14) (0.16) (0.27)
----- ----- ----- -----
Net Asset Value, End of
Year......................... $ 7.12 $ 6.48 $ 6.41 $ 5.52
------------------------------------------------
------------------------------------------------
Total Return........... 17.8% 3.3% 19.0% 15.8%
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Ratios/Supplemental Data
Net Assets, End of Period
(000's).................. $302,239 $202,390 $47,143 $2,329
Ratio of Expenses to
Average Net Assets(2).... 1.25% 1.38% 1.50% 1.77%
Ratio of Net Investment
Income to Average Net
Assets................... 1.48% 1.19% 0.68% 0.53%
Portfolio Turnover Rate.... 39% 38% 85% 116%
<CAPTION>
Royce Micro-Cap
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Year ended December 31,
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1995 1994 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 6.48 $ 6.47 $ 5.83 $ 5.00
------ ----- ----- -----
Income from Investment
Operations
Net investment income(1)... 0.00 0.00 0.00 (0.01)
Net gains (losses) on
securities (both realized
and unrealized).......... 1.24 0.23 1.38 1.48
------ ----- ----- -----
Total from Investment
Operations........... 1.24 0.23 1.38 1.47
------ ----- ----- -----
Less Distributions
Dividends (from net
investment income)....... (0.00) (0.00) (0.00) (0.00)
Distributions (from capital
gains)................... (0.19) (0.22) (0.74) (0.64)
----- ----- ----- -----
Total Distributions.... (0.19) (0.22) (0.74) (0.64)
----- ----- ----- -----
Net Asset Value, End of
Year......................... $ 7.53 $ 6.48 $ 6.47 $ 5.83
------------------------------------------------
------------------------------------------------
Total Return........... 19.1% 3.6% 23.7% 29.4%
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Ratios/Supplemental Data
Net Assets, End of Period
(000's).................. $97,729 $26,774 $10,261 $3,373
Ratio of Expenses to
Average Net Assets)(2)... 1.94% 1.99% 1.99% 1.69%
Ratio of Net Investment
Income to Average Net
Assets................... 0.10% 0.02% (0.09%) (0.21%)
Portfolio Turnover Rate.... 25% 54% 116% 171%
</TABLE>
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(1) Net investment income is shown after waiver of fees by the adviser and
distributor. The per share effect of these waivers was $.01 and $.09 for 1993
and 1992, respectively for Royce Premier Fund and $.01, $.03 and $.12 for 1994,
1993 and 1992, respectively for Royce Micro-Cap Fund.
(2) Expense ratios before waivers of fees by the adviser and distributor would
have been 1.68% and 4.17% for 1993 and 1992, respectively, for Royce Premier
Fund, and 1.97%, 2.34%, 2.49% and 3.77% for 1995, 1994, 1993 and 1992,
respectively, for Royce Micro-Cap Fund.
3
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<CAPTION>
Royce Equity Income
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Year
ended
December
31,
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1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year.... $ 5.12 $ 5.58 $ 5.49 $ 4.93 $ 4.03 $ 5.00
----- ----- ----- ----- ----- -----
Income from Investment
Operations
Net investment
income (loss)(1)........ 0.21 0.19 0.21 0.22 0.22 0.23
Net gains (losses)
on securities
(both realized
and
unrealized)...... 0.62 (0.37) 0.50 0.72 0.99 (0.98)
----- ----- ----- ----- ----- -----
Total from
Investment
Operations... 0.83 (0.18) 0.71 0.94 1.21 (0.75)
----- ----- ----- ----- ----- -----
Less Distributions
Dividends (from net
investment
income).......... (0.21) (0.18) (0.21) (0.22) (0.22) (0.22)
Distributions (from
capital gains)... (0.04) (0.10) (0.41) (0.16) (0.09) (0.00)
----- ----- ----- ----- ----- -----
Total
Distributions... (0.25) (0.28) (0.62) (0.38) (0.31) (0.22)
----- ----- ----- ----- ----- -----
Net Asset Value, End
of Year.............. $ 5.70 $ 5.12 $ 5.58 $ 5.49 $ 4.93 $ 4.03
--------------------------------------------------------------------------
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Total Return... 16.4% (3.3%) 13.1% 19.4% 30.3% (15.4%)
--------------------------------------------------------------------------
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Ratios/Supplemental
Data
Net Assets, End of
Period (000's)... $56,177 $77,131 $84,661 $54,101 $41,063 $19,497
Ratio of Expenses
to Average Net
Assets(2)........ 1.24% 1.27% 1.00% 0.99% 0.99% 1.00%
Ratio of Net
Investment Income
to Average Net
Assets........... 3.49% 3.43% 3.79% 4.31% 4.58% 4.74%
Portfolio Turnover
Rate............. 29% 47% 100% 59% 72% 28%
<CAPTION>
Royce Low-Priced Stock
-----------------------------------------
Year Period
ended ended
December December
31, 31,
------------------------ -------------
1995 1994 1993(3)
----------- ----------- -----------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Year.... $ 5.07 $ 5.01 $ 5.00
----- ---- ----
Income from Investment
Operations
Net investment
income(1)........ 0.00 (0.03) 0.00
Net gains (losses)
on securities
(both realized
and
unrealized)...... 1.14 0.18 0.01
----- ---- ----
Total from
Investment
Operations... 1.14 0.15 0.01
---- ---- ----
Less Distributions
Dividends (from net
investment
income).......... (0.00) (0.00) (0.00)
Distributions (from
capital gains)... (0.59) (0.09) (0.00)
----- ---- ----
Total
Distributions... (0.59) (0.09) (0.00)
----- ---- ----
Net Asset Value, End
of Year.............. $ 5.62 $ 5.07 $ 5.01
------------------------------------
------------------------------------
Total Return... 22.5% 3.0% 0.2%
------------------------------------
------------------------------------
Ratios/Supplemental
Data
Net Assets, End of
Period (000's)... $4,215 $1,880 $452
Ratio of Expenses
to Average Net
Assets(2)........ 1.97% 1.89% 0.29%*
Ratio of Net
Investment Income
to Average Net
Assets........... (1.11%) (1.11%) (0.29%)*
Portfolio Turnover
Rate............. 114% 95% 0%
</TABLE>
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(1) Net investment income is shown after waiver of fees by the adviser and
distributor. The per share effect of these waivers was $.01, $.01, $.01, $.02,
$.02 and $.06 for 1995, 1994, 1993, 1992, 1991 and 1990, respectively, for Royce
Equity Income Fund, and $.05 and $.08 for 1995 and 1994, respectively, for Royce
Low-Priced Stock Fund.
(2) Expense ratios before waivers of fees by the adviser and distributor would
have been 1.33%, 1.33%, 1.39%, 1.30%, 1.30% and 1.34% for 1995, 1994, 1993,
1992, 1991 and 1990, respectively, for Royce Equity Income Fund, and 3.47%,
3.63% and 2.04% for 1995, 1994 and 1993, respectively, for Royce Low-Priced
Stock Fund.
(3) From inception of the Fund on December 15, 1993.
* Annualized.
4
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FUND From time to time, the Funds may include in
PERFORMANCE communications to current or prospective shareholders
AND VOLATILITY figures reflecting total return over various time
periods. 'Total return' is the rate of return on an
Total return is the amount invested in a Fund from the beginning to the end
change in value over of the stated period. 'Average annual total return' is
a given time period, the annual compounded percentage change in the value of
assuming an amount invested in a Fund from the beginning until
reinvestment of any the end of the stated period. Total returns are
dividends historical measures of past performance and are not
and capital gains intended to indicate future performance. Total returns
distributions assume the reinvestment of all net investment income
dividends and capital gains distributions. The figures
do not reflect a Fund's early redemption fee because it
applies only to redemptions of share purchases held for
less than one year.
The Funds' average annual total returns for the periods
ended December 31, 1995 were:
</TABLE>
<TABLE>
<CAPTION>
Three Since
One Year Year Five Year Inception Inception Date
--------- ------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Royce Premier.......... 17.8% 13.2% -- 13.8% December 31, 1991
Royce Equity Income.... 16.4% 8.4% 14.6% 9.0% January 2, 1990
Royce Micro-Cap........ 19.1% 15.1% -- 18.5% December 31, 1991
Royce Low-Priced Stock. 22.5% -- -- 12.2% December 15, 1993
</TABLE>
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'Risk' defined as The relative risk of investing in a particular fund
the volatility of a should be considered in addition to the total returns of
Fund's total returns the fund. Risk, in terms of how volatile an investor's
over time returns have been, can be measured in a number of ways,
including standard deviation and beta.
Standard deviation measures the range of performance
within which a fund's total returns have fallen. The
lower the standard deviation of the fund the less
volatile and more consistent the fund's monthly total
returns have been over that period. When the standard
deviation of a fund is lower than the standard
deviation of an index such as the S&P 500, the fund
has been less volatile than the index.
Beta measures a fund's sensitivity to market
movements. The beta for the index chosen to represent
the market (the S&P 500) is 1.00. If the fund has a
beta greater than 1.00, it has been more volatile than
the index; if its beta is less than 1.00, it has been
less volatile than the index.
These measures of risk, which are historical in nature
and subject to change monthly, are more fully described
in the Statement of Additional Information. For the
three year period ended December 31, 1995, standard
deviation and beta for the Funds and for the S&P 500
(Source: Morningstar, Inc.) were:
</TABLE>
5
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<TABLE>
<CAPTION>
Standard
Deviation Beta
----------- ----
<S> <C> <C>
S&P 500...................... 7.96 1.00
Royce Premier................ 5.28 .42
Royce Equity Income.......... 5.61 .49
Royce Micro-Cap.............. 7.35 .48
</TABLE>
<TABLE>
<S> <C>
Investors evaluating these and other quantitative
measures of risk should understand that the risk
profiles of the Funds' portfolios may change over time,
and that none of such measures are predictive of future
volatility.
The investment risks associated with the types of
securities in which the Funds may invest are described
below under 'Investment Risks'.
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INVESTMENT Each Fund has different investment objectives and/or its
OBJECTIVES own method of achieving its objectives and is designed
to meet different investment needs. Since certain risks
are inherent in owning any security, there can be no
assurance that any of the Funds will achieve their
objectives.
Royce Premier Fund's investment objectives are primarily
long-term growth and secondarily current income. It
seeks to achieve these objectives through investments in
a limited portfolio of common stocks and securities
convertible into common stocks of companies viewed by
Quest as having superior financial characteristics
and/or unusually attractive business prospects.
Royce Equity Income Fund seeks reasonable income by
investing primarily in dividend-paying common and
preferred stocks and debt securities convertible into
common stocks. In choosing these securities, Quest will
also consider their potential for capital appreciation.
Royce Micro-Cap Fund seeks long-term capital
appreciation, primarily through investments in common
stocks and convertible securities of small and micro-cap
companies. Production of income is incidental to this
objective.
Royce Low-Priced Stock Fund's investment objective is
long-term capital appreciation. It seeks to achieve this
objective primarily through investments in common stocks
and convertible securities of companies with shares that
trade at prices below $15 per share.
Royce GiftShares Fund seeks long-term capital
appreciation, primarily through investments in a limited
portfolio of common stocks and convertible securities of
small and micro-cap companies.
These investment objectives are fundamental and may not
be changed without the approval of a majority of the
Fund's outstanding voting shares.
</TABLE>
6
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<TABLE>
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INVESTMENT Quest uses a 'value' method in managing the Funds'
POLICIES assets. In its selection process, Quest puts primary
emphasis on various internal returns indicative of
The Funds invest on profitability, balance sheet quality, cash flows and the
a value basis relationships that these factors have to the current
price of a given security. This is in contrast to other
methods that primarily focus on the future prospects of
a company and concentrate on high growth or emerging
growth companies.
The Funds invest Quest's value method is based on its belief that the
primarily in small securities of certain small companies may sell at a
and micro-cap discount from its estimate of such companies' 'private
companies worth', that is, what a knowledgeable buyer would pay
for the entire company. Quest attempts to identify and
invest in these securities for each of the Funds, with
the expectation that this 'value discount' will narrow
over time and thus provide capital appreciation for the
Funds.
Royce Premier Fund
Normally, Royce Premier Fund will invest at least 80% of
its assets in a limited number of common stocks,
convertible preferred stocks and convertible bonds. At
least 65% of these securities will be income-producing
and/or issued by companies with stock market
capitalizations under $1,000,000,000 at the time of
investment. The remainder of its assets may be invested
in securities of companies with higher stock market
capitalizations, non-dividend-paying common stocks and
non-convertible preferred stocks and debt securities. In
its selection process for the Fund, Quest puts primary
emphasis on companies which have unusually strong
returns on assets, cash flows and balance sheets or
unusual business strengths and/or prospects. Other
characteristics, such as a company's growth potential
and valuation considerations, are also used in selecting
investments for the Fund.
Royce Equity Income Fund
In accordance with its objective of seeking reasonable
income, Royce Equity Income Fund will normally invest at
least 80% of its assets in common stocks, convertible
preferred stocks and convertible bonds. At least 90% of
these securities will be income-producing, and at least
65% of these securities will be issued by companies with
stock market capitalizations under $1,000,000,000 at the
time of investment. The remainder of the Fund's assets
may be invested in securities of companies with higher
stock market capitalizations, non-dividend-paying common
stocks and non-convertible preferred stocks and debt
securities. Quest seeks to invest the Fund's portfolio
in a manner that produces a composite yield which is
higher than the composite yield of the stocks in the
Standard & Poor's 500 Index and considers the capital
appreciation potential of the securities it selects for
the Fund's portfolio.
</TABLE>
7
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<TABLE>
<S> <C>
Royce Micro-Cap Fund
At least 80% of the assets of Royce Micro-Cap Fund will
normally be invested in common stocks and securities
convertible into common stocks of small and micro-cap
companies, and at least 65% of these securities will be
issued by companies with stock market capitalizations
under $300,000,000 at the time of investment. The
remainder of its assets may be invested in securities of
companies with higher stock market capitalizations and
non-convertible preferred stocks and debt securities.
Royce Low-Priced Stock Fund will normally invest at
least 65% of its assets in common stocks and securities
convertible into common stocks of companies with shares
that trade at prices below $15 at the time of initial
investment. In addition, at least 65% of these
securities will be issued by companies with stock market
capitalizations under $1,000,000,000 at the time of
investment. In determining whether a convertible
security is low-priced, Quest may consider either the
price of the convertible security itself or the price of
the security into which it is convertible. The remainder
of its assets may be invested in stocks of companies
with higher prices or higher stock market
capitalizations and non-convertible preferred stocks and
debt securities.
Royce GiftShares Fund will normally invest at least 80%
of its assets in a limited number of common stocks and
securities convertible into common stocks. At least 75%
of these securities will be issued by small (under
$1,000,000,000 in market capitalization) and micro-cap
(under $300,000,000 in market capitalization) companies.
The remainder of its assets may be invested in
securities of companies with higher stock market
capitalizations and non-convertible preferred stocks and
debt securities.
Investments in Royce GiftShares Fund are suitable for
making long-term gifts which may qualify for the Federal
annual gift tax exclusion and which may also be designed
to help fund the beneficiary's college and post-graduate
education. See 'Royce GiftShares Fund Investors' below
for further information.
- ------------------------------------------------------------------------------------------------
INVESTMENT As mutual funds investing primarily in common stocks
RISKS and/or securities convertible into common stocks, the
Funds are subject to market risk, that is, the
The Funds are possibility that common stock prices will decline over
subject to certain short or even extended periods. The Funds invest
investment risks substantial portions of their assets in securities of
small and/or micro-cap companies. Such companies may not
be well-known to the investing public, may not have
significant institutional ownership and may have
cyclical, static or only moderate growth prospects. In
addition, the securities of such companies may be more
volatile in price, have wider spreads between their bid
and ask prices and have significantly lower trading
volumes than the larger capitalization stocks included
in the S&P 500 Index. Thus, the Funds' purchases and
sales of such securities may have a greater impact on
their market prices than would be the case with larger
capitalization stocks. Accordingly, Quest's investment
method requires a long-term investment horizon, and the
Funds should not be used to play short-term swings in
the market.
</TABLE>
8
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The Royce Funds
Account Application Form
- ---------------------------------------
- - Mail to: The Royce Funds c/o NFDS - For help with this application,
- - PO Box 419012, - or for more information,
- - Kansas City, MO 64141-6012 - call us at (800) 221-4268
- - -
- ---------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
PLEASE READ THE INSTRUCTIONS ON THE REVERSE SIDE BEFORE YOU COMPLETE THIS FORM.
PLEASE DO NOT USE THIS APPLICATION TO OPEN A ROYCE FUND SPONSORED IRA, 403(b)(7)
RETIREMENT PLAN OR ROYCE GIFT SHARES FUND ACCOUNT.
- --------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
[ ] Individual or Joint Account
- --------------------------------------------------
Owner's Name: First, Initial, Last
____-____-___________
Owner's Social Security Number
- --------------------------------------------------
Joint Owner's Name: First, Initial, Last
Joint accounts will be registered as joint
tenants with right of survivorship unless
otherwise indicated.
[ ] Gift or Transfer to Minor
- --------------------------------------------------
Custodian's Name (One name only: First, Initial, Last)
- --------------------------------------------------
Name (One name only: First, Initial, Last)
____-____-___________
Minor's Social Security Number
under the _________________________________ Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] Trust (Including Corporate Retirement Plans)
- --------------------------------------------------
Trustee Name(s)
- --------------------------------------------------
Name of Trust or Retirement Plan
- --------------------------------------------------
Date of Trust Agreement
- --------------------------------------------------
For Benefit Of (Name, if applicable)
- --------------------------------------------------
Social Security Number or Taxpayer ID Number
[ ] Other Entities
Type: [ ] Corporation [ ] Partnership [ ] Nominee
[ ] Foundation [ ] Charitable Organization
[ ] Other (______________________________________)
- --------------------------------------------------
Name of Entity
___________________________ [ ] Tax-Exempt Entity Under
Taxpayer ID Number IRS Sec. 501(c)3)
- --------------------------------------------------
2 MAILING ADDRESS
- --------------------------------------------------
Street or PO Box Number
- --------------------------------------------------
City State Zip
- ------------------------- ----------------------
Daytime Phone Evening Phone
- --------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
- ----------------------------------------------------------
Representative Name Rep. Number
- ----------------------------------------------------------
Firm Phone
- ----------------------------------------------------------
Address State Zip
- --------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
Royce Equity Income Fund (263) $________________
Royce Micro-Cap Fund (264) $________________
Royce Premier Fund (265) $________________
Royce Low-Priced Stock Fund (266) $________________
- --------------------------------------------------
5 METHOD OF PAYMENT
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) ____________________________________________________________________
Telephone order number ____________________________________________________
- --------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
If no box is checked, all income dividends and capital gain distributions will
be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- --------------------------------------------------
7 EXPRESS SERVICE
To arrange for Express Service, please provide the information below. Passbook
savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] Automatic Investment Plan: On the ___ day each [ ] month [ ] quarter,
transfer $_________ from my bank account to purchase shares in my Royce Fund
account ($50 minimum). I wish to begin my plan in ________ (select month).
[ ] Automatic Withdrawal Plan: On the ___ day each month, redeem and transfer
$_________ from my Royce Fund account to my bank account ($100 minimum).
[ ] Expedited Purchases and Redemptions: To purchase or redeem shares at any
time, using a bank account to clear the transaction ($100 minimum).
[ ] Wire Redemptions: To have redemption proceeds wired to my commercial bank
($1,000 minimum).
(Application must be signed on reverse side)
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8 SIGNATURE (Please be sure to sign below)
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written or telephone instructions reasonably believed to be genuine and in
accordance with the procedures described in the Prospectus.
As required by Federal law, I (we) certify under penalties of perjury (1) that
the Social Security or Taxpayer Identification Number provided above is correct
and (2) that the IRS has never notified me (us) that I am (we are) subject to
31% backup withholding, or has notified me (us) that I am (we are) no longer
subject to such backup withholding. (Note: if part (2) of this sentence is not
true in your case, please strike out that part before signing.)
Check One:
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[ ] U.S. Citizen [ ] Resident Alien [ ] Non-Resident Alien _____________________________
(Country of Citizenship)
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Signature of Owner, Trustee or Custodian Date
- ------------------------------------------------------------
Signature of Joint Owner or Co-trustee (if any) Date
- --------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- --------------------------------------------------
1 ACCOUNT REGISTRATION
Please provide the information exactly as you wish it to appear on your account
(e.g., as your name appears on your other legal/ financial records such as your
bank account, will, etc.). Please provide your Taxpayer Identification Number to
avoid withholding of taxes. For most individuals, this is your Social Security
Number.
- --------------------------------------------------
2 MAILING ADDRESS
Please provide your complete mailing address.
- --------------------------------------------------
3 ADVISER/DEALER INFORMATION
This section should be completed by your financial adviser or dealer if
applicable.
- --------------------------------------------------
4 INITIAL INVESTMENT
Please indicate the dollar amount you wish to invest. Minimum initial investment
is $2,000 ($500 minimum for accounts opened with an Automatic Investment Plan).
- --------------------------------------------------
5 METHOD OF PAYMENT
Checks should be made payable to The Royce Fund. If you have placed a telephone
order to open your account and purchase shares, please include the order number
on the application. Payment is due within 3 business days after placing the
order.
- --------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
All distributions will be reinvested if a box is not checked.
- --------------------------------------------------
7 EXPRESS SERVICE
Express Service is a convenient way to purchase or sell shares automatically or
at your discretion. You may choose from the following Express Service options:
Automatic Investment Plan -- automatically purchases shares in your Royce Fund
account by transferring money from your bank account on a monthly or quarterly
basis.
Automatic Withdrawal Plan -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
Expedited Purchases and Redemptions -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
Wire Redemptions -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions in
lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and attach a
voided check. Passbook accounts are not eligible for Express Service, and your
bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and an
Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- --------------------------------------------------
8 SIGNATURE
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
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Although Royce Premier and GiftShares Funds are
diversified within the meaning of the Investment Company
Act of 1940 (the '1940 Act'), they will normally be
invested in a limited number of securities. The Funds'
relatively limited portfolios may involve more risk than
investing in other Royce Funds or in a broadly
diversified portfolio of common stocks of large and
well-known companies. To the extent that the Funds
invest in a limited number of securities, they may be
more susceptible to any single corporate, economic,
political or regulatory occurrence than a more widely
diversified fund.
Quest may employ a more aggressive approach to investing
for Royce Micro-Cap, Low-Priced Stock and GiftShares
Funds that involves substantially higher than average
portfolio turnover rates. In addition, these Funds
invest in micro-cap and/or low-priced securities that
are followed by relatively few securities analysts, with
the result that there tends to be less publicly
available information concerning the securities. The
securities of these companies may have limited trading
volumes and be subject to more abrupt or erratic market
movements than the securities of larger, more
established companies or the market averages in general,
and Quest may be required to deal with only a few
market-makers when purchasing and selling these
securities. Companies in which Royce Micro-Cap,
Low-Priced Stock and GiftShares Funds are likely to
invest also may have limited product lines, markets or
financial resources, may lack management depth and may
be more vulnerable to adverse business or market
developments. Thus, the Funds may involve considerably
more risk than a mutual fund investing in the more
liquid equity securities of companies traded on the New
York or American Stock Exchanges.
Royce Low-Priced Stock Fund may invest in securities of
issuers of low-priced stocks which are financially
stressed or involved in bankruptcy, liquidation,
reorganization or recapitalization. Specifically because
of their lower prices relative to other companies,
low-priced securities may be subject to more abrupt or
erratic market movements than higher priced securities
of larger, more established companies or the market
averages in general.
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INVESTMENT Each of the Funds has adopted certain fundamental
LIMITATIONS limitations, designed to reduce its exposure to specific
situations, which may not be changed without the
The Funds have approval of a majority of its outstanding voting shares,
adopted certain as that term is defined in the 1940 Act. These
fundamental limitations are set forth in the Statement of Additional
limitations Information and provide, among other things, that no
Fund will:
(a) invest more than 5% of its assets in the
securities of any one issuer, excluding obligations
of the U.S. Government. (This limitation applies to
only 75% of the assets of Royce Premier, Micro-Cap,
Low-Priced Stock and GiftShares Funds);
(b) invest more than 25% of its assets in any one
industry; or
(c) invest in companies for the purpose of exercising
control of management.
Other Investment In addition to investing primarily in the equity and
Practices: fixed income securities described above, the Funds may
follow a number of additional investment practices.
Short-term fixed The Funds may invest in short-term fixed income
income securities securities for temporary defensive purposes, to invest
uncommitted cash balances or to maintain liquidity to
meet shareholder redemptions. These securities consist
of United States Treasury bills, domestic bank
certificates of deposit, high-quality commercial paper
and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank
sells a security to the Fund at one price and agrees to
repurchase it at the Fund's cost plus interest within a
specified period of seven or fewer days. In these
transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a
value equal to or in excess of the value of the
repurchase agreement and will be held by the Fund's
custodian bank until repurchased. Should a Fund
implement a temporary investment policy, its investment
objectives may not be achieved.
Securities lending Royce Equity Income, Low-Priced Stock and GiftShares
Funds may lend up to 25% of their assets to qualified
institutional investors for the purpose of realizing
additional income. Loans of securities of the Funds will
be collateralized by cash or securities issued or
guaranteed by the United States Government or its
agencies or instrumentalities. The collateral will equal
at least 100% of the current market value of the loaned
securities. The risks of securities lending include
possible delays in receiving additional collateral or in
recovery of loaned securities or loss of rights in the
collateral if the borrower defaults or becomes
insolvent.
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10
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Foreign securities Each of the Funds may invest up to 10% of its assets in
debt and/or equity securities of foreign issuers.
Foreign investments involve certain risks, such as
political or economic instability of the issuer or of
the country of issue, fluctuating exchange rates and the
possibility of imposition of exchange controls. These
securities may also be subject to greater fluctuations
in price than the securities of U.S. corporations, and
there may be less publicly available information about
their operations. Foreign companies may not be subject
to accounting standards or governmental supervision
comparable to U.S. companies, and foreign markets may be
less liquid or more volatile than U.S. markets and may
offer less protection to investors such as the Funds.
Lower-rated debt Each of the Funds may also invest no more than 5% of its
securities net assets in lower-rated (high-risk) non-convertible
debt securities, which are below investment grade. The
Funds do not expect to invest in non-convertible debt
securities that are rated lower than Caa by Moody's
Investors Service, Inc. or CCC by Standard & Poor's
Corp. or, if unrated, determined to be of comparable
quality.
Portfolio turnover Although the Funds generally seek to invest for the long
term, they retain the right to sell securities
regardless of how long they have been held. The Funds'
annual portfolio turnover rates are shown in the
'Financial Highlights'. Portfolio turnover rates for the
Funds have ranged from 25% to 171%. For 1996, Royce
GiftShares Fund's portfolio turnover rate may exceed
100%. Rates which exceed 100% are higher than those of
other funds. A 100% turnover rate occurs, for example,
if all of a Fund's portfolio securities are replaced in
one year. High portfolio activity increases the Fund's
transaction costs, including brokerage commissions.
- ------------------------------------------------------------------------------
MANAGEMENT OF The Trust's business and affairs are managed under the
THE TRUST direction of its Board of Trustees. Quest, the Funds'
investment adviser, is responsible for the management of
Quest Advisory Corp. the Funds' portfolios, subject to the authority of the
is responsible for Board of Trustees. Quest was organized in 1967 and has
the management of been the Funds' adviser since their inception. Charles
the Funds' M. Royce, Quest's President, Chief Investment Officer
portfolios and sole voting shareholder since 1972, is primarily
responsible for supervising Quest's investment
management activities. Mr. Royce is assisted by Jack E.
Fockler, Jr. and W. Whitney George, Vice Presidents of
Quest, both of whom participate in the investment
management activities, with their specific
responsibilities varying from time to time. Quest is
also the investment adviser to Pennsylvania Mutual Fund,
to Royce Value, Total Return and Global Services Funds,
which are other series of the Trust, and to other
investment and non-investment company accounts.
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11
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As compensation for its services to the Funds, Quest is
entitled to receive annual advisory fees of 1% of the
average net assets of Royce Premier and Equity Income
Funds, 1.5% of the average net assets of Royce Micro-Cap
and Low-Priced Stock Funds and 1.25% of the average net
assets of Royce GiftShares Fund. These fees are payable
monthly from the assets of the Funds involved and are
higher (substantially higher in the case of Royce
Micro-Cap, Low-Priced Stock and GiftShares Funds) than
those paid by most other mutual funds with similar
investment objectives. For 1995, the fees paid to Quest
on average net assets were 1.00%, .91%, 1.45% and .25%
(net of voluntary waivers) for Royce Premier, Equity
Income, Micro-Cap and Low-Priced Stock Funds,
respectively.
Quest selects the brokers who execute the purchases and
sales of the Funds' portfolio securities and may place
orders with brokers who provide brokerage and research
services to Quest. Quest is authorized, in recognition
of the value of brokerage and research services
provided, to pay commissions to a broker in excess of
the amount which another broker might have charged for
the same transaction.
Quest Distributors, Inc. ('QDI'), which is wholly-owned
by Charles M. Royce, acts as distributor of the Funds'
shares. The Trust has adopted a distribution plan for
Royce Low-Priced Stock Fund pursuant to Rule 12b-1. The
plan provides for payment to QDI of .25% per annum of
the average net assets of the Fund, which may be used
for payment of sales commissions and other fees to those
who introduce investors to the Fund and for various
other promotional, sales-related and servicing costs and
expenses. QDI has committed to waive its fees through
1996.
- -------------------------------------------------------------------------------
GENERAL INFORMATION The Royce Fund (the 'Trust') is a Massachusetts business
trust registered with the Securities and Exchange
Commission as a diversified, open-end management
investment company. The Trustees have the authority to
issue an unlimited number of shares of beneficial
interest, without shareholder approval, and these shares
may be divided into an unlimited number of series.
Shareholders are entitled to one vote per share. Shares
vote by individual series on all matters, except that
shares are voted in the aggregate and not by individual
series when required by the 1940 Act and that if the
Trustees determine that a matter affects only one
series, then only shareholders of that series are
entitled to vote on that matter.
Meetings of shareholders will not be held except as
required by the 1940 Act or other applicable law. A
meeting will be held to vote on the removal of a Trustee
or Trustees of the Trust if requested in writing by the
holders of not less than 10% of the outstanding shares
of the Trust.
The Trust expects to call a special meeting of
shareholders, to be held in June 1996, for the purpose
of, among other matters, converting the Trust from a
Massachusetts business trust to a Delaware business
trust.
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12
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The custodian for securities, cash and other assets of
the Funds is State Street Bank and Trust Company. State
Street, through its agent National Financial Data
Services ('NFDS'), also serves as the Funds' Transfer
Agent. Coopers & Lybrand L.L.P. serves as independent
accountants for the Funds.
- ------------------------------------------------------------------------------------------------
ROYCE A Royce GiftShares Fund investment is a unique way to
GIFTSHARES make a gift to a child (minor or adult) or another
FUND individual. (You may not open an account in GiftShares
INVESTORS Fund for yourself or your spouse.) A GiftShares Fund
investment is suitable for making a long-term gift which
may qualify in whole or in part for the Federal annual
gift tax exclusion and which may also be designed to
help fund the beneficiary's college and post-graduate
education. To open a GiftShares Fund account, call
Investor Information (1-800-221-4268) for a GiftShares
Information Packet. (A GiftShares Fund account may also
be opened by a trustee for an individual or organization
if the trust has a long-term duration, the provisions of
the trust instrument are acceptable to the Trust and the
trustee has his, her or its own tax adviser.) The
minimum initial investment in GiftShares Fund is $5,000.
Additional investments may be made in amounts of $50 or
more at any time during the existence of the trust.
The shares in a GiftShares Fund account are held in
trust for the beneficiary by State Street Bank and Trust
Company, as independent trustee, until the termination
date you specify. The duration of the trust may be as
long as you wish, but generally must be at least 10
years from the time you make the first contribution to
the GiftShares Fund trust or until the beneficiary
reaches the age of majority, whichever is later. The
GiftShares Fund trust is irrevocable, and neither you
nor the beneficiary may amend its terms in any way. When
the trust terminates, the beneficiary will receive the
shares in the account. The beneficiary may then continue
to own the shares, but, except for reinvestment of
distributions, may not purchase additional shares.
Options available to a donor under the Royce GiftShares
Fund trust adoption agreement are:
Withdrawal Option:
This option will be used primarily by a donor to make a
gift that may qualify for the Federal annual gift tax
exclusion or when the donor wants to allow the
beneficiary to make withdrawals from the trust to pay
for higher education and related costs.
The full amount of the gift may qualify for the
Federal annual gift tax exclusion
The trust may be designed to permit withdrawals to
help fund the beneficiary's college or post-graduate
education
The beneficiary will be taxed on all of the trust's
income and capital gains, and the trustee will, if
requested by the beneficiary, redeem Fund shares in
order to allow for withdrawals in order for the
beneficiary to pay these taxes
The trustee will send an information statement to the
beneficiary each year, showing the amount of income
and capital gains to be reported on his or her income
tax returns for that year
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13
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Accumulation Option:
This option should generally be used by a donor who is
not concerned about the Federal annual gift tax
exclusion and who does not want the beneficiary to be
required to pay the taxes on the trust's income or
capital gains or to file tax returns.
No part of the gift qualifies for the Federal annual
gift tax exclusion
The trust will be taxed on all income and capital
gains in excess of $100 per year
The trustee of the trust will prepare and file all
Federal and state income tax returns that are required
each year, and will pay the taxes from the assets of
the trust by redeeming Fund shares
Split Option:
This option generally is for a donor who wants to use a
portion of the Federal annual gift tax exclusion and
wants the trust to pay the taxes on its capital gains.
A portion of the gift may qualify for the Federal
annual gift tax exclusion
The trust will be taxed on its capital gains, and the
trustee will pay the taxes from the assets of the
trust by redeeming Fund shares; the beneficiary will
be taxed on the trust's ordinary income, which will be
distributed to the beneficiary annually
The trustee will send an information statement to the
beneficiary each year, showing the amount of income to
be reported on his or her income tax returns for that
year
See 'Dividends, Distributions and Taxes -- Royce
GiftShares Fund' below for further information. A donor
should consider consulting with an attorney or qualified
tax adviser before investing in Royce GiftShares Fund.
- ------------------------------------------------------------------------------------------------
DIVIDENDS, Royce Equity Income Fund pays quarterly dividends from
DISTRIBUTIONS net investment income. Royce Premier, Micro-Cap,
AND TAXES Low-Priced Stock and GiftShares Funds pay dividends from
net investment income (if any) annually in December.
Each Fund distributes its net realized capital gains in
December. Dividends and distributions will be
automatically reinvested in additional shares of the
Fund unless the shareholder chooses otherwise.
Shareholders will receive information annually as to the
tax status of distributions made by each Fund for the
calendar year. For Federal income tax purposes, all
distributions by a Fund are taxable to shareholders when
declared, whether received in cash or reinvested in
shares. Distributions paid from a Fund's net investment
income and short-term capital gains are taxable to
shareholders as ordinary income dividends. A portion of
a Fund's dividends may qualify for the corporate
dividends-received deduction, subject to certain
limitations. The portion of a Fund's dividends
qualifying for such deduction is generally limited to
the aggregate taxable dividends received by the Fund
from domestic corporations.
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14
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Distributions paid from long-term capital gains of a
Fund are treated by a shareholder for Federal income tax
purposes as long-term capital gains, regardless of how
long a shareholder has held Fund shares. If a
shareholder disposes of shares held for six months or
less at a loss, such loss will be treated as a long-term
capital loss to the extent of any long-term capital
gains reported by the shareholder with respect to such
shares.
The redemption of shares is a taxable event, and a
shareholder may realize a capital gain or capital loss.
Each Fund will report to redeeming shareholders the
proceeds of their redemptions. However, because the tax
consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax
purposes, shareholders should retain their account
statements for use in determining their tax liability on
a redemption.
At the time of a shareholder's purchase, a Fund's net
asset value may reflect undistributed income or capital
gains. A subsequent distribution of these amounts by a
Fund will be taxable to the shareholder even though the
distribution economically is a return of part of the
shareholder's investment.
The Funds are required to withhold 31% of taxable
dividends, capital gain distributions and redemptions
paid to non-corporate shareholders who have not complied
with Internal Revenue Service taxpayer identification
regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application
Form their proper Social Security or Taxpayer
Identification Number and certifying that they are not
subject to backup withholding.
The discussion of Federal income taxes above is for
general information only. Shareholders may also be
subject to state and local taxes on their investment.
Investors should consult their own tax advisers
concerning the tax consequences of an investment in the
Funds. The Statement of Additional Information includes
an additional description of Federal income tax aspects
that may be relevant to a shareholder.
Royce GiftShares The creation of a Royce GiftShares Fund trust account
Fund for a beneficiary and any addition to an existing
account will be subject to the reporting requirements of
Federal gift tax law, which requires, in general, that a
Federal gift tax return be filed reporting all gifts
made by an individual during any calendar year, other
than gifts of present interests in property that qualify
for, and do not exceed, the amount of the Federal annual
gift tax exclusion (currently, $10,000). Whether a
particular gift of Fund shares qualifies for the annual
exclusion will depend on the option selected by the
donor in the adoption agreement. A gift of Fund shares
may also be subject to state gift tax reporting
requirements under the laws of the state in which the
donor of the gift resides.
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15
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See 'Royce GiftShares Fund Investors' above and
'Taxation -- Royce GiftShares Fund' in the Statement of
Additional Information for more detailed information
about these and other tax matters applicable to an
investment in Royce GiftShares Fund. Due to the
complexity of Federal and state laws pertaining to all
gifts in trust, prospective donors should consider
consulting with an attorney or other qualified tax
adviser before investing in Royce GiftShares Fund.
- --------------------------------------------------------------------------------
NET ASSET VALUE Fund shares are purchased and redeemed at their net
PER SHARE asset value per share next determined after an order is
received by the Funds' transfer agent or an authorized
Net asset value per service agent or sub-agent. Net asset value per share is
share (NAV) is determined by dividing the total value of the Fund's
determined each investments and other assets, less any liabilities, by
day the New York the number of outstanding shares of the Fund. Net asset
Stock Exchange is value per share is calculated at the close of regular
open 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 Each Fund's shares are offered on a no-load basis. To
ACCOUNT AND open a new account other than an IRA or 403(b)(7)
PURCHASING account or a Royce GiftShares Fund account, either by
SHARES mail, by telephone or by wire, simply complete and
return an Account Application. If you need assistance
with the Account Application or have any questions about
the Funds, please call Investor Information at
1-800-221-4268. Note: For certain types of account
registrations (e.g., corporations, partnerships,
foundations, associations, other organizations, trusts
or powers of attorney), please call Investor Information
to determine if you need to provide additional forms
with your application.
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Minimum Initial Type of Account Minimum
Investments --------------- --------
Regular Accounts $ 2,000
IRAs* $ 500
Accounts established with Automatic
Investment Plan or
Direct Deposit Plan $ 500
403(b)(7) accounts* None
Royce GiftShares Fund accounts $ 5,000
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Additional Investments Subsequent investments may be made by mail ($50
minimum), telephone ($500 minimum), wire or Express
Service (a system of electronic funds transfer from your
bank account).
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
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Purchasing By Mail Please include the amount of your initial Additional investments should include
Complete and sign investment on the Application Form, the Invest-by-Mail remittance form
the enclosed Account make your check payable to The Royce attached to your Fund confirmation
Application Form Fund, and mail to: statements. Please make your check
The Royce Funds payable to The Royce Fund, write your
P.O. Box 419012 account number on your check and,
Kansas City, MO 64141-6012 using the return envelope provided,
mail to the address indicated on
the Invest-by-Mail form.
For express or The Royce Funds All written requests should be mailed to
registered mail, c/o National Financial Data Services one of the addresses indicated for new
send to: 1004 Baltimore, 5th Floor accounts.
Kansas City, MO 64105
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* Separate forms must be used for opening IRAs or 403(b)(7) accounts and Royce
GiftShares Fund accounts; please call Investor Information at 1-800-221-4268
if you need these forms.
17
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<CAPTION>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
<S> <C> <C>
Purchasing By To open an account by telephone, you Subsequent telephone purchases ($500
Telephone should call Investor Information (1-800- minimum) may also be made by calling
221-4268) before 4:00 p.m., Eastern Investor Information. For all telephone
time. You will be given a confirming purchases, payment is due within three
order number for your purchase. This business days and may be made by wire
number must be placed on your or personal, business or bank check,
completed Application before mailing. subject to collection.
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.
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Purchasing By Wire Money should be wired to:
Before Wiring State Street Bank and Trust Company
For a new account, ABA 011000028 DDA 9904-712-8
please contact Ref: (Name of Fund)
Investor Information Order Number or Account Number__________________
at 1-800-221-4268 Account Name____________________________________
To ensure proper receipt, please be sure your bank
includes the name of the Fund and your order number (for
telephone purchases) or account number. If you are
opening a new account, you must call Investor
Information to obtain an order number, and complete the
Account Application Form and mail it to the 'New
Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders
will be accepted only when the Fund and Custodian are
open for business.
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Purchasing By You can purchase shares automatically or at your
Express discretion through the following options:
Service
Expedited Purchase Option permits you, at your
discretion, to transfer funds ($100 minimum and $200,000
maximum) from your bank account to purchase shares in
your Royce Fund account by telephone or computer online
access.
Automatic Investment Plan allows you to make regular,
automatic transfers ($50 minimum) from your bank account
to purchase shares in your Royce Fund account on the
monthly or quarterly schedule you select.
To establish the Expedited Purchase Option and/or the
Automatic Investment Plan, please provide the
appropriate information on the Account Application Form
and attach a voided check. We will send you a
confirmation of Express Service activation. Please wait
three weeks before using the service.
To make an Expedited Purchase, other than through
computer online access, please call Shareholder Services
at 1-800-841-1180 before 4:00 p.m., Eastern time.
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Payroll Direct Deposit Plan and Government Direct
Deposit Plan let you have investments ($50 minimum) made
from your net payroll or government check into your
existing Royce Fund account each pay period. Your
employer must have direct deposit capabilities through
ACH (Automated Clearing House) available to its
employees. You may terminate participation in these
programs by giving written notice to your employer or
government agency, as appropriate. The Fund is not
responsible for the efficiency of the employer or
government agency making the payment or any financial
institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an
Authorization for Direct Deposit form, which may be
obtained from Investor Information by calling
1-800-221-4268.
- ----------------------------------------------------------------------------
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option -- Both net
investment income dividends and capital gains
distributions ill 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. Distribution options
available for Royce GiftShares Fund trust accounts are
dependent on the trust option selected by the donor.
- ----------------------------------------------------------------------------
IMPORTANT The easiest way to establish optional services on your
ACCOUNT account is to select the options you desire when you
INFORMATION complete your Account Application Form. If you want to
add or change shareholder options later, you may need to
provide additional information and a signature
guarantee. Please call Shareholder Services at
1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokerage
firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be
provided by a notary public.
Certificates Certificates for whole shares will be issued upon
request. If a certificate is lost, stolen or destroyed,
you may incur an expense to replace it.
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Purchases Through If you purchase shares of a Fund through a program of
Service Providers services offered or administered by a broker-dealer,
financial institution or other service provider, you
should read the program materials provided by the
service provider, including information regarding fees
which may be charged, in conjunction with this
Prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in
connection with the program of services offered. When
shares of a Fund are purchased in this way, the service
provider, rather than the customer, may be the
shareholder of record of the shares. Certain service
providers may receive compensation from the Funds, QDI
and/or Quest for providing such services.
Telephone and Online Neither the Funds nor their transfer agent will be
Access Transactions liable for following instructions communicated by
telephone computer online access that are reasonably
believed to be genuine. The transfer agent uses certain
procedures designed to confirm that telephone and
computer online access instructions are genuine, which
may include requiring some form of personal
identification prior to acting on the instructions,
providing written confirmation of the transaction and/or
recording incoming calls, and if it does not follow such
procedures, the Fund or the transfer agent may be liable
for any losses due to unauthorized or fraudulent
transactions.
Nonpayment If your check or wire does not clear, or if payment is
not received for any telephone or computer online access
purchase, the transaction will be cancelled and you will
be responsible for any loss the Fund incurs. If you are
already a shareholder, the Fund can redeem shares from
any identically registered account in the Fund as
reimbursement for any loss incurred.
Trade Date for Your trade date is the date on which share purchases are
Purchases credited to your account. If your purchase is made by
telephone, computer online access, check, Federal Funds
wire or exchange and is received by the close of regular
trading on the New York Stock Exchange (generally 4:00
p.m., Eastern time), your trade date is the date of
receipt. If your purchase is received after the close of
regular trading on the Exchange, your trade date is the
next business day. Your shares are purchased at the net
asset value determined on your trade date.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, the Funds will accept
only a foreign check which has been drawn in U.S.
dollars and has been issued by a foreign bank with a
United States correspondent bank.
The Trust reserves the right to suspend the offering of
Fund shares to new investors. The Trust also reserves
the right to reject any specific purchase request.
- ---------------------------------------------------------------------------
REDEEMING YOUR You may redeem any portion of your account at any time.
SHARES 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 NFDS, 1004 Baltimore, 5th Floor, Kansas
City, MO 64105.)
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The redemption price of shares will be their net asset
value next determined after NFDS or an authorized
service agent or sub-agent has received all required
documents in Good Order.
Definition of Good Good Order means that the request includes the
Order 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 paymentis
to be sent to an address other than the address of
record or is to be made to a payee other than the
shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be
required, in the case of retirement plans,
corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as it
pertains to your request, please call Shareholder
Services at 1-800-841-1180.
- --------------------------------------------------------------------------
Redeeming By Shareholders who have not established Express Service
Telephone may redeem up to $50,000 of their Fund shares by
telephone, provided the proceeds are mailed to their
address of record. If preapproved, higher minimums may
apply for institutional accounts. To redeem shares by
telephone, you or your pre-authorized representative may
call Shareholder Services at 1-800-841-1180. Redemption
requests received by telephone prior to the close of
regular trading on the New York Stock Exchange
(generally 4:00 p.m., Eastern time) are processed on the
day of receipt; redemption requests received by
telephone after the close of regular trading on the
Exchange are processed on the business day following
receipt. Telephone redemption service is not available
for Trust-sponsored retirement plan accounts or if
certificates are held. Telephone redemptions will not be
permitted for a period of sixty days after a change in
the address of record. See also 'Important Account
Information -- Telephone Transactions'.
- --------------------------------------------------------------------------------
Redeeming By If you select the Express Service Automatic Withdrawal
Express option, shares will be automatically redeemed from your
Service 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 If you are redeeming shares recently purchased by check,
Information 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.
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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 the Trust will normally make redemptions in
cash, it may cause the Funds to redeem in kind under
certain circumstances.
Early Redemption In order to discourage short-term trading, the Funds
Fee assess an early redemption fee of 1% on redemptions of
share purchases held for less than one year. Purchases
of Fund shares prior to July 1, 1996 are exempt from the
fee. Redemption fees will be paid to the Fund, out of
the redemption proceeds otherwise payable to the
shareholder, to help offset transaction costs.
The Funds will use the 'first-in, first-out' (FIFO)
method to determine the one-year holding period. Under
this method, the date of the redemption will be compared
with the earliest purchase date of the share purchases
held in the account. If this holding period is less than
one year, the fee will be assessed. In determining 'one
year', the Funds will use the anniversary month of a
transaction. Thus, shares purchased in August 1996, for
example, will be subject to the fee if they are redeemed
prior to August 1997. If they are redeemed on or after
August 1, 1997, they will not be subject to the fee.
No redemption fee will be payable on shares acquired
through reinvestment, on an exchange into another Royce
Fund or by shareholders who are (a) employees of the
Trust or Quest or members of their immediate families or
employee benefit plans for them, (b) participants in the
Automatic Withdrawal Plan, (c) certain Trust-approved
Group Investment Plans and charitable organizations, (d)
profit-sharing trusts, corporations or other
institutional investors who are investment advisory
clients of Quest, (e) omnibus or similar account
customers of certain Trust-approved broker-dealers and
other institutions or (f) shareholders of Royce
GiftShares Fund.
Minimum Account Due to the relatively high cost of maintaining smaller
Balance Requirement accounts, the Trust reserves the right to involuntarily
redeem shares in any Fund (except Royce GiftShares 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.
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Royce GiftShares Until a Royce GiftShares Fund trust terminates, only the
Fund independent trustee, as the legal owner of the shares,
may redeem them. The ability of the trustee to redeem
shares, and of the beneficiary to compel redemption, is
subject to the terms and conditions of the Royce
GiftShares Fund Trust Instrument.
- --------------------------------------------------------------------------------
EXCHANGE Exchanges between series of the Trust (except Royce
PRIVILEGE GiftShares Fund), and with other open-end Royce funds
are permitted by telephone, computer online access 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 You may transfer the ownership of any of your Fund
OWNERSHIP 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 A confirmation statement will be sent to you each time
Reports you have a transaction in your account and
semi-annually. Financial reports will be mailed
semi-annually. To reduce expenses, only one copy of most
shareholder reports may be mailed to a household. Please
call Investor Information if you need additional copies.
Tax-sheltered Shares of the Funds are available for purchase in
Retirement Plans 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.
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23
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The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected]
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
Distributor
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
Transfer Agent
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President
and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Asst. Secretary
Susan I. Grant, Secretary
The Royce Funds
Royce Premier Fund
Royce Equity Income Fund
Royce Micro-Cap Fund
Royce Low-Priced
Stock Fund
Royce GiftShares Fund
No-Load Mutual Funds
Prospectus
April 30, 1996
- --------------------------------------------------------------------------------
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[LOGO]
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The Royce Funds
- --------------------------------------------------------------------------------
Royce Total Return Fund
- --------------------------------------------------------------------------------
PROSPECTUS -- April 30, 1996
- --------------------------------------------------------------------------------
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR SERVICES
- -- 1-800-33-ROYCE
- --------------------------------------------------------------------------------
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INVESTMENT Royce Total Return Fund (the "Fund") seeks long-term
OBJECTIVE AND growth of capital and current income by investing
POLICIES primarily in a broadly diversified portfolio of
dividend-paying common stocks. The fund has an investment
focus on small companies selected on a value basis. There
can be no assurance that the Fund will achieve its
objective.
The Fund is a no-load series of The Royce Fund (the
"Trust"), a diversified open-end management investment
company. The Trust is currently offering shares of nine
series. This Prospectus relates to Royce Total Return
Fund only.
- --------------------------------------------------------------------------------
ABOUT THIS This Prospectus sets forth concisely the information that
PROSPECTUS 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 April 30, 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.
If you are viewing the electronic version of this
Prospectus through an on-line computer service, you may
request a printed version free of charge by calling
Investor Information. The E-mail address for The Royce
Funds is [email protected] and the Internet Home
Page is http://www.roycefunds.com
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TABLE OF CONTENTS
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Page Page
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Fund Expenses. . . . . . 2 Dividends, Distributions and Taxes . . . . 8
Financial Highlights . . 3 Net Asset Value Per Share. . . . . . . . . 9
Investment Performance . 4 SHAREHOLDER GUIDE
Investment Objective . . 4 Opening an Account and Purchasing Shares . 10
Investment Policies. . . 4 Choosing a Distribution Option . . . . . . 12
Investment Risks . . . . 5 Important Account Information. . . . . . . 12
Investment Limitations . 5 Redeeming Your Shares. . . . . . . . . . . 13
Management of the Trust 6 Exchange Privilege . . . . . . . . . . . . 16
General Information. . . 7 Transferring Ownership . . . . . . . . . . 16
Other Services . . . . . . . . . . . . . . 16
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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FUND EXPENSES The following table illustrates all expenses and fees that
you would incur as a shareholder of the Fund.
The Fund is Shareholder Transaction Expenses
no-load and no
12b-1 fees are Sales Load Imposed on Purchases . . . . . . . . None
being charged Sales Load Imposed on Reinvested Dividends. . . None
Deferred Sales Load . . . . . . . . . . . . . . None
Redemption Fee -- on purchases held for 1 year
or more . . . . . . . . . . . . . . . . . . . . None
Early Redemption Fee -- on purchases held for
less than 1 year. . . . . . . . . . . . . . . . 1%
Annual Fund Operating Expenses
Management Fees (after waivers). . . . . . . . . 54%
12b-1 Fees (after waivers) . . . . . . . . . . . .00%
Other Expenses . . . . . . . . . . . . . . . . . 1.13%
Total Operating Expenses . . . . . . . . . . . . 1.67%
-----
The purpose of the above tables is to assist you in
understanding the various costs and expenses that you would
bear directly or indirectly as an investor in the Fund.
Management Fees would have been 1.00%, 12b-1 fees would have
been .25% and Total Operating Expenses would have been 2.38%
without the waivers of management fees by Quest Advisory
Corp. ("Quest"), the Fund's investment adviser, and of the
12b-1 fees by Quest Distributors, Inc. ("QDI"), the Fund's
distributor. Quest has voluntarily committed to reduce its
management fees to the extent necessary to maintain total
operating expenses at or below 1.99% for the year ending
December 31, 1996.
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
------ ------- ------- --------
$17 $53 $91 $198
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.
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FINANCIAL The following financial highlights are part of the Fund's
HIGHLIGHTS financial statements and have been audited by Coopers &
Lybrand L.L.P., independent accountants. The Fund's
(For a share out- financial statements and Coopers & Lybrand L.L.P.'s report
standing through- on them are included in the Fund's Annual Reports to
out each period) Shareholders and are incorporated by reference into the
Statement of Additional Information and this Prospectus.
Further information about the Fund's performance is
contained elsewhere in this Prospectus and in the Fund's
Annual Report to Shareholders for 1995, which may be
obtained without charge by calling Investor Information
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Year ended December 31,
----------------------- Period ended
1995 1994 Dec. 31, 1993(2)
------ ------- -------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..... $ 5.12 $ 5.00 $5.00
------ ------- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1) ............ 0.13 0.02 0.00
Net realized and unrealized
gains on securities ................ 1.24 0.24 0.00
------ ------- -----
Total from Investment Operations 1.37 0.26 0.00
------ ------- -----
LESS DISTRIBUTIONS
Dividends paid from net
investment income .................. (0.13) (0.02) 0.00
Distributions paid from capital gains (0.60) (0.12) 0.00
------ ------- -----
Total Distributions ............ (0.73) (0.14) 0.00
------ ------- -----
NET ASSET VALUE, END OF PERIOD ........... $ 5.76 $ 5.12 $5.00
------ ------- -----
TOTAL RETURN ............................. 26.9% 5.2% 0.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $2,548 $1,656 $451
Ratio of Expenses to
Average Net Assets (1) ............. 1.67% 1.96% 0.29%*
Ratio of Net Investment
Income to Average Net Assets ....... 2.42% 0.49% -0.29%*
Portfolio Turnover Rate .............. 68% 88% 0%
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(1) Expenses are shown after waiver of fees by the investment adviser and
distributor. Absent such waivers, the ratio of expenses to average net assets
would have been 2.38%, 3.21% and 2.04% for the years ended December 31, 1995 and
1994 and for the period ended December 31, 1993, respectively.
(2) From inception of the Fund on December 15, 1993.
* Annualized.
3
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INVESTMENT
PERFORMANCE
Total Return is the The Fund may include in communications to current or
change in value over prospective shareholders figures reflecting Total
a given time period, Return over various time periods. "Total Return" is
assuming reinvestment the rate of return on an amount invested in the Fund
of dividends and capital from the beginning to the end of the stated period.
gains distributions "Average annual Total Return" is the annual
compounded percentage change in the value of an
amount invested in the Fund from the beginning until
the end of the stated period. Total Returns are
historical measures of past performance and are not
intended to indicate future performance. Total
Returns assume the reinvestment of all net
investment income dividends and capital gains
distributions. The figures do not reflect the Fund's
early redemption fee because this fee applies only
to redemptions of share purchases held for less than
one year.
The Fund's average annual total returns for the
periods ended December 31, 1995 were:
One Since 12/15/93
Year Inception
------ --------------
26.9% 15.1%
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INVESTMENT Royce Total Return Fund's investment objective is an
OBJECTIVE equal focus on both long-term growth of capital and
current income. It seeks to achieve this objective
through investments in a broadly diversified
portfolio of dividend-paying common stocks of
companies selected on a value basis. Since certain
risks are inherent in owning any security, there can
be no assurance that the Fund will achieve its
objective.
This investment objective is fundamental and may not
be changed without the approval of a majority of the
Fund's outstanding voting shares, as that term is
defined in the Investment Company Act of 1940 (the
"1940 Act").
- --------------------------------------------------------------------------------
INVESTMENT Quest uses a "value" method in managing the Fund's
POLICIES assets. In its selection process, Quest puts primary
emphasis on the understanding of various internal
The Fund invests returns indicative of profitability, balance sheet
on a "value" basis quality, cash flows and the relationships that these
factors have to the price of a given security. This
is in contrast to other methods that focus on high
growth or emerging growth companies.
The Fund invests Quest's value method is based on its belief that the
primarily in small securities of certain companies may sell at a
companies discount from its estimate of such companies'
"private worth", that is, what a knowledgeable buyer
would pay for the entire company. Quest attempts to
identify and invest in these securities for the
Fund, with the expectation that this "value
discount" will narrow over time and thus provide
capital appreciation for the Fund. The securities in
which the Fund invests may be traded on securities
exchanges or in the over-the-counter market.
In accordance with its dual objective of seeking
both capital appreciation (realized and unrealized)
and current income, the Fund will normally invest at
least 80% of its assets in common stocks. At least
90% of these securities will be dividend-paying, and
at least 65% of these securities will be issued by
companies with stock market capitalizations under
$1,000,000,000 at the time of investment. The
remainder of the Fund's assets may be invested
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4
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in securities with higher stock market
capitalizations, non-dividend-paying common stocks
and convertible and non-convertible securities.
While most of the Fund's securities will be
income-producing, the composite yield of the Fund
will vary and may be either higher or lower than the
composite yield of the stocks in the Standard &
Poor's 500 Index.
- --------------------------------------------------------------------------------
INVESTMENT As a mutual fund investing primarily in common
RISKS stocks and/or securities convertible into common
stocks, the Fund is subject to market risk, that is,
The Fund is subject the possibility that common stock prices will
to certain investment decline over short or even extended periods. The
risks Fund invests a substantial portion of its assets in
securities of small and /or micro-cap companies.
Such companies may not be well-known to the
investing public, may not have significant
institutional ownership and may have cyclical,
static or only moderate growth prospects. In
addition, the securities of such companies may be
more volatile in price, have wider spreads between
their bid and ask prices and have significantly
lower trading volumes than the larger capitalization
stocks included in the S&P 500 Index. Thus, the
Fund"s purchases and sales of such securities
may have a greater impact on their market prices
than would be the case with larger capitalization
stocks. Accordingly, Quest's investment method
requires a long-term investment horizon, and the
Fund should not be used to play short-term swings in
the market.
- --------------------------------------------------------------------------------
INVESTMENT The Fund has adopted certain fundamental
LIMITATIONS limitations, designed to reduce its exposure to
specific situations, which may not be changed
The Fund has adopted without the approval of a majority of its
certain outstanding voting shares, as that term is defined
fundamental in the 1940 Act. These limitations are set forth in
limitations 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 In addition to investing primarily in the equity and
PRACTICES: fixed income securities described above, the Fund
may follow a number of additional investment
practices.
Short-term fixed The Fund may invest in short-term fixed income
income securities securities for temporary defensive purposes, to
invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. These
securities consist of United States Treasury bills,
domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements
collateralized by U.S. Government securities. In a
repurchase agreement, a bank sells a security to the
Fund at one price and agrees to repurchase it at the
Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which
are, in effect, secured loans by the Fund, the
securities purchased by the Fund will have a value
equal to or in excess of the value of the repurchase
agreement and will be held by the Fund's custodian
bank until repurchased. Should the Fund implement a
temporary investment policy, its investment
objective may not be achieved.
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Securities lending The Fund may lend up to 25% of its assets to
qualified institutional investors for the purpose of
realizing additional income. Loans of securities of
the Fund will be collateralized by cash or
securities issued or guaranteed by the United States
Government or its agencies or instrumentalities. The
collateral will equal at least 100% of the current
market value of the loaned securities. The risks of
securities lending include possible delays in
receiving additional collateral or in recovery of
loaned securities or loss of rights in the
collateral if the borrower defaults or becomes
insolvent.
Foreign securities The Fund may invest up to 10% of its assets in debt
and/or equity securities of foreign issuers. Foreign
investments involve certain risks, such as political
or economic instability of the issuer or of the
country of issue, fluctuating exchange rates and the
possibility of imposition of exchange controls.
These securities may also be subject to greater
fluctuations in price than the securities of U.S.
corporations, and there may be less publicly
available information about their operations.
Foreign companies may not be subject to accounting
standards or governmental supervision comparable to
U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may
offer less protection to investors such as the Fund.
Lower-rated Up to 20% of the Fund's assets may be invested in
debt securities debt securities in the lowest category of investment
grade debt. These bonds may have speculative
characteristics, and changes in economic conditions
or other circumstances are more likely to lead to a
weakened capacity to make principal and interest
payments than is the case with higher grade bonds.
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.
Portfolio turnover Although the Fund generally seeks to invest for the
long term, it retains the right to sell securities
regardless of how long they have been held. The
Fund's annual portfolio turnover rates are shown in
the "Financial Highlights." Portfolio turnover rates
have ranged from 68% to 88%. A 75% turnover rate
occurs, for example, if three-quarters of the Fund's
portfolio securities are replaced in one year. High
portfolio activity increases the Fund's transaction
costs, including brokerage commissions.
- --------------------------------------------------------------------------------
MANAGEMENT OF The Trust's business and affairs are managed under
THE TRUST the direction of its Board of Trustees. Quest, the
Fund's investment adviser, is responsible for the
Quest Advisory Corp. management of the Fund's portfolio, subject to the
Is responsible for authority of the Board of Trustees. Quest was
management of the organized in 1967 and has been the Fund's adviser
Fund"s portfolio since its inception. Charles M. Royce, Quest's
President, Chief Investment Officer and sole voting
shareholder since 1972, is primarily responsible for
supervising Quest's investment management
activities. Mr. Royce is assisted by Jack E.
Fockler, Jr. and W. Whitney George, Vice Presidents
of Quest, both of whom participate in the investment
management activities, with their specific
responsibilities varying from time to time. Quest is
also the investment adviser to Pennsylvania Mutual
Fund, to Royce Equity Income, Premier, Micro-Cap,
Low-Priced Stock, Global Services, Value and
GiftShares Funds, which are other series of the
Trust, and to other investment and non-investment
company accounts.
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As compensation for its services to the Fund, Quest
is entitled to receive annual advisory fees of 1.00%
of the average net assets of the Fund. These fees
are payable monthly from the assets of the Fund and
are substantially higher than those paid by most
other mutual funds with a similar investment
objective. For 1995, the fees were voluntarily
waived by Quest.
Quest 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 Quest. Quest is authorized, in
recognition of the value of brokerage and research
services provided, to pay commissions to a broker in
excess of the amount which another broker might have
charged for the same transaction.
Quest Distributors, Inc. ("QDI"), which is
wholly-owned by Charles M. Royce, acts as
distributor of the Fund's shares. The Trust has
adopted a distribution plan for the Fund pursuant to
Rule 12b-1. The plan provides for payment to QDI of
.25% per annum of the average net assets of the
Fund, which may be used for payment of sales
commissions and other fees to those who introduce
investors to the Fund and for various other
promotional, sales-related and servicing costs and
expenses. QDI has voluntarily committed to waive its
fees through 1996.
- --------------------------------------------------------------------------------
GENERAL The Royce Fund (the "Trust") is a Massachusetts
INFORMATION business trust registered with the Securities and
Exchange Commission as an open-end, diversified
management investment company. The Trustees have the
authority to issue an unlimited number of shares of
beneficial interest, without shareholder approval,
and these shares may be divided into an unlimited
number of series and classes. Shareholders are
entitled to one vote per share. Shares vote by
individual series on all matters, except that shares
are voted in the aggregate and not by individual
series when required by the 1940 Act and that if the
Trustees determine that a matter affects only one
series, then only shareholders of that series are
entitled to vote on that matter.
Meetings of shareholders will not be held except as
required by the 1940 Act or other applicable law. A
meeting will be held to vote on the removal of a
Trustee or Trustees of the Trust if requested in
writing by the holders of not less than 10% of the
outstanding shares of the Trust.
The Trust expects to call a special meeting of
shareholders, to be held in June 1996, for the
purpose of, among other matters, converting the
Trust from a Massachusetts business trust to a
Delaware business trust.
The custodian for 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.
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DIVIDENDS, The Fund pays dividends from net investment income
DISTRIBUTIONS (if any) and distributes its net realized capital
AND TAXES gains annually in December. Dividends and
distributions will be automatically reinvested in
additional shares of the Fund unless the shareholder
chooses otherwise.
The Fund pays Shareholders receive information annually as to the
dividends and capital tax status of distributions made by the Fund for the
gains annually in calendar year. For Federal income tax purposes, all
December distributions by the Fund are taxable to
shareholders when declared, whether received in cash
or reinvested in shares. Distributions paid from the
Fund's net investment income and short-term capital
gains are taxable to shareholders as ordinary income
dividends. A portion of the Fund's dividends may
qualify for the corporate dividends received
deduction, subject to certain limitations. The
portion of the Fund's dividends qualifying for such
deduction is generally limited to the aggregate
taxable dividends received by the Fund from domestic
corporations.
Distributions paid from long-term capital gains of
the Fund are treated by a shareholder for Federal
income tax purposes as long-term capital gains,
regardless of how long the shareholder has held Fund
shares. If a shareholder disposes of shares held for
six months or less at a loss, such loss is treated
as a long-term capital loss to the extent of any
long-term capital gains reported by the shareholder
with respect to such shares.
The redemption of shares is a taxable event, and a
shareholder may realize a capital gain or capital
loss. The Fund will report to redeeming shareholders
the proceeds of their redemptions. However, because
the tax consequences of a redemption will also
depend on the shareholder's basis in the redeemed
shares for tax purposes, shareholders should retain
their account statements for use in determining
their tax liability on a redemption.
At the time of a shareholder's purchase, the Fund's
net asset value may reflect undistributed income or
capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the
shareholder even though the distribution
economically is a return of part of the
shareholder's investment.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions and
redemptions paid to non-corporate shareholders who
have not complied with Internal Revenue Service
taxpayer identification regulations. Shareholders
may avoid this withholding requirement by certifying
on the Account Application Form their proper Social
Security or Taxpayer Identification Number and
certifying that they are not subject to backup
withholding.
The discussion of Federal income taxes above is for
general information only. The Statement of
Additional Information includes an additional
description of Federal income tax aspects that may
be relevant to a shareholder. Shareholders may also
be subject to state and local taxes on their
investment. Investors should consult their own tax
advisers concerning the tax consequences of an
investment in the Fund.
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NET ASSET VALUE Fund shares are purchased and redeemed at their net
PER SHARE asset value per share next determined after an order
is received by the Fund's transfer agent or an
Net asset value per authorized service agent or sub-agent. Net asset
share (NAV) is value per share is determined by dividing the total
determined each day value of the Fund's investments and other assets,
the New York Stock less any liabilities, by the number of outstanding
Exchange is open 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.
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SHAREHOLDER GUIDE
OPENING AN The Fund's shares are offered on a no-load basis.
ACCOUNT AND New accounts (other than IRA or 403(b)(7) accounts)
PURCHASING can be opened either by mail, by telephone or by
SHARES wire. An Account Application must be completed and
returned, regardless of the method selected. If you
need assistance with the Account Application or have
any questions about the Fund, please call Investor
Information at 1-800-221-4268. Note: For certain
types of account registrations (e.g., corporations,
partnerships, foundations, associations, other
organizations, trusts or powers of attorney), please
call Investor Information to determine if you need
to provide additional forms with your application.
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<CAPTION>
Type of Account Minimum
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Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
403(b)(7) accounts * None
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* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor Information
if you need these forms.
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).
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Purchasing By Mail Please include the amount Additional investments
Complete and sign the of your initial should include the
enclosed Account investment on the Invest-by-Mail remittance
Application Application Form, make form attached to your
your check payable to The Fund account confirmation
Royce Fund, and mail to: statements. Please make
your check payable to The
The Royce Funds Royce Fund, write your
P.O. Box 419012 account number on your
Kansas City, MO check and, using the
64141-6012 return envelope provided,
mail to the address
indicated on the
Invest-by-Mail form.
For The Royce Funds All written requests
express or c/o National Financial should be mailed to one
registered mail, Data Services of the addresses
send to: 1004 Baltimore, 5th Floor indicated for new
Kansas City, MO 64105 accounts.
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10
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Purchasing By To open an account by Subsequent telephone
Telephone telephone, you should purchases ($500 minimum)
call Investor Information may also be made by
(1-800-221-4268) before calling Investor
4:00 p.m., Eastern time. Information. For all
You will be given a telephone purchases,
confirming order number payment is due within
for your purchase. This three business days and
number must be placed on may be made by wire or
your completed personal, business or
Application before bank check, subject to
mailing. If a completed collection.
and signed Application is
not received on an
account opened by
telephone, the account
may be subject to backup
withholding of Federal
income taxes.
-----------------------------------------------------
Before Wiring: Money should be wired to:
For a new account, State Street Bank and Trust Company
please contact Investor ABA 011000028 DDA 9904-712-8
Information at 1-800- Ref: Royce Total Return Fund
221-4268 Order Number or Account Number_________________
Account Name __________________________________
To ensure proper receipt, please be sure your bank
includes the name of the Fund and your order number
(for telephone purchases) or account number. If you
are opening a new account, you must call Investor
Information to obtain an order number, and complete
the Account Application and mail it to the "New
Account" address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders
will be accepted only when the Fund and its custodian
are open for business.
-----------------------------------------------------
Purchasing By You can purchase shares automatically or at your
Express discretion through the following options:
Service
Expedited Purchase Option permits you, at your
discretion, to transfer funds ($100 minimum and
$200,000 maximum) from your bank account to purchase
shares in your Royce Fund account by telephone or
computer online access.
Automatic Investment Plan allows you to make regular,
automatic transfers ($50 minimum) from your bank
account to purchase shares in your Royce Fund account
on the monthly or quarterly schedule you select.
To establish the Expedited Purchase Option and/or
Automatic Investment Plan, please provide the
appropriate information on the Account Application
and attach a voided check. We will send you a
confirmation of Express Service activation. Please
wait three weeks before using the service.
To make an Expedited Purchase, other than through
computer online access, please call Shareholder
Services at 1-800-841- 1180 before 4:00 p.m., Eastern
time.
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Payroll Direct Deposit Plan and Government Direct
Deposit Plan let you have investments ($50 minimum)
made from your net payroll or government check into
your existing Royce Fund account each pay period.
Your employer must have direct deposit capabilities
through ACH (Automated Clearing House) available to
its employees. You may terminate participation in
these programs by giving written notice to your
employer or government agency, as appropriate. The
Fund is not responsible for the efficiency of the
employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete
an Authorization for Direct Deposit form which may be
obtained from Investor Information by calling 1-800-
221-4268.
- --------------------------------------------------------------------------------
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 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 The easiest way to establish optional services on
ACCOUNT your account is to select the options you desire when
INFORMATION you complete your Account Application. If you want to
add or change shareholder options later, you may need
to provide additional information and a signature
guarantee. Please call Shareholder Services at
1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokerage
firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be
provided by a notary public.
Certificates Certificates for whole shares will be issued upon
request. If a certificate is lost, stolen or
destroyed, you may incur an expense to replace it.
Purchases Through If you purchase shares of the Fund through a program
Service Providers of services offered or administered by a
broker-dealer, financial institution or other service
provider, you should read the program materials
provided by the service provider, including
information regarding fees which may be charged, in
conjunction with this Prospectus. Certain shareholder
servicing features of the Fund may not be available
or may be modified in connection with the program of
services offered. When shares of the Fund are
purchased in this way, the service provider, rather
than the customer, may be the shareholder of record
of the shares. Certain service providers may receive
compensation from the Fund, QDI and/or Quest for
providing such services.
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Telephone and Neither the Fund nor its transfer agent will be
Online Access liable for following instructions communicated by
Transactions telephone or computer online access that are
reasonably believed to be genuine. The transfer agent
uses certain procedures designed to confirm that
telephone and computer online access 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 telephone
calls, and if it does not follow such procedures, the
Fund or the transfer agent may be liable for any
losses due to unauthorized or fraudulent
transactions.
Nonpayment If your check or wire does not clear, or if payment
is not received for any telephone or computer online
access purchase, the transaction will be canceled and
you will be responsible for any loss the Fund incurs.
If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the
Fund as reimbursement for any loss incurred.
Trade Date for Your trade date is the date on which share purchases
Purchases are credited to your account. If your purchase is
made by check, Federal Funds wire, telephone,
computer online access 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 You may redeem any portion of your account at any
SHARES time. You may request a redemption in writing or by
telephone. Redemption proceeds normally will be sent
within two business days after the receipt of the
request in Good Order.
Redeeming By Mail Redemption requests should be mailed to The Royce
Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. (For express or registered mail, send
your request to The Royce Funds, c/o National
Financial Data Services, 1004 Baltimore, 5th Floor,
Kansas City, MO 64105.)
The redemption price of shares will be their net
asset value next determined after NFDS or an
authorized service agent or sub-agent has received
all required documents in Good Order.
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Definition of Good Order means that the request includes the
Good Order following:
1. The account number and Fund name.
2. The amount of the transaction (specified in
dollars or shares).
3. Signatures of all owners exactly as they are
registered on the account.
4. Signature guarantees if the value of the shares
being redeemed exceeds $50,000 or if the payment
is to be sent to an address other than the address
of record or is to be made to a payee other than
the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be
required, in the case of retirement plans,
corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as
it pertains to your request, please call Shareholder
Services at 1-800-841-1180.
-----------------------------------------------------
Redeeming By Shareholders who have not established Express Service
Telephone may redeem up to $50,000 of their Fund shares by
telephone, provided the proceeds are mailed to their
address of record. If preapproved, higher minimums
may apply for institutional accounts. To redeem
shares by telephone, you or your pre-authorized
representative may call Shareholder Services at 1-
800-841-1180. Redemption requests received by
telephone prior to the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m.,
Eastern time) are processed on the day of receipt;
redemption requests received by telephone after the
close of regular trading on the Exchange are
processed on the business day following receipt.
Telephone redemption service is not available for
Trust-sponsored retirement plan accounts or if
certificates are held. Telephone redemptions will not
be permitted for a period of sixty days after a
change in the address of record. See also "Important
Account Information - Telephone Transactions".
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Redeeming By If you select the Express Service Automatic
Express Withdrawal option, shares will be automatically
Service redeemed from your Fund account and the proceeds
transferred to your bank account according to the
schedule you have selected. You must have at least
$25,000 in your Fund account to establish the
Automatic Withdrawal option.
The Expedited Redemption option lets you redeem up to
$50,000 of shares from your Fund account by telephone
and transfer the proceeds directly to your bank
account. You may elect Express Service on the Account
Application or call Shareholder Services at
1-800-841-1180 for an Express Service application.
-----------------------------------------------------
Important Redemption If you are redeeming shares recently purchased by
Information 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.
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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 the Trust will normally make redemptions in
cash, it may cause the Fund to redeem in kind under
certain circumstances.
-----------------------------------------------------
Early Redemption In order to discourage short-term trading, the Fund
Fee assesses an early redemption fee of 1% on redemptions
of share purchases held for less than one year.
Purchases of Fund shares prior to July 1, 1996 are
exempt from the fee. Redemption fees will be paid to
the Fund, out of the redemption proceeds otherwise
payable to the shareholder, to help offset
transaction costs.
The Fund will use the "first-in, first-out" (FIFO)
method to determine the one-year holding period.
Under this method, the date of the redemption will be
compared with the earliest purchase date of the share
purchases held in the account. If this holding period
is less than one year, the fee will be assessed. In
determining "one year," the Fund will use the
anniversary month of a transaction. Thus, shares
purchased in August 1996, for example, will be
subject to the fee if they are redeemed prior to
August 1997. If they are redeemed on or after August
1, 1997, they will not be subject to the fee.
No redemption fee will be payable on shares acquired
through reinvestment, on an exchange into another
Royce Fund or by shareholders who are (a) employees
of the Trust or Quest or members of their immediate
families or employee benefit plans for them, (b)
participants in the Automatic Withdrawal Plan, (c)
certain Trust-approved Group Investment Plans and
charitable organizations, (d) profit-sharing trusts,
corporations or other institutional investors who are
investment advisory clients of Quest or (e) omnibus
or similar account customers of certain Trust-
approved broker-dealers and other institutions.
-----------------------------------------------------
Minimum Account Due to the relatively high cost of maintaining
Balance Requirement 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.
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EXCHANGE Exchanges between series of the Trust and with other
PRIVILEGE open-end Royce funds are permitted by telephone,
computer online access or 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 You may transfer the ownership of any of your Fund
OWNERSHIP 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 A confirmation statement will be sent to you each
Reports time you have a transaction in your account and
semi-annually. Financial reports are mailed
semi-annually. To reduce expenses, only one copy of
most shareholder reports may be mailed to a
household. Please call Investor Information if you
need additional copies.
Tax-sheltered Shares of the Fund are available for purchase in
Retirement Plans 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.
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The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected]
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
Distributor
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and
Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
Susan I. Grant, Secretary
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
The Royce Funds
Royce
Total Return
Fund
A No-Load Mutual Fund
Prospectus
April 30, 1995
- --------------------------------------------
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The Royce Funds
- --------------------------------------------------------------------------------
Royce Global Services Fund
- --------------------------------------------------------------------------------
PROSPECTUS -- April 30, 1996
- --------------------------------------------------------------------------------
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information--1-800-221-4268
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES--1-800-841-1180 INVESTMENT ADVISOR SERVICES--1-800-33-ROYCE
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INVESTMENT Royce Global Services Fund (the "Fund") seeks long-term
OBJECTIVE AND capital appreciation by investing primarily in common
POLICIES stocks and securities convertible into common stocks of
domestic and foreign companies in service industries.
Its securities are selected on a value basis. There can
be no assurance that the Fund will achieve its
objective.
The Fund is a no-load series of The Royce Fund (the
"Trust"), a diversified open-end management investment
company. The Trust is currently offering shares of nine
series. This Prospectus relates to Royce Global Services
Fund only.
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ABOUT THIS This Prospectus sets forth concisely the information
PROSPECTUS 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 April 30, 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.
If you are viewing the electronic version of this
Prospectus through an on-line computer service, you may
request a printed version free of charge by calling
Investor Information. The E-mail address for The Royce
Funds is [email protected] and the Internet Home
Page is http://www.roycefunds.com
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TABLE OF CONTENTS
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Page
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Fund Expenses 2
Financial Highlights 3
Investment Performance 4
Investment Objective 4
Investment Policies 4
Investment Risks 5
Investment Limitations 7
Management of the Trust 9
General Information 10
Page
Dividends, Distributions and Taxes 10
Net Asset Value Per Share 11
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares 12
Choosing a Distribution Option 14
Important Account Information 14
Redeeming Your Shares 15
Exchange Privilege 18
Transferring Ownership 18
Other Services 18
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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FUND EXPENSES The following table illustrates all expenses and fees
that you would incur as a shareholder of the Fund.
The Fund is Shareholder Transaction Expenses
no-load and no
12b-1 fees are Sales Load Imposed on Purchases ................................. None
being charged Sales Load Imposed on Reinvested Dividends ...................... None
Deferred Sales Load ............................................. None
Redemption Fee -- on purchases held for 1 year or more .......... None
Early Redemption Fee -- on purchases held for less than 1 year .. 1%
Annual Fund Operating Expenses
Management Fees (after waivers) ...... .00%
12b-1 Fees (after waivers) ........... .00%
Other Expenses ....................... 1.97%
Total Operating Expenses. ............ 1.97%
-----------------
The purpose of the above tables is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in the
Fund. Management Fees would have been 1.50%, 12b-1 fees
would have been .25% and Total Operating Expenses would
have been 3.72% without the waivers of management fees
by Quest Advisory Corp. ("Quest"), the Fund's investment
adviser, and of the 12b-1 fees by Quest Distributors,
Inc. ("QDI"), the Fund's distributor. Quest has
voluntarily committed to reduce its management fees to
the extent necessary to maintain total operating
expenses at or below 1.99% for the year ending December
31, 1996.
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
------ ------- ------- --------
$20 $62 $106 $230
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.
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2
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FINANCIAL The following financial highlights are part of the
HIGHLIGHTS Fund's financial statements and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The
(For a share out- Fund's financial statements and Coopers & Lybrand
standing through- L.L.P.'s report on them are included in the Fund's
out each period) Annual Reports to Shareholders and are incorporated by
reference into the Statement of Additional Information
and this Prospectus. Further information about the
Fund's performance is contained elsewhere in this
Prospectus and in the Fund's Annual Report to
Shareholders for 1995, which may be obtained without
charge by calling Investor Information
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Year ended Period ended
December 31, 1995 December 31, 1994(2)
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Net Asset Value, Beginning of Period $5.06 $5.00
Income from Investment
Operations
Net investment income (1) 0.00 0.00
Net realized and unrealized
gains on investments 1.07 0.06
Total from Investment Operations 1.07 0.06
Less Distributions
Dividends paid from net
investment income (0.00) (0.00)
Distributions paid from capital gains (0.45) (0.00)
Total Distributions (0.45) (0.00)
Net Asset Value, End of Period $5.68 $5.06
Total Return 21.2% 1.2%
Ratios/Supplemental Data
Net Assets, End of Period (000's) $1,627 $514
Ratio of Expenses to
Average Net Assets (1) 1.97% 1.78%*
Ratio of Net Investment
Income to Average Net Assets -0.58% 0%*
Portfolio Turnover Rate 106% 0%
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(1) Expenses are shown after waiver of fees by the investment adviser and
distributor. Absent such waivers, the ratio of expenses to average net assets
for the year ended December 31, 1995 and for the period ended December 31, 1994
would have been 3.72% and 3.69%, respectively.
(2) From inception of the Fund on December 15, 1994.
* Annualized.
3
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INVESTMENT The Fund may include in communications to current or
PERFORMANCE prospective shareholders figures reflecting total return
over various time periods. "Total return" is the rate of
Total return is the return on an amount invested in the Fund from the
change in value over beginning to the end of the stated period. "Average
a given time period, annual total return" is the annual compounded percentage
assuming reinvestment change in the value of an amount invested in the Fund
of dividends and from the beginning until the end of the stated period.
capital gains Total returns are historical measures of past
distributions performance and are not intended to indicate future
performance. Total returns 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 this fee applies only to
redemptions of share purchases held for less than one
year. Additionally, the performance of the Fund may be
compared in publications to i) the performance of
various indices and investments for which reliable
performance data is available and to ii) averages,
performance rankings, or other information prepared by
recognized mutual fund statistical services.
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INVESTMENT Royce Global Services Fund's investment objective is
OBJECTIVE long-term capital appreciation. It seeks to achieve this
objective primarily through investments in common stocks
and securities convertible into common stocks of
domestic and foreign companies principally engaged in
service industries. There can be no assurance that the
Fund will achieve its investment objective.
The Fund's investment objective of long-term capital
appreciation is fundamental and may not be changed
without the approval of a majority of its outstanding
voting shares, as that term is defined in the Investment
Company Act of 1940 (the "1940 Act").
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INVESTMENT Quest uses a "value" method in managing the Fund's
POLICIES assets. In its selection process, Quest puts primary
emphasis on the understanding of various internal
The Fund invests returns indicative of profitability, balance sheet
on a "value basis quality, cash flows and the relationships that these
factors have to the price of a given security. This is
in contrast to other methods that focus on high growth
or emerging growth companies. Quest's value method is
based on its belief that the securities of certain
companies may sell at a discount from its estimate of
such companies' "private worth", that is, what a
knowledgeable buyer would pay for the entire company.
Quest attempts to identify and invest in these
securities for the Fund, with the expectation that this
"value discount" will narrow over time and thus provide
capital appreciation for the Fund.
Although Quest has previously applied its value method
primarily to the equity securities of small companies
located in the United States, it believes that valuation
discrepancies may exist globally among many service
companies without regard to their stock market
capitalizations. For this reason, the Fund has a global
focus and does not limit the stock market
capitalizations of the companies in which it may invest.
As set forth below, a mutual fund of this type is
subject to certain investment risks that would not be
present for a domestic equity fund.
The Fund invests The Fund normally invests at least 65% of its assets in
primarily in service the common stocks, securities convertible into common
companies stocks and warrants of domestic and foreign companies
"principally" engaged in service industries. Service
industries may include: banking, insurance, securities,
investment management, advertising, communication,
consulting, distribution, engineering, environmental,
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health, leisure, security services, printing and
publishing, retail, food services, software and computer
services, transportation services and such other
industries as Quest may from time to time determine to
be service industries. For these purposes, a company is
deemed to be "principally" engaged in a service industry
if, as of the end of or for its most recent fiscal year,
at least 50% of its consolidated assets, revenues or net
income are committed to, or are derived from,
service-related activities.
The Fund does not concentrate its investments by
investing more than 25% of its assets in the securities
of companies principally engaged in any one industry,
including banking, insurance, securities and investment
management. However, because more than 25% of its assets
may be invested in companies engaged collectively in the
banking, insurance, securities and investment management
industries, the Fund may, to that extent, be deemed to
be concentrating its investments in a group consisting
of such industries.
Global Securities The Fund normally invests more than 65% of its assets in
securities of companies of at least three countries,
including the United States. In most instances
investments are made in companies principally based in
the United States or the other developed countries of
North America, Europe, Asia and Australia and not in
emerging markets countries.
Other securities The assets of the Fund that are not required to be
invested in the equity securities of domestic and
foreign companies engaged in service industries may be
invested in the common stocks, securities convertible
into common stocks and warrants of domestic and foreign
companies engaged in non-service industries and/or in
the non-convertible preferred stocks and debt securities
of domestic and foreign companies engaged in service or
non-service industries.
Other investment The Fund may also indirectly invest in the securities of
companies domestic and foreign service and non-service companies
by investing up to 20% of its assets in the securities
of other investment companies that invest primarily in
such companies. The other investment companies in which
the Fund may invest may be domestic companies registered
under the 1940 Act or foreign companies that are not so
registered or otherwise regulated. They usually have
their own management fees and expenses, and Quest will
also earn its fee on Fund assets invested in such other
companies, which would result in a duplication of fees
to the extent of any such investment. However, Quest
will waive its management fee on any Fund assets
invested in other open-end investment companies, and no
sales charge will be incurred on such an investment.
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INVESTMENT As a mutual fund investing primarily in common stocks
RISKS and securities convertible into common stocks, the Fund
is subject to market risk -- that is, the possibility
The Fund is subject that common stock prices will decline over short or even
to certain investment extended periods. Because of Quest's value method, the
risks Fund may invest in securities of companies that have
cyclical, static or only moderate growth prospects.
Quest's investment method requires a long-term
investment horizon, and the Fund should not be used to
play short-term swings in the market or as a complete
investment program.
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5
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Financial service Financial service companies such as banks,
companies are subject broker-dealers, insurance companies and investment
to certain risks management companies are subject to extensive
governmental regulation. This may limit both the amounts
and types of loans and other financial commitments that
banks, broker-dealers and insurance companies are
permitted to make, and, in the case of banks and
insurance companies, the interest, fees and premiums
they are permitted to charge. Insurance companies are
particularly subject to rate setting, potential
anti-trust and tax law changes and industry-wide pricing
and competition cycles and may be affected by
catastrophes and/or reinsurance carrier failures. Also,
the profitability of many types of financial service
companies is largely dependent on the availability and
cost of capital funds and may fluctuate significantly
when interest rates change. General economic conditions
are important to the operation of most financial service
companies, and credit losses resulting from financial
difficulties of borrowers may negatively impact some of
them. Changes in regulations, brokerage commission
structure and securities market activities, together
with the leverage and trading strategies employed by
broker-dealers and investment banks, may produce erratic
returns for them over time. Finally, most types of
financial service companies are subject to substantial
price and other competition.
Prices of the securities of domestic and foreign
financial service companies may be more volatile than
those of more broadly diversified investments, and the
Fund's performance may be tied to the financial services
industries and the United States and world economies as
a whole. The securities of financial service companies
may react similarly to market conditions and may move
together.
Foreign securities The Fund may purchase foreign securities in the form of
American Depositary Receipts ("ADRs"). ADRs are
certificates held in trust by a bank or similar
financial institution evidencing ownership of shares of
a foreign-based issuer. Designed for use in U.S.
securities markets, ADRs are alternatives to the
purchase of the underlying foreign securities in their
national markets and currencies.
The Fund does not expect to purchase or sell foreign
currencies to hedge against declines in the U.S. dollar
or to lock in the value of the foreign securities it
purchases, and its foreign investments may be adversely
affected by changes in foreign currency rates.
Consequently, the risks associated with such investments
may be greater than if the Fund did engage in foreign
currency transactions for hedging purposes. Foreign
investments may also be adversely affected by exchange
control regulations, if any, in such foreign markets,
and the Fund's ability to make certain distributions
necessary to maintain eligibility as a regulated
investment company and avoid the imposition of income
and excise taxes may to that extent be limited.
There may be less information available about a foreign
company than a domestic company; foreign companies may
not be subject to accounting, auditing and reporting
standards and requirements comparable to those
applicable to domestic companies; and foreign markets,
brokers and issuers are generally subject to less
extensive government regulation than their domestic
counterparts. Foreign securities may be less liquid and
may be subject to greater price volatility than domestic
securities. Foreign brokerage commissions and custodial
fees are generally higher than those in the United
States. Foreign markets also have different clearance
and settlement procedures, and in certain markets there
have been times when settlements have
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6
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been unable to keep pace with the volume of securities
transactions, thereby making it difficult to conduct
such transactions. Delays or problems with settlements
might affect the liquidity of the Fund's portfolio.
Foreign investments may also be subject to local
economic and political risks, political instability and
possible nationalization of issuers or expropriation of
their assets, which might adversely affect the Fund's
ability to realize on its investment in such securities.
Furthermore, some foreign securities are subject to
brokerage taxes levied by foreign governments, which
have the effect of increasing the cost of such
investment and reducing the realized gain or increasing
the realized loss on such securities at the time of
sale.
Income earned or received by the Fund from sources
within foreign countries may be subject to withholding
and other taxes imposed by such countries. Any such
taxes paid by the Fund will reduce its cash available
for distribution to shareholders. The Fund is required
to calculate its distributable income and capital gains
for U.S. Federal income tax purposes by reference to the
U.S. dollar. Fluctuations in applicable foreign currency
exchange rates may cause the Fund's distributable income
and capital gains for U.S. Federal income tax purposes
to differ from the value of its investments calculated
by reference to foreign currencies. If the Fund invests
in stock of a so-called passive foreign investment
company, the Fund may make certain elections that will
affect the calculation of its net investment income and
capital gains.
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INVESTMENT The Fund has adopted certain fundamental limitations,
LIMITATIONS designed to reduce its exposure to specific situations,
which may not be changed without the approval of a
The Fund has adopted majority of its outstanding voting shares, as that term
certain is defined in the 1940 Act. These limitations are set
fundamental forth in the Statement of Additional Information and
limitations provide, among other things, that the Fund will not:
(a) with respect to 75% of its assets, invest more
than 5% of its assets in the securities of any
one issuer, excluding obligations of the U.S.
Government;
(b) invest more than 25% of its assets in any one
industry; or
(c) invest in companies for the purpose of exercising
control of management.
The 1940 Act contains certain limitations applicable to
the Fund's investments in the securities of a company
that is a broker, a dealer, an underwriter, an
investment adviser registered under the Investment
Advisers Act of 1940 or an investment adviser to an
investment company. These limitations are set forth in
the Statement of Additional Information.
Other Investment In addition to investing primarily in the equity and
Practices fixed income securities described above, the Fund may
follow a number of additional investment practices.
Restricted and The Fund will not invest more than 15% of its net assets
illiquid securities in illiquid securities, including those restricted
securities that are illiquid.
Restricted securities are securities which, if publicly
sold, might cause the Fund to be deemed an "underwriter"
under the Securities Act of 1933 (the "1933 Act") or
which are subject to
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contractual restrictions on resale. Restricted
securities which the Fund may purchase include
securities which have not been registered under the 1933
Act, but are eligible for purchase and sale pursuant to
Rule 144A under the 1933 Act. This Rule permits certain
qualified institutional buyers to trade in privately
placed securities even though such securities are not
registered under the 1933 Act. Quest, under criteria
established by the Trust's Board of Trustees, will
consider whether securities purchased under Rule 144A
are illiquid and thus subject to the 15% limitation. In
making this determination, Quest will consider the
frequency of trades and quotes, the number of dealers
and potential purchasers, dealer undertakings to make a
market and the nature of the security and the market
place trades (for example, the time needed to dispose of
the security, the method of soliciting offers and the
mechanics of transfer). The liquidity of Rule 144A
securities will also be monitored by Quest, and if, as a
result of changed conditions, it is determined that a
Rule 144A security is no longer liquid, the Fund's
holding of illiquid securities will be reviewed to
determine what, if any, action is required in light of
the 15% limitation. Investing in Rule 144A securities
could have the effect of increasing the amount of
investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such
securities.
Short-term fixed The Fund may invest in short-term fixed income
income securities 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 collateralize d by U.S.
Government securities. In a repurchase agreement, a bank
sells a security to the Fund at one price and agrees to
repurchase it at the Fund's cost plus interest within a
specified period of seven or fewer days. In these
transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a
value equal to or in excess of the value of the
repurchase agreement and will be held by the Fund's
custodian bank until repurchased. Should the Fund
implement a temporary investment policy, its investment
objective may not be achieved.
Securities lending The Fund may lend up to 25% of its assets to qualified
institutional investors for the purpose of realizing
additional income. Loans of securities of the Fund will
be collateralize d by cash or securities issued or
guaranteed by the United States Government or its
agencies or instrumentali ties. The collateral will
equal at least 100% of the current market value of the
loaned securities. The risks of securities lending
include possible delays in receiving additional
collateral or in recovery of loaned securities or loss
of rights in the collateral if the borrower defaults or
becomes insolvent.
Lower-rated The Fund may also invest no more than 5% of its net
debt securities assets in lower-rated (high-risk) non-convertible debt
securities, which are below investment grade. The Fund
does not expect to invest in debt securities that are
rated lower than Caa by Moody's Investors Service, Inc.
or CCC by Standard & Poor's Corp. or, if unrated,
determined to be of comparable quality.
Portfolio turnover Although the Fund generally seeks to invest for the long
term, it retains the right to sell securities regardless
of how long they have been held. The Fund's annual
portfolio turnover rate was 106% in 1995, which is
higher than that of other funds. A 100% turnover rate
occurs, for example, if all of the Fund's portfolio
securities are replaced in one year. High portfolio
activity increases the Fund's transaction costs,
including brokerage commissions.
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MANAGEMENT OF The Trust's business and affairs are managed under the
THE TRUST direction of its Board of Trustees. Quest, the Fund's
investment adviser, is responsible for the management of
Quest Advisory Corp. the Fund's portfolio, subject to the authority of the
Is responsible for Board of Trustees. Quest was organized in 1967 and has
management of the been the Fund's adviser since its inception. Charles M.
Fund's portfolio Royce, Quest's President, Chief Investment Officer and
sole voting shareholder since 1972, is primarily
responsible for supervising Quest's investment
management activities. Mr. Royce is assisted by Jack E.
Fockler, Jr. and W. Whitney George, Vice Presidents of
Quest, both of whom participate in the investment
management activities, with their specific
responsibilities varying from time to time. Quest is
also the investment adviser to Pennsylvania Mutual Fund,
to Royce Equity Income, Premier, Micro-Cap, Low-Priced
Stock, Total Return, Value and GiftShares Funds, which
are other series of the Trust, and to other investment
and non-investment company accounts.
As compensation for its services to the Fund, Quest is
entitled to receive annual advisory fees of 1.5% of the
average net assets of the Fund. These fees are payable
monthly from the assets of the Fund and are
substantially higher than those paid by most other
mutual funds with a similar investment objective. For
1995, the fees were voluntarily waived by Quest.
Quest 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 Quest. Quest is authorized, in recognition
of the value of brokerage and research services
provided, to pay commissions to a broker in excess of
the amount which another broker might have charged for
the same transaction.
Quest Distributors, Inc. ("QDI"), which is wholly-owned
by Charles M. Royce, acts as distributor of the Fund's
shares. The Trust has adopted a distribution plan for
the Fund pursuant to Rule 12b-1. The plan provides for
payment to QDI of .25% per annum of the average net
assets of the Fund, which may be used for payment of
sales commissions and other fees to those who introduce
investors to the Fund and for various other promotional,
sales-related and servicing costs and expenses. QDI has
voluntarily committed to waive its fees through 1996.
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GENERAL The Royce Fund ("the "Trust") is a Massachusetts
INFORMATION business trust registered with the Securities and
Exchange Commission as an open-end, diversified
management investment company. The Trustees have the
authority to issue an unlimited number of shares of
beneficial interest, without shareholder approval, and
these shares may be divided into an unlimited number of
series and classes. Shareholders are entitled to one
vote per share. Shares vote by individual series on all
matters, except that shares are voted in the aggregate
and not by individual series when required by the 1940
Act and that if the Trustees determine that a matter
affects only one series, then only shareholders of that
series are entitled to vote on that matter.
Meetings of shareholders will not be held except as
required by the 1940 Act or other applicable law. A
meeting will be held to vote on the removal of a Trustee
or Trustees of the Trust if requested in writing by the
holders of not less than 10% of the outstanding shares
of the Trust.
The Trust expects to call a special meeting of
shareholders, to be held in June 1996, for the purpose
of, among other matters, converting the Trust from a
Massachusetts business trust to a Delaware business
trust.
The custodian for 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.
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DIVIDENDS, The Fund pays dividends from net investment income (if
DISTRIBUTIONS any) and distributes its net realized capital gains
AND TAXES annually in December. Dividends and distributions will
be automatically reinvested in additional shares of the
Fund unless the shareholder chooses otherwise.
The Fund pays Shareholders receive information annually as to the tax
dividends and capital status of distributions made by the Fund for the
gains annually in calendar year. For Federal income tax purposes, all
December distributions by the Fund are taxable to shareholders
when declared, whether received in cash or reinvested in
shares. Distributions paid from the Fund's net
investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends. A
portion of the Fund's dividends may qualify for the
corporate dividends received deduction, subject to
certain limitations. The portion of the Fund's dividends
qualifying for such deduction is generally limited to
the aggregate taxable dividends received by the Fund
from domestic corporations.
Distributions paid from long-term capital gains of the
Fund are treated by a shareholder for Federal income tax
purposes as long-term capital gains, regardless of how
long the shareholder has held Fund shares. If a
shareholder disposes of shares held for six months or
less at a loss, such loss is treated as a long-term
capital loss to the extent of any long-term capital
gains reported by the shareholder with respect to such
shares.
The redemption of shares is a taxable event, and a
shareholder may realize a capital gain or capital loss.
The Fund will report to redeeming shareholders the
proceeds of their redemptions. However, because the tax
consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax
purposes, shareholders should retain their account
statements for use in determining their tax liability on
a redemption.
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At the time of a shareholder's purchase, the Fund's net
asset value may reflect undistributed income or capital
gains. A subsequent distribution of these amounts by the
Fund will be taxable to the shareholder even though the
distribution economically is a return of part of the
shareholder's investment.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions and redemptions
paid to non-corporate shareholders who have not complied
with Internal Revenue Service taxpayer identificatio n
regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application
Form their proper Social Security or Taxpayer
Identificatio n Number and certifying that they are not
subject to backup withholding.
The discussion of Federal income taxes above is for
general information only. The Statement of Additional
Information includes an additional description of
Federal income tax aspects that may be relevant to a
shareholder. Shareholders may also be subject to state
and local taxes on their investment. Investors should
consult their own tax advisers concerning the tax
consequences of an investment in the Fund.
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NET ASSET VALUE Fund shares are purchased and redeemed at their net
PER SHARE asset value per share next determined after an order is
received by the Fund's transfer agent or an authorized
Net asset value per service agent or sub-agent. Net asset value per share is
share (NAV) is determined by dividing the total value of the Fund's
determined each day investments and other assets, less any liabilities, by
the New York Stock the number of outstanding shares of the Fund. Net asset
Exchange is open 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.
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SHAREHOLDER GUIDE
OPENING AN The Fund's shares are offered on a no-load basis. New
ACCOUNT AND accounts (other than IRA or 403(b)(7) accounts) can be
PURCHASING opened either by mail, by telephone or by wire. An
SHARES Account Application must be completed and returned,
regardless of the method selected. If you need
assistance with the Account Application or have any
questions about the Fund, please call Investor
Information at 1-800-221-4268. Note: For certain types
of account registrations (e.g., corporations,
partnerships, foundations, associations, other
organizations, trusts or powers of attorney), please
call Investor Information to determine if you need to
provide additional forms with your application.
</TABLE>
<TABLE>
<CAPTION>
Type of Account Minimum
--------------- -------
<S> <C>
Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
403(b)(7) accounts * None
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<TABLE>
<S> <C>
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor Information if
you need these forms.
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).
</TABLE>
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<TABLE>
<CAPTION>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
<S> <C> <C>
Purchasing By Mail Please include the amount of your initial Additional investments should include the
Complete and sign the investment on the Application Form, make Invest-by-Mail remittance form attached to
enclosed Account your check payable to The Royce Fund, and your Fund account confirmation statements.
Application mail to: Please make your check payable to The Royce
Fund, write your account number on your
The Royce Funds check and, using the return envelope
P.O. Box 419012 provided, mail to the address indicated on
Kansas City, MO 64141-6012 the Invest-by-Mail form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
</TABLE>
12
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<TABLE>
<CAPTION>
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
<S> <C> <C>
Purchasing By To open an account by telephone, you should Subsequent telephone purchases ($500
Telephone call Investor Information (1- 800-221-4268) minimum) may also be made by calling
before 4:00 p.m., Eastern time. You will be Investor Information. For all telephone
given a confirming order number for your purchases, payment is due within three
purchase. This number must be placed on business days and may be made by wire or
your completed Application before mailing. personal, business or bank check, subject to
If a completed and signed Application is not collection.
received on an account opened by telephone,
the account may be subject to backup
withholding of Federal income taxes.
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Before Wiring: Money should be wired to:
For a new account, State Street Bank and Trust Company
please contact Investor ABA 011000028 DDA 9904-712-8
Information at 1-800- Ref: Royce Global Services Fund
221-4268 Order Number or Account Number____________________
Account Name ____________________________________
To ensure proper receipt, please be sure your bank
includes the name of the Fund and your order number (for
telephone purchases) or account number. If you are
opening a new account, you must call Investor
Information to obtain an order number, and complete the
Account Application and mail it to the "New Account"
address above after completing your wire arrangement.
Note: Federal Funds wire purchase orders will be
accepted only when the Fund and its custodian are open
for business.
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Purchasing By You can purchase shares automatically or at your
Express discretion through the following options:
Service
Expedited Purchase Option permits you, at your
discretion, to transfer funds ($100 minimum and $200,000
maximum) from your bank account to purchase shares in
your Royce Fund account by telephone or computer online
access.
Automatic Investment Plan allows you to make regular,
automatic transfers ($50 minimum) from your bank account
to purchase shares in your Royce Fund account on the
monthly or quarterly schedule you select.
To establish the Expedited Purchase Option and/or
Automatic Investment Plan, please provide the
appropriate information on the Account Application and
attach a voided check. We will send you a confirmation
of Express Service activation. Please wait three weeks
before using the service.
To make an Expedited Purchase, other than through
computer online access, please call Shareholder Services
at 1-800-841- 1180 before 4:00 p.m., Eastern time.
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13
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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.
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CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 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.
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IMPORTANT The easiest way to establish optional services on your
ACCOUNT account is to select the options you desire when you
INFORMATION complete your Account Application. If you want to add or
change shareholder options later, you may need to
provide additional information and a signature
guarantee. Please call Shareholder Services at
1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokerage
firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be
provided by a notary public.
Certificates Certificates for whole shares will be issued upon
request. If a certificate is lost, stolen or destroyed,
you may incur an expense to replace it.
Purchases Through If you purchase shares of the Fund through a program of
Service Providers services offered or administered by a broker-dealer,
financial institution or other service provider, you
should read the program materials provided by the
service provider, including information regarding fees
which may be charged, in conjunction with this
Prospectus. Certain shareholder servicing features of
the Fund may not be available or may be modified in
connection with the program of services offered. When
shares of the Fund are purchased in this way, the
service provider, rather than the customer, may be the
shareholder of record of the shares. Certain service
providers may receive compensation from the Fund, QDI
and/or Quest for providing such services.
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14
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Telephone and Neither the Fund nor its transfer agent will be liable
Online Access for following instructions communicated by telephone or
Transactions computer online access that are reasonably believed to
be genuine. The transfer agent uses certain procedures
designed to confirm that telephone and computer online
access 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 telephone calls, and if it does not follow such
procedures, the Fund or the transfer agent may be liable
for any losses due to unauthorized or fraudulent
transactions.
Nonpayment If your check or wire does not clear, or if payment is
not received for any telephone or computer online access
purchase, the transaction will be canceled and you will
be responsible for any loss the Fund incurs. If you are
already a shareholder, the Fund can redeem shares from
any identically registered account in the Fund as
reimbursement for any loss incurred.
Trade Date for Your trade date is the date on which share purchases are
Purchases credited to your account. If your purchase is made by
check, Federal Funds wire, telephone, computer online
access 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.
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REDEEMING YOUR You may redeem any portion of your account at any time.
SHARES You may request a redemption in writing or by telephone.
Redemption proceeds normally will be sent within two
business days after the receipt of the request in Good
Order.
Redeeming By Mail Redemption requests should be mailed to The Royce Funds,
c/o NFDS, P.O. Box 419012, Kansas City, MO 64141-6012.
(For express or registered mail, send your request to
The Royce Funds, c/o National Financial Data Services,
1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset
value next determined after NFDS or an authorized
service agent or sub-agent has received all required
documents in Good Order.
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15
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Definition of Good Order means that the request includes the
Good Order following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars
or shares).
3. Signatures of all owners exactly as they are
registered on the account.
4. Signature guarantees if the value of the shares
being redeemed exceeds $50,000 or if the payment is
to be sent to an address other than the address of
record or is to be made to a payee other than the
shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be
required, in the case of retirement plans,
corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as it
pertains to your request, please call Shareholder
Services at 1-800-841- 1180.
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Redeeming By Shareholders who have not established Express Service
Telephone may redeem up to $50,000 of their Fund shares by
telephone, provided the proceeds are mailed to their
address of record. If preapproved, higher minimums may
apply for institutional accounts. To redeem shares by
telephone, you or your pre-authorized representative may
call Shareholder Services at 1- 800-841-1180. Redemption
requests received by telephone prior to the close of
regular trading on the New York Stock Exchange
(generally 4:00 p.m., Eastern time) are processed on the
day of receipt; redemption requests received by
telephone after the close of regular trading on the
Exchange are processed on the business day following
receipt.
Telephone redemption service is not available for Trust-
sponsored retirement plan accounts or if certificates
are held. Telephone redemptions will not be permitted
for a period of sixty days after a change in the address
of record. See also "Important Account Information -
Telephone Transactions".
- --------------------------------------------------------------------------------
Redeeming By If you select the Express Service Automatic Withdrawal
Express option, shares will be automatically redeemed from your
Service Fund account and the proceeds transferred to your bank
account according to the schedule you have selected. You
must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The Expedited Redemption option lets you redeem up to
$50,000 of shares from your Fund account by telephone
and transfer the proceeds directly to your bank account.
You may elect Express Service on the Account Application
or call Shareholder Services at 1-800-841-1180 for an
Express Service application.
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Important Redemption If you are redeeming shares recently purchased by check,
Information 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.
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<S> <C>
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 the Trust will normally make redemptions in
cash, it may cause the Fund to redeem in kind under
certain circumstances.
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Early Redemption In order to discourage short-term trading, the Fund
Fee assesses an early redemption fee of 1% on redemptions of
share purchases held for less than one year. Purchases
of Fund shares prior to July 1, 1996 are exempt from the
fee. Redemption fees will be paid to the Fund, out of
the redemption proceeds otherwise payable to the
shareholder, to help offset transaction costs.
The Fund will use the "first- in, first-out" (FIFO)
method to determine the one-year holding period. Under
this method, the date of the redemption will be compared
with the earliest purchase date of the share purchases
held in the account. If this holding period is less than
one year, the fee will be assessed. In determining "one
year," the Fund will use the anniversary month of a
transaction. Thus, shares purchased in August 1996, for
example, will be subject to the fee if they are redeemed
prior to August 1997. If they are redeemed on or after
August 1, 1997, they will not be subject to the fee.
No redemption fee will be payable on shares acquired
through reinvestment, on an exchange into another Royce
Fund or by shareholders who are (a) employees of the
Trust or Quest or members of their immediate families or
employee benefit plans for them, (b) participants in the
Automatic Withdrawal Plan, (c) certain Trust-approved
Group Investment Plans and charitable organizations, (d)
profit-sharing trusts, corporations or other
institutional investors who are investment advisory
clients of Quest or (e) omnibus or similar account
customers of certain Trust- approved broker-dealers and
other institutions.
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Minimum Account Due to the relatively high cost of maintaining smaller
Balance Requirement 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.
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17
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EXCHANGE Exchanges between series of the Trust and with other
PRIVILEGE open-end Royce funds are permitted by telephone,
computer online access or 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.
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TRANSFERRING You may transfer the ownership of any of your Fund
OWNERSHIP 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 A confirmation statement will be sent to you each time
Reports you have a transaction in your account and
semi-annually. Financial reports are mailed
semi-annually. To reduce expenses, only one copy of most
shareholder reports may be mailed to a household. Please
call Investor Information if you need additional copies.
Tax-sheltered Shares of the Fund are available for purchase in
Retirement Plans 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.
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The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected]
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
Distributor
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
Susan I. Grant, Secretary
The Royce Funds
Royce
Global Services
Fund
A No-Load Mutual Fund
Prospectus
April 30, 1995
- -------------------------------------
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<PAGE>
<PAGE>
THE ROYCE FUND
STATEMENT OF ADDITIONAL INFORMATION
THE ROYCE FUND (the "Trust"), a Massachusetts business trust, is a
professionally managed, open-end registered investment company, which offers
investors the opportunity to invest in nine portfolios or series. Each series
has distinct investment objectives and/or policies, 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 LOW-PRICED STOCK FUND
ROYCE MICRO-CAP FUND
ROYCE GIFTSHARES FUND
ROYCE TOTAL RETURN FUND
ROYCE GLOBAL SERVICES FUND
THE REVEST GROWTH & INCOME FUND
This Statement of Additional Information relates to all of the series
other than REvest Growth & Income Fund ("Funds"). REvest is covered by its own
separate Statement of Additional Information.
The Trust is designed for long-term investors, including those who wish
to use shares of any Fund (other than Royce GiftShares Fund) as a funding
vehicle for certain tax-deferred retirement plans (including Individual
Retirement Account (IRA) plans), and not for investors who intend to liquidate
their investments after a short period of time.
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Trust's current Prospectuses dated April 30,
1996. Please retain this document for future reference. The audited financial
statements included in the Annual Reports to Shareholders of such Funds for the
fiscal year or period ended December 31, 1995 are incorporated herein by
reference. To obtain an additional copy of the Prospectus or Annual for any of
these Funds, please call Investor Information at 1-800-221-4268.
INVESTMENT ADVISER TRANSFER AGENT
Quest Advisory Corp. ("Quest") State Street Bank and Trust Company
c/o National Financial Data Services
DISTRIBUTOR CUSTODIAN
Quest Distributors, Inc. ("QDI") State Street Bank and Trust Company
APRIL 30, 1996
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS.................................. 2
RISK FACTORS AND SPECIAL CONSIDERATIONS.............................. 5
MANAGEMENT OF THE TRUST.............................................. 9
PRINCIPAL HOLDERS OF SHARES......................................... 11
INVESTMENT ADVISORY SERVICES......................................... 14
DISTRIBUTOR.......................................................... 17
CUSTODIAN............................................................ 19
INDEPENDENT ACCOUNTANTS.............................................. 19
PORTFOLIO TRANSACTIONS............................................... 20
CODE OF ETHICS AND RELATED MATTERS................................... 22
PRICING OF SHARES BEING OFFERED...................................... 22
REDEMPTIONS IN KIND.................................................. 23
TAXATION............................................................. 23
DESCRIPTION OF THE TRUST............................................. 30
PERFORMANCE DATA..................................................... 31
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INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement those set
forth in the Funds' Prospectuses. Unless otherwise noted, whenever an investment
policy or limitation states a maximum percentage of a Fund's assets that may be
invested in any security or other asset or sets forth a policy regarding quality
standards, the percentage limitation or standard will be determined immediately
after giving effect to the Fund's acquisition of the security or other asset.
Accordingly, any subsequent change in values, net assets or other circumstances
will not be considered in determining whether the investment complies with the
Fund's investment policies and limitations.
A Fund's fundamental investment policies cannot be changed without the
approval of a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 [the "1940 Act"]) of the Fund. Except for the
fundamental investment restrictions set forth below, the investment policies and
limitations described in this Statement of Additional Information are operating
policies and may be changed by the Board of Trustees without shareholder
approval. However, shareholders will be notified prior to a material change in
an operating policy affecting their Fund.
NO FUND MAY, AS A MATTER OF FUNDAMENTAL POLICY:
1. Issue any senior securities;
2. Purchase securities on margin or write call options on
its portfolio securities;
3. Sell securities short;
4. Borrow money, except that each of the Funds other than
Royce Value Fund may borrow money from banks as a
temporary measure for extraordinary or emergency purposes
in an amount not exceeding 5% of such Fund's total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 10% of its total assets in the securities
of foreign issuers (except for Royce Global Services Fund,
which is not subject to any such limitation);
7. Invest in restricted securities (except for Royce Global
Services Fund, which may invest up to 15% of its net
assets in illiquid securities, including restricted
securities) or in repurchase agreements which mature in
more than seven days;
8. Invest more than 10% (15% for Royce Global Services Fund)
of its assets in securities without readily available
market quotations (i.e., illiquid securities);
2
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9. Invest, with respect to Royce Value and Royce Equity
Income Funds, more than 5% of such Fund's assets in the
securities of any one issuer (except U.S. Government
securities) or, with respect to 75% of the other Funds'
total assets, more than 5% of such Fund's assets in the
securities of any one issuer (except U.S. Government
securities);
10. Invest more than 25% of its assets in any one industry;
11. Acquire more than 10% of the outstanding voting securities
of any one issuer;
12. Purchase or sell real estate or real estate mortgage loans
or invest in the securities of real estate companies
unless such securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other
securities, whether or not such purchases are made upon
the original issuance of such securities, and except that
Royce Equity Income, Low-Priced Stock, GiftShares, Total
Return and Global Services Funds may loan up to 25% of
their respective assets to qualified brokers, dealers or
institutions for their use relating to short sales or
other securities transactions (provided that such loans
are fully collateralized at all times);
15. Invest in companies for the purpose of exercising control
of management;
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers,
employees or investment adviser, as principal for their
own accounts;
17. Invest in the securities of other investment companies
(except for Royce Global Services Fund, which may invest
in the securities of other investment companies to the
extent permitted by the 1940 Act); or
18. Purchase any warrants, rights or options, except that (i)
all of the Funds other than Royce Value Fund may, if no
value is assigned thereto, acquire warrants in units with
or attached to debt securities or non-convertible
preferred stock, and (ii) Royce Low-Priced Stock,
GiftShares, Total Return and Global Services Funds may
also invest up to 5% of their respective net assets in
warrants, valued at the lower of cost or market, provided
that warrants that are not listed on the New York or
American Stock Exchanges shall not exceed 2% of such
Funds' respective net assets.
The Board of Trustees has approved changes in the Trust's fundamental
policies that would permit: (i) Royce Value Fund to borrow money from banks as a
temporary measure for
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extraordinary or emergency purposes in an amount not exceeding 5% of its total
assets, (ii) each of Royce Micro-Cap, Premier and Value Funds to loan up to 25%
of its respective assets to qualified brokers, dealers or institutions for their
use relating to short sales or other securities transactions (provided that such
loans are fully collateralized at all times) and (iii) all of the Funds to
invest up to 5% of their respective assets in warrants, rights and options.
These changes in the Trust's fundamental policies are subject to the approvals
of the applicable Fund's shareholders at a special meeting scheduled for June
26, 1996. Even if the change in fundamental investment policies concerning
warrants, rights and options is approved by shareholders, the Funds may be
required, under the securities or Blue Sky laws of one or more states, to adopt
a more restrictive operating policy for unlisted warrants and options.
NO FUND MAY, AS A MATTER OF OPERATING POLICY:
1. Invest more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, which
have been in operation for less than three years;
2. Invest in oil, gas or other mineral leases or development
programs;
3. Invest more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities; or
4. Enter into repurchase agreements with any party other than
the custodian of its assets or having a term of more than
seven days.
ROYCE GLOBAL SERVICES FUND
The Global Services Fund may invest in the securities of a company that
is engaged in securities related activities as a broker, a dealer, an
underwriter, an investment adviser registered under the Investment Advisers Act
of 1940 or an investment adviser to an investment company, subject to the
following limitations in the case of a company that, in its most recent fiscal
year, derived more than 15% of its gross revenues from such activities:
(a) The purchase cannot cause more than 5% of the Global Services Fund's
assets to be invested in the securities of the company;
(b) For an equity security, the purchase cannot result in the Global
Services Fund owning more than 5% of the company's outstanding
securities of that class; and
(c) For a debt security, the purchase cannot result in the Global
Services Fund owning more than 10% of the principal amount of the
company's outstanding debt securities.
In applying the gross revenues test, a company's gross revenues from its
own securities related activities and from its ratable share of the securities
related activities of enterprises of which it owns 20% or more of the voting or
equity interest are considered in determining the degree to which the company is
engaged in securities related activities. The limitations apply only at the time
of the Global Services Fund's purchase of the securities of such a company. When
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the Global Services Fund is considering purchasing or has purchased warrants or
convertible securities of a securities related business, the required
determination is made as though such warrants or conversion privileges had been
exercised.
The Global Services Fund is not permitted to acquire a general
partnership interest or a security issued by its investment adviser or principal
underwriter or any affiliated person of its investment adviser or principal
underwriter.
The Global Services Fund may invest up to 20% of its assets in the
securities of other investment companies, provided that (i) the Fund and all
affiliated persons of the Fund do not invest in more than 3% of the total
outstanding stock of any one such company and (ii) the Fund does not offer or
sell its shares at a public offering price which includes a sales load of more
than 1 1/2%. (The 20% and 3% limitations do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation or merger.) The other investment company is not obligated to
redeem those of its securities held by the Fund in an amount exceeding 1% of its
total outstanding securities during any period of less than thirty days, and the
Fund will be obligated to exercise voting rights with respect to any such
security by voting the securities held by it in the same proportion as the vote
of all other holders of the security.
The Global Service Fund does not currently intend to invest more than 5%
of its assets in the securities of any one other investment company, to purchase
securities of other investment companies, except in the open market where no
commission other than the ordinary broker's commission is paid, or to purchase
or hold securities issued by other open-end investment companies.
RISK FACTORS AND SPECIAL CONSIDERATIONS
FUNDS' RIGHTS AS STOCKHOLDERS
As noted above, no Fund may invest in a company for the purpose of
exercising control of management. However, a Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to
management, the board of directors and/or stockholders if Quest or the Board of
Trustees determine that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that a Fund may
engage in, either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's board of
directors or management; seeking changes in a company's direction or policies;
seeking the sale or reorganization of a company or a portion of its assets; or
supporting or opposing third party takeover attempts. This area of corporate
activity is prone to litigation, and it is possible that a Fund could be
involved in lawsuits related to such activities. Quest will monitor such
activities with a view to mitigating, to the extent possible, the risk of
litigation against the Funds and the risk of actual liability if a Fund is
involved in litigation. However, no guarantee can be made that litigation
against a Fund will not be undertaken or liabilities incurred.
5
<PAGE>
<PAGE>
A Fund may, at its expense or in conjunction with others, pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if Quest and the Trust's Board of
Trustees determine this to be in the best interests of a Fund's shareholders.
SECURITIES LENDING
Royce Equity Income, Low-Priced Stock, GiftShares, Total Return and
Global Services Funds may lend up to 25% of their respective assets to brokers,
dealers and other financial institutions. Securities lending allows the Fund to
retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties that participate in a
Global Securities Lending Program monitored by the Funds' custodian and who are
deemed by it to be of good standing. Furthermore, such loans will be made only
if, in Quest's judgment, the consideration to be earned from such loans would
justify the risk.
Quest understands that it is the current view of the staff of the
Securities and Exchange Commission that a Fund may engage in such loan
transactions only under the following conditions: (i) the Fund must receive 100%
collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or
notes) from the borrower; (ii) the borrower must increase the collateral
whenever the market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (iii) after giving notice, the Fund
must be able to terminate the loan at any time; (iv) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest or other distributions on the
securities loaned and to any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) the Fund must be
able to vote proxies on the securities loaned, either by terminating the loan or
by entering into an alternative arrangement with the borrower.
LOWER-RATED (HIGH-RISK) DEBT SECURITIES
Each Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated from Ba to Ca by
Moody's Investors Service, Inc. or from BB to D by Standard & Poor's 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
6
<PAGE>
<PAGE>
recession. In fact, from 1989 to 1991, the percentage of lower-rated (high-risk)
debt securities that defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may be thinner
and less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations cease to be
readily available for a lower-rated (high-risk) debt security in which a Fund
has invested, the security will then be valued in accordance with procedures
established by the Board of Trustees. Judgment plays a greater role in valuing
lower- rated (high-risk) debt securities than is the case for securities for
which more external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect a
Fund's ability to dispose of lower-rated (high-risk) debt securities.
Since the risk of default is higher for lower-rated (high-risk) debt
securities, Quest's research and credit analysis may play an important part in
managing securities of this type for the Funds. In considering such investments
for the Funds, Quest will attempt to identify those issuers of lower-rated
(high-risk) debt securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future. Quest's
analysis may focus on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
FOREIGN INVESTMENTS
Except for Royce Global Services Fund, which is not subject to any such
limitation, each Fund may invest up to 10% of its total assets in the securities
of foreign issuers. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies and of dividends and interest
from such securities can change significantly when foreign currencies strengthen
or weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars or other government intervention. There may be a greater possibility of
default by foreign
7
<PAGE>
<PAGE>
governments or foreign government-sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic or social
instability, military action or unrest or adverse diplomatic developments. There
is no assurance that Quest will be able to anticipate these potential events or
counter their effects.
The considerations noted above are generally intensified for investments
in developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries and securities markets
that trade a small number of securities.
American Depositary Receipt (ADR) facilities may be established as
either unsponsored or sponsored. While ADRs issued under these two types of
facilities are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the practices of
market participants. A depository may establish an unsponsored facility without
participation by (or even necessarily the acquiescence of) the issuer of the
deposited securities, although typically the depository requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs generally bear all the costs of such facilities. The
depository usually charges fees upon the deposit and withdrawal of the deposited
securities, the conversion of dividends into U.S. dollars, the disposition of
non-cash distributions and the performance of other services. The depository of
an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited securities
or to pass through voting rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depository. The deposit agreement sets
out the rights and responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as deposit
and withdrawal fees). Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities.
REPURCHASE AGREEMENTS
In a repurchase agreement, a Fund in effect makes a loan by purchasing a
security and simultaneously committing to resell that security to the seller at
an agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked to market daily) of the underlying
security.
The Funds may engage in repurchase agreements with respect to any U.S.
Government security. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delays and costs to
the Fund in connection with bankruptcy proceedings), it is the policy of the
Trust to enter into repurchase agreements only with its custodian, State Street
Bank and Trust Company, and having a term of seven days or less.
8
<PAGE>
<PAGE>
PORTFOLIO TURNOVER
For the year ended December 31, 1995 and the period from December 15,
1994 (commencement of operations) through December 31, 1994, Royce Global
Services Fund's portfolio turnover rates were 106% and 0%, respectively. The
Fund's portfolio turnover rate for its two-week start-up period in 1994 was zero
because the Fund was then investing its initial cash and did not sell any
portfolio securities during this period.
* * *
Quest believes that Royce Value, Low-Priced Stock, Micro-Cap, GiftShares
and Global Services Funds are suitable for investment only by persons who can
invest without concern for current income, and that such Funds and Royce Premier
Fund are suitable only for those who are in a financial position to assume
above-average investment risks in search for long-term capital appreciation.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to each Trustee and
officer of the Trust:
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
Charles M. Royce* (56) Trustee, President, Secretary, Treasurer and sole
1414 Avenue of the President and director and sole voting shareholder of Quest
Americas Treasurer Advisory Corp. ("Quest"), the Trust's principal
New York, NY 10019 investment adviser; Trustee, President and
Treasurer of Pennsylvania Mutual Fund ("PMF"), an
open-end diversified management investment
company of which Quest is the investment adviser;
Director, President and Treasurer of Royce Value
Trust, Inc. ("RVT") and, since September 1993,
Royce Micro-Cap Trust, Inc. ("OTCM"), closed-end
diversified management investment companies of
which Quest is the investment adviser; Secretary
and sole director and shareholder of Quest
Distributors, Inc. ("QDI"), the distributor of
the Trust's shares; and managing general partner
of Quest Management Company ("QMC"), a registered
investment adviser, and its predecessor.
Richard M. Galkin (57) Trustee Private investor and President of Richard M.
5284 Boca Marina Galkin Associates, Inc., tele-communications
Boca Raton, FL 33487 consultants.
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
Stephen L. Isaacs (56) Trustee Director of Columbia University Development
60 Haven Street, Fl. B-2 Law and Policy Program; Professor at Columbia
New York, NY 10032 University; and President of Stephen L. Isaacs
Associates, Consultants.
David L. Meister (56) Trustee Consultant to the communications industry since
111 Marquez Place January 1993; Executive officer of Digital
Pacific Palisades, CA Planet Inc. from April 1991 to December 1992;
90272 and consultant to the communications and
television industry from August 1990 to April
1991.
Thomas R. Ebright* Vice President Vice President of Quest; Trustee of PMF;
(51) Director of RVT and, since September 1993, OTCM;
50 Portland Pier, Vice President since November 1995 (President
Portland, ME 04101 until October 1995) and Treasurer of QDI;
general partner of QMC and its predecessor until
June 1994; President, Treasurer and a director
and principal shareholder of Royce, Ebright &
Associates, Inc., the investment adviser for
REvest Growth & Income Fund, since June 1994;
director of Atlantic Pro Sports, Inc. and of the
Strasburg Rail Road Co. since March 1993; and
President and principal owner of Baltimore
Professional Hockey, Inc. until May 1993.
Jack E. Fockler, Jr.* Vice President Vice President (since August 1993) and senior
(37) associate of Quest, having been employed by
1414 Avenue of the Quest since October 1989; Vice President of the
Americas Trust, PMF, RVT and OTCM since April 1995; Vice
New York, NY 10019 President of QDI since November 1995; and general
partner of QMC since July 1993.
W. Whitney George* Vice President Vice President (since August 1993) and senior
(37) analyst of Quest, having been employed by Quest
1414 Avenue of the since October 1991; Vice President of the Trust,
Americas PMF, RVT and OTCM since April 1995; and
New York, NY 10019 general partner of QMC and its predecessor since
January 1992.
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
Daniel A. O'Byrne* (34) Vice President Vice President of Quest since May 1994, having
1414 Avenue of the and Assistant been employed by Quest since October 1986; and
Americas Secretary Vice President of the Trust, PMF, RVT and
New York, NY 10019 OTCM since July 1994.
Susan I. Grant* (43) Secretary Compliance Officer and Senior Counsel of Quest
1414 Avenue of the and Secretary of the Trust, PMF, RVT and
Americas OTCM since August 1994; and Assistant Counsel
New York, NY 10019 of First Investors Corporation from July 1989 to
August 1994.
</TABLE>
- --------------------------------
*An "interested person" of the Trust and/or Quest 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 recommending the selection and nomination of independent
auditors of the Funds and for conducting post-audit reviews of their financial
conditions 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:
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation
Name from Trust from The Royce Funds
- ---- ------------------------ --------------------
<S> <C> <C>
Richard M. Galkin $17,500 $60,000
Stephen L. Isaacs 17,500 60,000
David L. Meister 17,500 60,000
</TABLE>
PRINCIPAL HOLDERS OF SHARES
As of March 29, 1996, the following persons were known to the Trust to
be the record or beneficial owners of 5% or more of the outstanding shares of
certain of its Funds:
11
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Type of Percentage of
Fund Number of Shares Ownership Outstanding Shares
- ---- ---------------- --------- ------------------
<S> <C> <C> <C>
Royce Premier Fund
Charles Schwab & Co., Inc. 15,395,403 Record 39.2%
101 Montgomery Street
San Francisco, CA 94104
Royce Equity Income Fund
Charles Schwab & Co., Inc. 2,526,324 Record 39.4%
101 Montgomery Street
San Francisco, CA 94104
Royce Low-Priced Stock Fund
Charles Schwab & Co., Inc. 240,508 Record 16.7%
101 Montgomery Street
San Francisco, CA 94104
Quest Management Company 236,720 Beneficial 16.4%
8 Sound Shore Drive
Greenwich, CT 06830
Charles M. Royce 183,189 Beneficial 12.7%
1414 Avenue of the Americas
New York, NY 10019
National Financial Services 131,992 Record 9.1%
FBO L.S. Minowitz Fmt. Co.
Trust FRP Profit Sharing Acct.
26 Sherwood Avenue
Greenwich, CT 06831
Quest Advisory Corp. 84,552 Beneficial 5.9%
1414 Avenue of the Americas
New York, NY 10019
Royce Micro-Cap Fund
Charles Schwab & Co., Inc. 3,697,470 Record 24.5%
101 Montgomery Street
San Francisco, CA 94104
Donaldson, Lufkin Jenrette 1,330,148 Record 8.8%
Securities Corp.
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
</TABLE>
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Type of Percentage of
Fund Number of Shares Ownership Outstanding Shares
- ---- ---------------- --------- ------------------
<S> <C> <C> <C>
Royce Micro-Cap Fund
National Financial Services 1,037,070 Record and 6.8%
FBO M.R. Holmes beneficial
Testamentary Trust
8 Washington Street
Beverly, MA 01915
Royce GiftShares Fund
W. Whitney George, Trustee 100,200 Record 99.9%
The Royce 1992 GST Trust
1414 Avenue of the Americas
New York, New York 10019
Royce Total Return Fund
Integra Trust Company 118,650 Record 24.5%
National Assn.
300 Fourth Avenue
Pittsburgh, PA 15278
James M. Novak 83,827 Record 17.3%
Mark Stadler Trustees
Cindrich & Titus Profit
Sharing Plan
FBO Thomas O. Arbogast
2000 Gateway Center
Pittsburgh, PA 15222
State Street Bank & Trust Co. 80,798 Record 16.6%
Custodian for IRA of
Becky L. O'Connor
10 St. James Place
Pittsburgh, PA 15215
Charles M. Royce, Trustee 50,039 Record 10.3%
N. Holmes Clare Trust
FBO Barbara K. Clare
1414 Avenue of the Americas
New York, NY 10019
Harold Reed, Trustee 35,320 Record 7.2%
Reed Luce Tosh & McGregor
Salary Red. Profit Sharing Plan
804 Turnpike Street
Beaver, PA 15009
</TABLE>
13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Type of Percentage of
Fund Number of Shares Ownership Outstanding Shares
- ---- ---------------- --------- ------------------
<S> <C> <C> <C>
Royce Total Return Fund
State Street Bank & Trust Co. 27,996 Record 5.7%
Custodian for IRA of
David Reese
528 N. Maple Avenue
Greensburg, PA 15601
Royce Global Services Fund
Charles M. Royce 187,995 Record and 59.2%
1414 Avenue of the Americas beneficial
New York, NY 10019
Integra Trust Company 47,391 Record 14.9%
National Assn.
300 Fourth Avenue
Pittsburgh, PA 15278
Bruce Museum Inc. 43,213 Record 13.6%
Museum Drive
Greenwich, CT 06830
</TABLE>
As of March 29, 1996, all of the trustees and officers of the Trust as a
group beneficially owned less than 1% of the outstanding shares of each of Royce
Value, Royce Premier, Royce Equity Income and Royce Micro-Cap Funds,
approximately 43.5% of the outstanding shares of Royce Low-Priced Stock Fund,
approximately 2.2% of the outstanding shares of Royce Total Return Fund,
approximately 58.4% of the outstanding shares of Royce Global Services Fund and
approximately 99.9% of the outstanding shares of Royce GiftShares Fund.
INVESTMENT ADVISORY SERVICES
SERVICES PROVIDED BY QUEST
As compensation for its services under the Investment Advisory
Agreements with the Funds, Quest is entitled to receive the following fees:
<TABLE>
<CAPTION>
Fund Percentage Per Annum of Fund's Average Net Assets
---- -------------------------------------------------
<S> <C>
Royce Value Fund 1.00% of first $50,000,000,
.875% of next $50,000,000 and
.75% of any additional average net assets
Royce Premier Fund 1.00%
Royce Equity Income Fund 1.00%
</TABLE>
14
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Fund Percentage Per Annum of Fund's Average Net Assets
---- -------------------------------------------------
<S> <C>
Royce Micro-Cap Fund 1.50%
Royce GiftShares Fund 1.25%
Royce Total Return Fund 1.00%
Royce Global Services Fund 1.50%
</TABLE>
Such fees, which are payable monthly from the assets of the Fund involved, are
higher (substantially higher, in the case of Royce Low-Priced Stock, Micro-Cap,
GiftShares and Global Services Funds) than those paid by most other mutual funds
with similar investment objectives.
Under the Investment Advisory Agreements, Quest (i) determines the
composition of each Fund's portfolio, the nature and timing of the changes in it
and the manner of implementing such changes, subject to any directions it may
receive from the Trust's Board of Trustees; (ii) provides each Fund with
investment advisory, research and related services for the investment of its
funds; (iii) furnishes, without expense to the Trust, the services of such
members of its organization as may be duly elected executive officers or
Trustees of the Trust; and (iv) pays all executive officers' salaries and
executive expenses and all expenses incurred in performing its investment
advisory duties under the Investment Advisory Agreements.
The Trust pays all administrative and other costs and expenses
attributable to its operations and transactions, including, without limitation,
transfer agent and custodian fees; legal, administrative and clerical services;
rent for its office space and facilities; auditing; preparation, printing and
distribution of its prospectuses, proxy statements, shareholders reports and
notices; supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non- affiliated trustees' fees; and brokerage
commissions.
For each of the three years ended December 31, 1993, 1994 and 1995, as
applicable, Quest received advisory fees from the Funds (net of any amounts
waived by Quest) and waived advisory fees payable to it, as follows:
<TABLE>
<CAPTION>
Net Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
<S> <C> <C>
Royce Value Fund
1993 $ 1,568,398 -
1994 1,503,696 -
1995 1,424,451 $ 16,222
Royce Premier Fund
1993 $ 124,020 $ 8,461
1994 1,400,394 -
1995 2,603,445 6,279
Royce Equity Income Fund
1993 $ 488,816 $ 229,166
1994 820,662 53,626
1995 598,783 57,030
</TABLE>
15
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Net Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
<S> <C> <C>
Royce Low-Priced Stock Fund
1993* $ 0 $ 294
1994 0 15,727
1995 6,174 31,425
Royce Micro-Cap Fund
1993 $ 83,095 $ 19,063
1994 295,148 20,330
1995 804,905 14,047
Royce GiftShares Fund
1995** $ 0 $ 86
Royce Total Return Fund
1993* $ 0 $ 294
1994 0 10,506
1995 12,027 9,947
Royce Global Services Fund
1994*** $ 0 $ 367
1995 0 20,261
</TABLE>
- -------
* December 15, 1993 (commencement of operations) to December 31, 1993
** December 27, 1995 (commencement of operations) to December 31, 1995
*** December 15, 1994 (commencement of operations) to December 31, 1994
PORTFOLIO MANAGEMENT
The Funds' portfolios and the portfolios of Quest's other accounts are
managed by Quest's senior investment staff, including Charles M. Royce, Quest's
Chief Investment Officer, who is primarily responsible for supervising its
investment management activities. Mr. Royce is assisted by Jack E. Fockler, Jr.
and W. Whitney George, Vice Presidents of Quest, both of whom participate in
such activities, with their specific responsibilities varying from time to time.
In the event of any significant change in Quest's senior investment staff, the
members of the Trust's Board of Trustees who are not interested persons of the
Trust will consider what action, if any, should be taken in connection with the
Funds' management arrangements.
Certain information concerning Messrs. Royce, Fockler and George is set
forth above under "MANAGEMENT OF THE TRUST".
LIMITATION ON FUND EXPENSES
Quest has agreed, in connection with the Trust's qualification of shares
of each Fund for sale in California, to reduce its investment advisory fee for
each Fund monthly to the extent that such Fund's "aggregate annual expenses" (as
defined) exceed 2 1/2% of the first $30 million, 2% of the next $70 million and
1 1/2% of any remaining average net assets of such Fund for any fiscal year. All
or a portion of the distribution fee payable to QDI may be excludable from such
"aggregate annual expenses".
16
<PAGE>
<PAGE>
DISTRIBUTOR
QDI, the distributor of the shares of each Fund, has its principal
office at 1414 Avenue of the Americas, New York, New York 10019. It was
organized in November 1982 and is a member of the National Association of
Securities Dealers, Inc. ("NASD").
As compensation for its services and for the expenses payable by it
under the Distribution Agreement with the Trust, QDI is entitled to receive, for
and from the assets of the Fund involved, a monthly fee equal to 1% per annum
(consisting of an asset-based sales charge of .75% and a personal service and/or
account maintenance fee of .25%) of Royce Value Fund's average net assets and
.25% per annum (consisting of an asset-based sales charge) of Royce Low- Priced
Stock, Total Return and Global Services Funds' respective average net assets.
Except to the extent that they may be waived by QDI, these fees are not subject
to any required reductions and, in the case of Royce Value Fund, are higher than
the fees paid by most other mutual funds which use their own assets to promote
the sale of their shares. QDI is also entitled to receive the proceeds of any
front-end sales loads that may be imposed on purchases of shares of Royce Value
Fund and of any contingent deferred sales charges that may be imposed on
redemptions of such Fund's shares. The Distribution Agreement has been
terminated as to Royce Premier, Equity Income and Micro-Cap Funds and was never
effective as to GiftShares Fund.
Under the Distribution Agreement, QDI (i) seeks to promote the sale
and/or continued holding of shares of such Funds through a variety of
activities, including advertising, direct marketing and servicing investors and
introducing parties on an on-going basis; (ii) pays sales commissions and other
fees to those broker-dealers, investment advisers and others (excluding banks)
who have introduced investors to such Funds (which commissions and other fees
may or may not be the same amount as or otherwise comparable to the distribution
fees payable to QDI); (iii) pays the cost of preparing, printing and
distributing any advertising or sales literature and the cost of printing and
mailing the Funds' prospectuses to persons other than shareholders of the Funds;
and (iv) pays all other expenses incurred by it in promoting the sale and/or
continued holding of the shares of such Funds and in rendering such services
under the Distribution Agreement. The Trust bears the expense of registering its
shares with the Securities and Exchange Commission and the cost of qualifying
and maintaining the qualification of its shares for sale under the securities
laws of the various states.
The Trust entered into the Distribution Agreement with QDI pursuant to a
Distribution Plan which, among other things, permits each Fund that remains
covered by the Plan to pay the monthly distribution fee out of its net assets.
As required by Rule 12b-1 under the 1940 Act, the Plan has been approved by the
shareholders of each Fund that remains covered by the Plan and by the Trust's
Board of Trustees (which also approved the Distribution Agreement pursuant to
which the distribution fees are paid), including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or the Distribution Agreement.
In approving the Plan, the Trustees, in accordance with the requirements
of Rule 12b-1, considered various factors (including the amount of the
distribution fees) and determined that there is a reasonable likelihood that the
Plan will benefit each Fund and its shareholders.
The Plan may be terminated as to any Fund by vote of a majority of the
non-interested Trustees who have no direct or indirect financial interest in the
Plan or in the Distribution Agreement or by vote of a majority of the
outstanding voting securities of such Fund. Any
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<PAGE>
change in the Plan that would materially increase the distribution cost to a
Fund requires approval by the shareholders of such Fund; otherwise, the Plan may
be amended by the Trustees, including a majority of the non-interested Trustees,
as described above.
The Distribution Agreement may be terminated as to any Fund at any time
on 60 days' written notice and without payment of any penalty, by QDI, by the
vote of a majority of the outstanding voting securities of such Fund or by the
vote of a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto.
The Distribution Agreement and the Plan, if not sooner terminated in
accordance with their terms, will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Trustees who are not parties to the Agreement or
interested persons of any such party and who have no direct or indirect
financial interest in the Plan or the Agreement and (ii) either by the vote of a
majority of the outstanding voting securities of the Fund involved or by the
vote of a majority of the entire Board of Trustees.
While the Plan is in effect, the selection and nomination of those
Trustees who are not interested persons of the Trust will be committed to the
discretion of the Trustees who are not interested persons.
The Board of Trustees has adopted resolutions pursuant to which the
proceeds of all contingent deferred sales charges for redeemed shares of Royce
Value Fund received from January 1, 1990 through April 7, 1994 (when the
contingent deferred sales charge was terminated) will be held in separate
reserve accounts for the year involved, to be spent by QDI only upon the
approval of the Board of Trustees for the specific purposes set forth in the
Plan. If the proceeds received in a particular year have not been spent within
the four year period following the close of the year in which they were
received, the proceeds are to be paid by QDI to Royce Value Fund, the
shareholders of which bore such contingent deferred sales charges. See Note 2 of
Notes to Financial Statements of Royce Value Fund contained in such Fund's
Annual Report to Shareholders for the year ended December 31, 1995.
For the year ended December 31, 1995, Royce Value Fund paid distribution
fees to QDI of $1,052,321 (net of $619,074 waived by QDI -- 1% of its average
net assets during such year before giving effect to such waiver and 0.63% of its
average net assets after giving effect to such waiver). QDI spent the
distribution fees paid to it by and the proceeds of contingent deferred sales
charges released to it for Royce Value Fund during 1995 in the following manner:
<TABLE>
<S> <C>
(i) Promotion, literature and advertising $ 23,319
(ii) Printing and mailing of prospectuses 3,593
to other than current shareholders
(iii) Compensation paid or to be paid to introducing 1,085,257
brokers, investment advisers and others
(iv) Registration fees, accounting and legal 11,560
(v) Administration and other 34,709
----------
Total $1,158,438
==========
</TABLE>
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<PAGE>
<PAGE>
As of January 1, 1995, $186,732 was held by QDI in such separate reserve
accounts for Royce Value Fund, and $101,437 was released to QDI from such
reserve accounts for Royce Value Fund during the year ended December 31, 1995.
Thus, as of January 1, 1996, $85,295 was held by QDI in such reserve accounts
for Royce Value Fund.
QDI has temporarily waived the distribution fees payable to it by Royce
Low-Priced Stock, Total Return and Global Services Funds.
No trustee of the Trust who was not an interested person of the Trust
had any direct or indirect financial interest in the operation of the Plan or
the Distribution Agreement. Charles M. Royce, an interested person of the Trust,
Quest and QDI, had such an interest.
The benefits to Royce Value Fund included the receipt of net proceeds of
$5,233,818 from sales of its shares during the fiscal year ended December 31,
1995. The value of shares redeemed by such Fund during such year aggregated
$33,282,011.
Under the Rules of Fair Practice of the NASD, the front-end sales loads,
asset-based sales charges and contingent deferred sales charges payable by any
Fund and/or the shareholders thereof to QDI are limited to (i) 6.25% of total
new gross sales occurring after July 7, 1993 plus interest charges on such
amount at the prime rate plus 1% per annum, increased by (ii) 6.25% of total new
gross sales occurring after such Fund first adopted the Plan until July 7, 1993
plus interest charges on such amount at the prime rate plus 1% per annum less
any front-end, asset- based or deferred sales charges on such sales or net
assets resulting from such sales.
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the custodian
for the securities, cash and other assets of each Fund and the transfer agent
and dividend disbursing agent for the shares of each Fund, but it does not
participate in any Fund's investment decisions. The Trust has authorized State
Street to deposit certain domestic and foreign portfolio securities in several
central depository systems and to use foreign sub-custodians for certain foreign
portfolio securities, as allowed by Federal law. State Street's main office is
at 225 Franklin Street, Boston, Massachusetts 02107. All mutual fund transfer,
dividend disbursing and shareholder service activities are performed by State
Street's agent, National Financial Data Services, at 1004 Baltimore, Kansas
City, Missouri 64105.
State Street is responsible for the calculation of each Fund's daily net
asset value per share and for the maintenance of its portfolio and general
accounting records and also provides certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post Office Square,
Boston, Massachusetts 02109, are the independent accountants of the Trust.
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PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect the purchases
and sales of each Fund's portfolio securities. No broker is selected to effect a
securities transaction for a Fund unless such broker is believed by Quest to be
capable of obtaining the best price and execution for the security involved in
the transaction. In addition to considering a broker's execution capability,
Quest generally considers the brokerage and research services which the broker
has provided to it, including any research relating to the security involved in
the transaction and/or to other securities. Such services may include general
economic research, market and statistical information, industry and technical
research, strategy and company research, and may be written or oral. Quest
determines the overall reasonableness of brokerage commissions paid, after
considering the amount another broker might have charged for effecting the
transaction and the value placed by Quest upon the brokerage and/or research
services provided by such broker, viewed in terms of either that particular
transaction or Quest's overall responsibilities with respect to its accounts.
Quest is authorized, under Section 28(e) of the Securities Exchange Act
of 1934 and under its Investment Advisory Agreements with the Trust, to pay a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction, in recognition of the value of brokerage and
research services provided by the broker.
Brokerage and research services furnished by brokers through whom a Fund
effects securities transactions may be used by Quest in servicing all of its
accounts and those of QMC, and not all of such services may be used by Quest in
connection with the Trust or any one of its Funds.
Quest may also place a Fund's brokerage business with firms which
promote the sale of the Funds' shares, consistent with achieving the best price
and execution. In no event will a Fund's brokerage business be placed with QDI.
Even though investment decisions for each Fund are made independently
from those for the other Funds and the other accounts managed by Quest and QMC,
securities of the same issuer are frequently purchased, held or sold by more
than one Quest/QMC account because the same security may be suitable for all of
them. When the same security is being purchased or sold for more than one
Quest/QMC account on the same trading day, Quest seeks to average the
transactions as to price and allocate them as to amount in a manner believed to
be equitable to each. Such purchases and sales of the same security are
generally effected pursuant to Quest/QMC's Trade Allocation Guidelines and
Procedures. Under such Guidelines and Procedures, unallocated orders are placed
with and executed by broker-dealers during the trading day. The securities
purchased or sold in such transactions are then allocated to one or more of
Quest's and QMC's accounts at or shortly following the close of trading, using
the average net price obtained. Such allocations are done based on a number of
judgmental factors that Quest and QMC believe should result in fair and
equitable treatment to those of their accounts for which the securities may be
deemed suitable. In some cases, this procedure may adversely affect the price
paid or received by a Fund or the size of the position obtained for a Fund.
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During each of the three years ended December 31, 1993, 1994 and 1995,
the Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Royce Value Fund $123,987 $138,437 $114,296
Royce Premier Fund 87,723 465,986 419,040
Royce Equity Income Fund 283,374 218,843 119,097
Royce Low-Priced Stock Fund 632* 12,946 22,645
Royce Micro-Cap Fund 39,013 41,497 117,909
Royce GiftShares Fund -- -- 760**
Royce Total Return Fund 0* 6,231 6,117
Royce Global Services Fund -- 382*** 6,199
</TABLE>
- --------
* For the period from December 15, 1993 (commencement of operations) to
December 31, 1993.
** For the period from December 27, 1995 (commencement of operations) to
December 31, 1995.
*** For the period from December 15, 1994 (commencement of operations) to
December 31, 1994.
For the year ended December 31, 1995, the aggregate amount of brokerage
transactions of each Fund having a research component and the amount of
commissions paid by each Fund for such transactions were as follows:
<TABLE>
<CAPTION>
Aggregate Amount of
Brokerage Transactions Commissions Paid
Fund Having a Research Component For Such Transactions
- ---- --------------------------- ---------------------
<S> <C> <C>
Royce Value Fund $ 30,609,149 $ 91,719
Royce Premier Fund 109,101,274 315,291
Royce Equity Income Fund 23,176,764 83,276
Royce Low-Priced Stock Fund 1,558,238 12,149
Royce Micro-Cap Fund 9,698,494 45,514
Royce GiftShares Fund* 61,901 294
Royce Total Return Fund 49,918 4,102
Royce Global Services Fund 1,314,585 4,123
</TABLE>
- -----------------
* For the period from December 27, 1995 (commencement of operations) to
December 31, 1995.
During the year ended December 31, 1995, Royce Global Services Fund
purchased and sold securities of Merrill Lynch & Co., Inc., the parent of one of
its "regular brokers" (as such term is defined in Rule 10b-1 under the 1940
Act).
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI, QMC and The Royce Funds have adopted a Code of Ethics under
which directors, officers, employees and partners of Quest, QDI and QMC
("Quest-related persons") and
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<PAGE>
interested trustees/directors, officers and employees of The Royce Funds are
prohibited from personal trading in any security which is then being purchased
or sold or considered for purchase or sale by a Royce Fund or any other Quest or
QMC account. Such persons are permitted to engage in other personal securities
transactions if (i) the securities involved are United States Government debt
securities, municipal debt securities, money market instruments, shares of
affiliated or non-affiliated registered open-end investment companies or shares
acquired from an issuer in a rights offering or under an automatic dividend
reinvestment plan or (ii) they first obtain permission to trade from Quest's
Compliance Officer and an executive officer of Quest. The Code contains
standards for the granting of such permission, and it is expected that
permission to trade will be granted only in a limited number of instances.
Quest's and QMC's clients include several private investment companies
in which Quest or QMC has (and, therefore, Charles M. Royce, Jack E. Fockler,
Jr. and/or W. Whitney George may be deemed to beneficially own) a share of up to
15% of the company's realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests. The Code of
Ethics does not restrict transactions effected by Quest or QMC for such private
investment company accounts. Transactions for such private investment company
accounts are subject to Quest's and QMC's allocation policies and procedures.
See "Portfolio Transactions".
As of December 31, 1995, Quest-related persons, interested
trustees/directors, officers and employees of The Royce Funds and members of
their immediate families beneficially owned shares of The Royce Funds having a
total value of approximately $16.3 million, and Quest's and QMC's equity
interests in such private investment companies totalled approximately $4.7
million.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of each Fund's shares is based on the
Fund's current net asset value per share. See "Net Asset Value Per Share" in the
Funds' Prospectuses.
As set forth under "Net Asset Value Per Share", the Funds' custodian
determines the net asset value per share of each Fund at the close of regular
trading on the New York Stock Exchange on each day that the Exchange is open.
The Exchange is open on all weekdays which are not holidays. Thus, it is closed
on Saturdays and Sundays and on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which would, in
the judgment of the Board of Trustees or management, make it undesirable for a
Fund to pay for all redemptions in cash. In such cases, payment may be made in
portfolio securities or other property of the Fund. However, the Trust has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Trust's net
assets
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<PAGE>
if that is less) in any 90-day period. Securities delivered in payment of
redemptions would be selected by Quest and valued at the same value assigned to
them in computing the net asset value per share for purposes of such redemption.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
TAXATION
Each Fund (except Royce GiftShares) has qualified and intends to remain
qualified, and Royce GiftShares Fund intends to qualify and to remain qualified,
each year for the tax treatment applicable to a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, a Fund must comply with certain requirements of the Code
relating to, among other things, the source of its income and the
diversification of its assets.
By so qualifying, a Fund will not be subject to Federal income taxes to
the extent that its net investment income and capital gain net income are
distributed, so long as the Fund distributes, as ordinary income dividends, at
least 90% of its investment company taxable income.
A non-deductible 4% excise tax will be imposed on a Fund to the extent
that the Fund does not distribute (including by declaration of certain
dividends), during each calendar year, (i) 98% of its ordinary income for such
calendar year, (ii) 98% of its capital gain net income for the one-year period
ending October 31 of such calendar year and (iii) certain other amounts not
distributed in previous years. To avoid the application of this tax, each Fund
intends to distribute substantially all of its net investment income and capital
gain net income at least annually to its shareholders.
Each Fund will maintain accounts and calculate income by reference to
the U.S. dollar for U.S. Federal income tax purposes. Investments calculated by
reference to foreign currencies will not necessarily correspond to a Fund's
distributable income and capital gains for U.S. Federal income tax purposes as a
result of fluctuations in foreign currency exchange rates. Furthermore, if any
exchange control regulations were to apply to a Fund's investments in foreign
securities, such regulations could restrict that Fund's ability to repatriate
investment income or the proceeds of sales of securities, which may limit the
Fund's ability to make sufficient distributions to satisfy the 90% distribution
requirement and avoid the 4% excise tax.
Income earned or received by a Fund from investments in foreign
securities may be subject to foreign withholding taxes unless a withholding
exemption is provided under an applicable treaty. Any such taxes would reduce
that Fund's cash available for distribution to shareholders. It is currently
anticipated that none of the Funds will be eligible to elect to "pass through"
such taxes to their shareholders for purposes of enabling them to claim foreign
tax credits or other U.S. income tax benefits with respect to such taxes.
If a Fund invests in stock of a so-called passive foreign investment
company ("PFIC"), such Fund may be subject to Federal income tax on a portion of
any "excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating
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<PAGE>
such distribution or gain ratably to each day of the Fund's holding period for
the stock. The amount so allocated to any taxable year of the Fund prior to the
taxable year in which the excess distribution or disposition occurs would be
taxed to the Fund at the highest marginal income tax rate in effect for such
years, and the tax would be further increased by an interest charge. The amount
allocated to the taxable year of the distribution or disposition would be
included in the Fund's investment company taxable income and, accordingly, would
not be taxable to the Fund to the extent distributed by the Fund as a dividend
to shareholders. In lieu of being taxable in the manner described above, such
Fund may be able to elect to include annually in income its pro rata share of
the ordinary earnings and net capital gain (whether or not distributed) of the
PFIC. In order to make this election, the Fund would be required to obtain
annual information from the PFICs in which it invests, which in many cases may
be difficult to obtain. Alternatively, if eligible, the Fund may be able to
elect to mark to market its PFIC stock, resulting in the stock being treated as
sold at fair market value on the last business day of each taxable year. Any
resulting gain would be reported as ordinary income, and any resulting loss
would not be recognized.
Investments of a Fund in securities issued at a discount or providing
for deferred interest payments or payments of interest in kind (which investment
are subject to special tax rules under the Code) will affect the amount, timing
and character of distributions to shareholders. For example, a Fund which
acquires securities issued at a discount will be required to accrue as ordinary
income each year a portion of the discount (even though the Fund may not have
received cash interest payments equal to the amount included in income) and to
distribute such income each year in order to maintain its qualification as a
regulated investment company and to avoid income and excise taxes. In order to
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
DISTRIBUTIONS
For Federal income tax purposes, distributions by each Fund from net
investment income and from any net realized short-term capital gain are taxable
to shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Ordinary income generally cannot be offset by capital losses.
For corporate shareholders, distributions of net investment income (but not
distributions of short-term capital gains) may qualify in part for the 70%
dividends received deduction for purposes of determining their regular taxable
income. (However, the 70% dividends received deduction is not allowable in
determining a corporate shareholder's alternative minimum taxable income.) The
amount qualifying for the dividends received deduction generally will be limited
to the aggregate dividends received by the Fund from domestic corporations. The
dividends received deduction for corporate shareholders may be further reduced
or eliminated if the shares with respect to which dividends are received by the
Fund are treated as debt-financed or are deemed to have been held for fewer than
46 days, or under other generally applicable statutory limitations.
So long as a Fund qualifies as a regulated investment company and
satisfies the 90% distribution requirement, distributions by such Fund from net
capital gains will be taxable as long-term capital gains, whether received in
cash or reinvested in shares and regardless of how long a shareholder has held
his or its Fund shares. Such distributions are not eligible for the
24
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<PAGE>
dividends received deduction. Long-term capital gains of non-corporate
shareholders, although fully includable in income, currently are taxed at a
lower maximum marginal Federal income tax rate than ordinary income.
Distributions by a Fund in excess of its current and accumulated
earnings and profits will reduce a shareholder's basis in Fund shares (but, to
that extent, will not be taxable) and, to the extent such distributions exceed
the shareholder's basis, will be taxable as capital gain assuming the
shareholder holds Fund shares as capital assets.
A distribution will be treated as paid during a calendar year if it is
declared in October, November or December of the year to shareholders of record
in such month and paid by January 31 of the following year. Such distributions
will be taxable to such shareholders as if received by them on December 31, even
if not paid to them until January. In addition, certain other distributions made
after the close of a taxable year of a Fund may be "spilled back" and treated as
paid by the Fund (other than for purposes of avoiding the 4% excise tax) during
such year. Such dividends would be taxable to the shareholders in the taxable
year in which the distribution was actually made by the Fund.
The Trust will send written notices to shareholders regarding the amount
and Federal income tax status as ordinary income or capital gain of all
distributions made during each calendar year.
BACK-UP WITHHOLDING/WITHHOLDING TAX
Under the Code, certain non-corporate shareholders may be subject to 31%
withholding on reportable dividends, capital gains distributions and redemption
payments ("back-up withholding"). Generally, shareholders subject to back-up
withholding will be those for whom a taxpayer identification number and certain
required certifications are not on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. In addition, the Trust is
required to withhold from distributions to any shareholder who does not certify
to the Trust that such shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such shareholder has
under-reported interest or dividend income. When establishing an account, an
investor must certify under penalties of perjury that such investor's taxpayer
identification number is correct and that such investor is not subject to or is
exempt from back-up withholding.
Ordinary income distributions paid to shareholders who are non-resident
aliens or which are foreign entities will be subject to 30% United States
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under an applicable treaty. Non-U.S. shareholders are urged to
consult their own tax advisers concerning the United States tax consequences to
them of investing in a Fund.
TIMING OF PURCHASES AND DISTRIBUTIONS
At the time of an investor's purchase, a Fund's net asset value may
reflect undistributed income or capital gains or net unrealized appreciation of
securities held by the Fund. A subsequent distribution to the investor of such
amounts, although it may in effect constitute a return of his or its investment
in an economic sense, would be taxable to the shareholder as
25
<PAGE>
<PAGE>
ordinary income or capital gain as described above. Investors should carefully
consider the tax consequences of purchasing Fund shares just prior to a
distribution as they will receive a distribution that is taxable to them.
SALES OR REDEMPTIONS OF SHARES
Gain or loss recognized by a shareholder upon the sale, redemption or
other taxable disposition of Fund shares (provided that such shares are held by
the shareholder as a capital asset) will be treated as capital gain or loss,
measured by the difference between the adjusted basis of the shares and the
amount realized on the sale or exchange. Such gain or loss will be long-term
capital gain or loss if the shares disposed of were held for more than one year.
A loss will be disallowed to the extent that the shares disposed of are replaced
(including by receiving shares upon the reinvestment of distributions) within a
period of 61 days, beginning 30 days before and ending 30 days after the sale of
the shares. In such a case, the basis of the shares acquired will be increased
to reflect the disallowed loss. A loss recognized upon the sale, redemption or
other taxable disposition of shares held for 6 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain
distributions received with respect to such shares.
* * *
The foregoing relates to Federal income taxation. Distributions, as well
as any gains from a sale, redemption or other taxable disposition of Fund
shares, also may be subject to state and local taxes. Under current law, so long
as each Fund qualifies for the Federal income tax treatment described above, it
is believed that neither the Trust nor any Fund will be liable for any income or
franchise tax imposed by Massachusetts.
Investors are urged to consult their own tax advisers regarding the
application to them of Federal, state and local tax laws.
ROYCE GIFTSHARES FUND
GIFT TAXES
An investment in Royce GiftShares Fund may be a taxable gift for Federal
tax purposes, depending upon the options selected and other gifts that the Donor
and his or her spouse may make during the year.
If the Donor selects the Withdrawal Option, the entire amount of the
gift will be a "present interest" that qualifies for the Federal annual gift tax
exclusion. In that case, the Donor will be required to file a Federal gift tax
return for the year of the gift only if he or she makes gifts (including the
gift of Fund shares and any gifts by his or her spouse treated as made by him or
her) totaling more than $10,000 to the same individual during that year or if he
or she makes any gift of a future interest during that year. The Trustee will
notify the Beneficiary of his or her right of withdrawal promptly following any
investment in the Fund under the Withdrawal Option.
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<PAGE>
If the Donor selects the Accumulation Option, the entire amount of the
gift will be a "future interest" for Federal gift tax purposes, so that none of
the gift will qualify for the Federal annual gift tax exclusion (currently,
$10,000). Consequently, the Donor will have to file a Federal gift tax return
IRS (Form 709) reporting the entire amount of the gift, even if the gift is less
than $10,000.
If the Donor selects the Split Option, the portion of the gift
representing the Beneficiary's income interest will be a "present interest" that
will qualify for the Federal annual gift tax exclusion, and the balance will be
a "future interest" that will not so qualify. The value of the income interest
is the present value of the Beneficiary's right to receive the Trust income for
the 40 year term of this Trust (without regard to the possibility that the Trust
may be terminated sooner) or until the Beneficiary's earlier death, using
actuarial tables and interest rate assumptions prescribed by the Internal
Revenue Service in effect on the date of the gift. Using the assumptions
currently in effect, the income interest portion of Royce GiftShares Fund Trusts
using the Split Option and created for Beneficiaries aged 15, 20, 25, 30 and 35
would be 92.8%, 92.4%, 91.9%, 91.0% and 89.5%, respectively. Nevertheless, the
Donor will have to file a Federal gift tax return reporting the gift and
identifying the portion that does not represent a present interest, no matter
how small. The Donor should consult with his or her tax adviser to determine the
manner in which the gift must be reported for Federal gift tax purposes.
No Federal gift tax will be payable by the Donor until his or her
cumulative taxable gifts (i.e., gifts other than those qualifying for the annual
exclusion or other exclusions) exceed the Federal gift and estate tax exclusion
equivalent amount (currently, $600,000). Any gift of Fund shares that does not
qualify as a present interest will reduce the amount of the Federal gift and
estate tax exemption that would otherwise be available for future gifts or to
the Donor's estate. All gifts of Fund shares qualify for "gift splitting" with
the Donor's spouse, meaning that the Donor and his or her spouse may elect to
treat the gift as having been made one-half by each of them.
The Donor's gift of Fund shares may also have to be reported for state
gift tax purposes, if the state in which the Donor resides imposes a gift tax.
Many states do not impose such a tax. Some do follow the Federal rules
concerning the types of transfers subject to tax and the availability of the
annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the Beneficiary of a gift of Royce GiftShares Fund shares is a
grandchild or more remote descendant of the Donor or is assigned, under Federal
tax law, to the generation level of the Donor's grandchildren or more remote
descendants, any part of the gift that does not qualify for the Federal annual
gift tax exclusion will be a taxable transfer for purposes of the Federal
generation-skipping transfer tax ("GST tax"). The Donor may protect these gifts
from the GST tax by allocating his or her GST exemption until his or her
cumulative gifts (other than certain gifts qualifying for the annual exclusion
or other exclusions) to individuals assigned, under Federal tax law, to the
generation level of the Donor's grandchildren or more remote descendants exceed
the GST tax exemption (currently, $1,000,000). The tax rate on transfers subject
to GST tax is the maximum Federal estate tax rate (currently, 55%). Gifts
subject to GST tax, whether or not covered by the GST tax exemption, must be
reported on the Donor's Federal gift tax
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<PAGE>
return. Whether, and the extent to which, an investment in Royce GiftShares Fund
will qualify for the Federal annual gift tax exclusion will depend upon the
options selected and other gifts that the Donor and his or her spouse may have
made during the year. See "Gift Taxes" above.
INCOME TAXES
The Internal Revenue Service has taken the position in recent rulings
that a trust beneficiary who is given a power of withdrawal over contributions
to the trust should be treated as the "owner" of the portion of the trust that
was subject to the power for Federal income tax purposes. Accordingly, if the
Donor selects the Withdrawal Option, the Beneficiary may be treated as the
"owner" of all of the Fund shares in the account for Federal income tax
purposes, and will be required to report all of the income and capital gains
earned in the Trust on his or her personal Federal income tax return. The Trust
will not pay Federal income taxes on any of the Trust's income or capital gains,
and the "throwback rules" of the Code will not apply when the Trust terminates.
The Trustee will prepare and file the Federal income tax information returns
that are required each year (and any state income tax returns that may be
required), and will send the Beneficiary a statement following each year showing
the amounts (if any) that the Beneficiary must report on his or her income tax
returns for that year. If the Beneficiary is under fourteen years of age, these
amounts may be subject to Federal income taxation at the marginal rate
applicable to the Beneficiary's parents. The Beneficiary will have the option to
require the Trustee to pay him or her a portion of the Trust's income and
capital gains annually to provide funds with which to pay any resulting income
taxes, which the Trustee will do by redeeming Fund shares. The amount
distributed will be a fraction of the Trust's ordinary income and short- term
capital gains and the Trust's long-term capital gains equal to the highest
marginal Federal income tax rate imposed on each type of income (currently,
39.6% and 28%, respectively). If the Beneficiary selects this option, he or she
will receive those fractions of his or her Trust's income and capital gains
annually for the duration of the Trust.
Under the Withdrawal Option, the Beneficiary will also be able to
require the Trustee to pay his or her tuition, room and board and other expenses
of his or her college or post-graduate education, and the Trustee will raise the
cash necessary to fund these distributions by redeeming Fund shares. Any such
redemption will result in the realization of capital gain or loss on the shares
redeemed, which will be reportable by the Beneficiary on his or her income tax
returns for the year in which the shares are redeemed, as described above.
If the Donor selects the Accumulation Option, the Trust that he or she
creates will be subject to Federal income tax on all income and capital gains
earned by the Trust, less a $100 annual exemption (in lieu of the personal
exemption allowed to individuals). The amount of the tax will be determined
under the tax rate schedule applicable to estates and trusts, which is more
sharply graduated than the rate schedule for individuals, reaching the same
maximum marginal rate for ordinary income (currently, 39.6%), but at a much
lower taxable income level (for 1996, $7,900) than would apply to an individual.
It is anticipated, however, that most of the income generated by Fund shares
will be long-term capital gains, on which the Federal income tax rate is
currently limited to 28 %. The Trustee will raise the cash necessary to pay any
Federal or state income taxes by redeeming Fund shares. The Beneficiary will not
pay Federal income taxes on any of the Trust's income or capital gains, except
those earned in the year when the Trust terminates. If the Trust terminates
after the Beneficiary reaches age 21, the distribution of the
28
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<PAGE>
balance of the trust fund may be treated as an "accumulation distribution" under
the so-called "throwback rules" of the Code, which could result in the
imposition of additional income tax on the Beneficiary. The Trustee will prepare
and file all Federal and state income tax returns that are required each year,
and will send the Beneficiary an information statement for the year in which the
Trust terminates showing the amounts (if any) that the Beneficiary must report
on his or her Federal and state income tax returns for that year and the amount
(if any) of any accumulation distribution subject to the "throwback rules" of
the Code.
If the Donor selects the Split Option, the Trust will be subject to
Federal income tax only on capital gains earned by the Trust (which would
include all capital gains distributions on the shares of the Fund held in the
Trust), less a $300 exemption (in lieu of the personal exemption allowed to
individuals). The amount of the tax will be determined under the tax rate
schedule applicable to estates and trusts, which is more sharply graduated than
the rate schedule used for individuals, reaching the same maximum marginal rate
for ordinary income (currently, 39.6%) but at a much lower taxable income level
(for 1996, $7,900) than would apply to an individual. It is anticipated,
however, that most of the income generated by Fund shares will be long-term
capital gains, on which the Federal tax rate is currently limited to 28%. The
Trustee will raise the cash necessary to pay any Federal or state income tax by
redeeming Fund shares. The Trust will receive any net investment income
dividends paid by the Fund in cash, the Trustee will distribute all of the
Trust's net income to the Beneficiary and the Beneficiary will be subject to
Federal income tax on all ordinary income received from the Trust each year. The
Beneficiary will not pay Federal income taxes on any of the Trust's capital
gains, except those earned in the year of the Trust's termination, and the
"throwback rules" of the Code will not apply when the Trust terminates. The
Trustee will prepare and file all Federal and state income tax returns that are
required each year, and will send the Beneficiary an information statement each
year showing the amounts (if any) that the Beneficiary must report on his or her
Federal and state income tax returns for that year.
When the Trust terminates, the distribution of the remaining Fund shares
held in the Trust to the Beneficiary will not be treated as a taxable
disposition, and no capital gain or loss will be realized by the Beneficiary
(or, if he or she has died, by his or her estate) at that time. Any Fund shares
received by the Beneficiary will have the same cost basis as they had in the
Trust at the time of termination. Any Fund shares received by the Beneficiary's
estate will have a basis equal to the value of the shares at the Beneficiary's
death (or the alternative valuation date for Federal estate tax purposes, if
elected).
CONSULTATION WITH QUALIFIED TAX ADVISER
Due to the complexity of Federal and state gift, GST and income tax laws
pertaining to all gifts in trust, prospective Donors should consider consulting
with an attorney or other qualified tax adviser before investing in Royce
GiftShares Fund.
29
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<PAGE>
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION
The Trust was established as a Massachusetts business trust by a
Declaration of Trust, effective October 22, 1985. A copy of the Declaration of
Trust, as amended, is on file with the Secretary of the Commonwealth of
Massachusetts. The Trust has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited number of series
and/or classes without shareholder approval. (Each Fund presently has only one
class of shares.) These shares are entitled to one vote per share (with
proportional voting for fractional shares). Shares vote by individual series
except as otherwise required by the 1940 Act or when the Trustees determine that
the matter affects shareholders of more than one series.
Three of the four Trustees currently in office were elected by the
Trust's predecessor's stockholders. There will normally be no meeting of
shareholders for the election of Trustees until less than a majority of such
Trustees remain in office, at which time the Trustees will call a shareholders'
meeting for the election of Trustees. In addition, Trustees may be removed from
office by written consents signed by the holders of a majority of the
outstanding shares of the Trust and filed with the Trust's custodian or by a
vote of the holders of a majority of the outstanding shares of the Trust at a
meeting duly called for this purpose upon the written request of holders of at
least 10% of the Trust's outstanding shares. Upon the written request of 10 or
more shareholders of the Trust, who have been shareholders for at least 6 months
and who hold shares constituting at least 1% of the Trust's outstanding shares,
stating that such shareholders wish to communicate with the Trust's other
shareholders for the purpose of obtaining the necessary signatures to demand a
meeting to consider the removal of a Trustee, the Trust is required (at the
expense of the requesting shareholders) to provide a list of its shareholders or
to distribute appropriate materials. Except as provided above, the Trustees may
continue to hold office and appoint their successors.
The trustee of the Royce GiftShares Fund trusts will send notices of
meetings of Royce GiftShares Fund shareholders, proxy statements and proxies for
such meetings to the trusts' beneficiaries to enable them to attend the meetings
in person or vote by proxies. It will vote all GiftShares Fund shares held by it
which are not present at the meetings and for which no proxies are returned in
the same proportions as GiftShares Fund shares for which proxies are returned.
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.
The Board of Trustees of the Trust recently approved a reorganization of
the Trust, pursuant to which the Trust and PMF would be merged into The Royce
Fund, a newly-organized Delaware business trust, with each Fund and PMF being
merged into an identical counterpart series of the new trust. Quest and RE&A
would continue as the Funds' investment advisers under their present Investment
Advisory Agreements, and QDI would continue as the new trust's distributor. The
reorganization requires the approval of TRF's shareholders and, if approved by
them at the special meeting scheduled for June 26, 1996, would become effective
on June 28, 1996.
30
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<PAGE>
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable for the obligations
of the Trust. However, the Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of a series' property for all losses and expenses of any shareholder of that
series held liable on account of being or having been a shareholder. Thus, the
risk of shareholders incurring financial loss on account of shareholder
liability is limited to circumstances in which their particular series was
unable to meet its obligations.
PERFORMANCE DATA
The Funds' performances may be quoted in various ways. All performance
information supplied for the Funds is historical and is not intended to indicate
future returns. Each Fund's share price and total returns fluctuate in response
to market conditions and other factors, and the value of a Fund's shares when
redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS
Total returns quoted reflect all aspects of a Fund's return, including
the effect of reinvesting dividends and capital gain distributions and any
change in the Fund's net asset value per share (NAV) over the period. Average
annual total returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that a Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
In addition to average annual total returns, a Fund's unaveraged or
cumulative total returns, reflecting the simple change in value of an investment
over a stated period, may be quoted. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
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<PAGE>
<PAGE>
HISTORICAL FUND RESULTS
The following table shows certain of the Funds' total returns for the
periods indicated. Such total returns reflect all income earned by each Fund,
any appreciation or depreciation of the assets of such Fund and all expenses
incurred by such Fund for the stated periods. The table compares the Funds'
total returns to the records of the Russell 2000 Index (Russell 2000) and
Standard & Poor's 500 Composite Stock Price Index (S&P 500) over the same
periods. The comparison to the Russell 2000 shows how the Funds' total returns
compared to the record of a broad index of small capitalization stocks. The S&P
500 comparison is provided to show how the Funds' total returns compared to the
record of a broad average of common stock prices over the same period. The Funds
have the ability to invest in securities not included in the indices, and their
investment portfolios may or may not be similar in composition to the indices.
Figures for the indices are based on the prices of unmanaged groups of stocks,
and, unlike the Funds, their returns do not include the effect of paying
brokerage commissions and other costs and expenses of investing in a mutual
fund.
<TABLE>
<CAPTION>
Period Ended
Fund December 31, 1995 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
<S> <C> <C> <C>
Royce Value Fund
1 Year Total Return 18.7% 28.4% 37.5%
5 Year Average Annual Total Return 14.4 21.1 16.6
10 Year Average Annual Total Return 10.0 11.3 14.8
Royce Premier Fund
1 Year Total Return 17.8% 28.4% 37.5%
Average Annual Total Return since 12-31-91 13.8 15.4 13.3
(commencement of operations)
Royce Equity Income Fund
1 Year Total Return 16.4% 28.4% 37.5%
5 Year Average Annual Total Return 14.6 21.0 16.6
Average Annual Total Return since 1-2-90 9.0 12.9 12.7
(commencement of operations)
Royce Low-Priced Stock Fund
1 Year Total Return 22.5% 28.4% 37.5%
Average Annual Total Return since 12-15-93 12.2 13.9 18.2
(commencement of operations)
Royce Micro-Cap Fund
1 Year Total Return 19.1% 28.4% 37.5%
Average Annual Total Return since 12-31-91 18.5 15.4 13.3
(commencement of operations)
</TABLE>
32
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<PAGE>
<TABLE>
<CAPTION>
Period Ended
Fund December 31, 1995 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
<S> <C> <C> <C>
Royce Total Return Fund
1 Year Total Return 26.9% 28.4% 37.5%
Average Annual Total Return since 12-15-93 15.1 13.9 18.2
(commencement of operations)
Royce Global Services Fund
1 Year Total Return 21.2% 28.4% 37.5%
Average Annual Total Return since 12-15-94 21.7 31.7 36.8
(commencement of operations)
</TABLE>
During the applicable period ended December 31, 1995, a hypothetical
$10,000 investment in certain of the Funds would have grown as indicated below,
assuming all distributions were reinvested:
<TABLE>
<CAPTION>
Fund/Period Commencement Date Hypothetical Investment at December 31, 1995
- ----------------------------- --------------------------------------------
<S> <C>
Royce Value Fund (12-31-82) $ 47,325
Royce Premier Fund (12-31-91) 16,774
Royce Equity Income Fund (1-2-90) 16,760
Royce Low-Priced Stock Fund (12-15-93) 12,642
Royce Micro-Cap Fund (12-31-91) 19,731
Royce Total Return Fund (12-15-93) 13,339
Royce Global Services Fund (12-15-94) 12,269
</TABLE>
The Funds' performances may be compared in advertisements to the
performance of other mutual funds in general or to the performance of particular
types of mutual funds, especially those with similar investment objectives. Such
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of registered investment companies. The Funds' rankings by Lipper
for the one year period ended December 31, 1995 were:
<TABLE>
<CAPTION>
Fund Lipper Ranking
---- --------------
<S> <C>
Royce Value Fund 265 out of 304 small company growth funds
Royce Premier Fund 273 out of 304 small company growth funds
Royce Equity Income Fund 114 out of 129 equity income funds
Royce Low-Priced Stock Fund 226 out of 304 small company growth funds
Royce Micro-Cap Fund 263 out of 304 small company growth funds
Royce Total Return Fund 358 out of 439 growth and income funds
Royce Global Services Fund 23 out of 127 global funds
</TABLE>
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.
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<PAGE>
The Lipper General Equity Funds Average can be used to show how the
Funds' performances compare to a broad-based set of equity funds. The Lipper
General Equity Funds Average is an average of the total returns of all equity
funds (excluding international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper. As of December 31, 1995,
the average included 181 capital appreciation funds, 654 growth funds, 355 small
company growth funds, 495 growth and income funds, 146 equity income funds, 125
mid- cap funds and 48 S&P Index objective funds. Capital appreciation, growth
and small company growth funds usually invest principally in common stocks, with
long-term growth as a primary goal. Growth and income and equity income funds
tend to be more conservative in nature and usually invest in a combination of
common stocks, bonds, preferred stocks and other income- producing securities.
Growth and income and equity income funds generally seek to provide their
shareholders with current income as well as growth of capital, unlike growth
funds which may not produce income.
The Lipper Growth & Income Fund Index can be used to show how the Total
Return Fund's performance compares to a set of growth and income funds. The
Lipper Growth & Income Fund Index is an equally-weighted performance index,
adjusted for capital gains distributions and income dividends, of the 30 largest
qualifying funds within Lipper's growth and income investment objective
category.
The Lipper Global Fund Index can be used to show how the Global Services
Fund's performance compares to a set of global funds. The Lipper Global Fund
Index is an equally- weighted performance index, adjusted for capital gains
distributions and income dividends, of the 30 largest qualifying funds in
Lipper's global investment objective category.
Ibbotson Associates (Ibbotson) provides historical returns of the
capital markets in the United States. The Funds' performance may be compared to
the long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or U.S. Treasury securities. Ibbotson calculates total
returns in the same manner as the Funds.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, U.S. Treasury bills and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P 500 is used. For small capitalization
stocks, return is based on the return achieved by Dimensional Fund Advisors
(DFA) U.S. Growth and Income Small Company Fund. This fund is a
market-value-weighted index of the ninth and tenth deciles of the New York Stock
Exchange (NYSE), plus stocks listed on the American Stock Exchange (AMEX) and
over-the-counter (OTC) with the same or less capitalization as the upper bound
of the NYSE ninth decile. As of December 31, 1995, DFA contained approximately
2,700 stocks, with a median market capitalization of about $102 million.
The S&P 500 Composite Stock Price Index is an unmanaged index of common
stocks frequently used as a general measure of stock market performance. The
Index's performance figures reflect changes of market prices and quarterly
reinvestment of all distributions.
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<PAGE>
The S&P SmallCap 600 Index is an unmanaged market-weighted index
consisting of 600 domestic stocks chosen for market size, liquidity and industry
group representation. As of December 31, 1995, the weighted mean market value of
a company in this Index was approximately $640 million.
The Russell 2000, prepared by the Frank Russell Company, tracks the
return of the common stocks of the 2,000 smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market capitalization. The Russell
2000 tracks the return on these stocks based on price appreciation or
depreciation and includes dividends.
U.S. Treasury bonds are securities backed by the credit and taxing power
of the U.S. government and, therefore, present virtually no risk of default.
Although such government securities fluctuate in price, they are highly liquid
and may be purchased and sold with relatively small transaction costs (direct
purchase of U.S. Treasury securities can be made with no transaction costs).
Returns on intermediate-term government bonds are based on a one-bond portfolio
constructed each year, containing a bond that is the shortest non-callable bond
available with a maturity of not less than five years. This bond is held for the
calendar year and returns are recorded. Returns on long-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond that
meets several criteria, including having a term of approximately 20 years. The
bond is held for the calendar year and returns are recorded. Returns on U.S.
Treasury bills are based on a one-bill portfolio constructed each month,
containing the shortest term bill having not less than one month to maturity.
The total return on the bill is the month-end price divided by the previous
month-end price, minus one. Data up to 1976 is from the U.S. Government Bond
file at the University of Chicago's Center for Research in Security Prices; The
Wall Street Journal is the source thereafter. Inflation rates are based on the
Consumer Price Index.
Quest may, from time to time, compare the performance of common stocks,
especially small capitalization stocks, to the performance of other forms of
investment over periods of time.
From time to time, in reports and promotional literature, the Funds'
performances also may be compared to other mutual funds tracked by financial or
business publications and periodicals, such as KIPLINGER's, INDIVIDUAL INVESTOR,
MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL TIMES, FORTUNE, MUTUAL FUNDS
MAGAZINE and THE WALL STREET JOURNAL. In addition, financial or business
publications and periodicals, as they relate to fund management, investment
philosophy and investment techniques, may be quoted.
Morningstar, Inc.'s proprietary risk ratings may be quoted in
advertising materials. For the three years ended December 31, 1995, the average
risk score for the 1,394 equity funds rated by Morningstar with a three-year
history was 1.00; the average risk score for the 171 small company funds rated
by Morningstar with a three-year history was 1.04; and the average risk score
for the 67 equity income funds rated by Morningstar with a three-year history
was 0.62. For the three years ended December 31, 1995, the risk scores for the
Funds with a three-year history, and their ranks within Morningstar's equity
funds category and either its small company or equity income funds categories,
as applicable, were as follows:
35
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Rating within Morningstar Category of
Morningstar -----------------------------------------------------------------
Fund Risk Score Equity Funds Small Company Funds Equity Income Funds
- ---- ----------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Value 0.62 Within lowest 10% Within lowest 10% -
Premier 0.36 Within lowest 5% Lowest risk score -
Equity 0.51 Within lowest 15% - Within lowest 15%
Income
Micro- 0.56 Within lowest 10% Within lowest 5% -
Cap
</TABLE>
The Funds' performances may also be compared to those of other
compilations or indices.
Advertising for the Funds may contain examples of the effects of
periodic investment plans, including the principle of dollar cost averaging. In
such a program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share can be
lower than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
The Funds may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $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.
RISK MEASUREMENTS
Quantitative measures of "total risk," which quantify the total
variability of a portfolio's returns around or below its average return, may be
used in advertisements and in communications with current and prospective
shareholders. These measures include standard deviation of total return and the
Morningstar risk statistic. Such communications may also include market risk
measures, such as beta, and risk-adjusted measures of performance such as the
Sharpe Ratio, Treynor Ratio, Jensen's Alpha and Morningstar's star rating
system.
Standard Deviation. The risk associated with a fund or portfolio can be
viewed as the volatility of its returns, measured by the standard deviation of
those returns. For example, a fund's historical risk could be measured by
computing the standard deviation of its monthly total returns over some prior
period, such as three years. The larger the standard deviation of monthly
returns, the more volatile - i.e., spread out around the fund's average monthly
total return, the fund's monthly total returns have been over the prior period.
Standard deviation of total return can be calculated for funds having different
objectives, ranging from equity funds to fixed income
36
<PAGE>
<PAGE>
funds, and can be measured over different time frames. The standard deviation
figures presented are annualized statistics based on the trailing 36 monthly
returns. Approximately 68% of the time, the annual total return of a fund will
differ from its mean annual total return by no more than plus or minus the
standard deviation figure. 95% of the time, a fund's annual total return will be
within a range of plus or minus 2x the standard deviation from its mean annual
total return.
Beta. Beta measures the sensitivity of a security's or portfolio's
returns to the market's returns. It measures the relationship between a fund's
excess return (over 3-month T-bills) and the excess return of the benchmark
index (S&P 500 for domestic equity funds). The market's beta is by definition
equal to 1. Portfolios with betas greater than 1 are more volatile than the
market, and portfolios with betas less than 1 are less volatile than the market.
For example, if a portfolio has a beta of 2, a 10% market excess return would be
expected to result in a 20% portfolio excess return, and a 10% market loss would
be expected to result in a 20% portfolio loss (excluding the effects of any
firm-specific risk that has not been eliminated through diversification).
Morningstar Risk. The Morningstar proprietary risk statistic evaluates a
fund's downside volatility relative to that of other funds in its class based on
the underperformances of the fund relative to the riskless T-bill return. It
then compares this statistic to those of other funds in the same broad
investment class.
Sharpe Ratio. Also known as the Reward-to-Variability Ratio, this is the
ratio of a fund's average return in excess of the risk-free rate of return
("average excess return") to the standard deviation of the fund's excess
returns. It measures the returns earned in excess of those that could have been
earned on a riskless investment per unit of total risk assumed.
Treynor Ratio. Also known as the Reward-to-Volatility Ratio, this is the
ratio of a fund's average excess return to the fund's beta. It measures the
returns earned in excess of those that could have been earned on a riskless
investment per unit of market risk assumed. Unlike the Sharpe Ratio, the Treynor
Ratio uses market risk (beta), rather than total risk (standard deviation), as
the measure of risk.
Jensen's Alpha. This is the difference between a fund's actual returns
and those that could have been earned on a benchmark portfolio with the same
amount of risk - i.e., the same beta, as the portfolio. Jensen's Alpha measures
the ability of active management to increase returns above those that are purely
a reward for bearing market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted performance.
Ratings may change monthly. Funds with at least three years of performance
history are assigned ratings from one star (lowest) to five stars (highest).
Morningstar ratings are calculated from the funds' three-, five- and ten-year
average annual returns (when available). Funds' returns are adjusted for fees
and sales loads. Ten percent of the funds in an investment category receive five
stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two
stars and the bottom 10% receive one star.
None of the quantitative risk measures taken alone can be used for a
complete analysis and, when taken individually, can be misleading at times.
However, when considered in some
37
<PAGE>
<PAGE>
combination and with the total returns of a fund, they can provide the investor
with additional information regarding the volatility of a fund's performance.
Such risk measures will change over time and are not necessarily predictive of
future performance or risk.
38
<PAGE>
<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, 1995 (audited), of Royce Premier Fund for
the four years ended December 31, 1995 (audited), of Royce Equity
Income Fund for the six years ended December 31, 1995 (audited), of
Royce Micro-Cap Fund for the four years ended December 31, 1995
(audited), of Royce Low- Priced Stock Fund and Royce Total Return
Fund for the period from December 15, 1993 through December 31, 1993
(audited) and for the two years ended December 31, 1995 (audited),
of Royce Global Services Fund for the period from December 15, 1994
through December 31, 1994 (audited) and for the year ended December
31, 1995 (audited) and of Royce GiftShares Fund for the period from
December 27, 1995 through December 31, 1995 (audited).
The following audited financial statements of the Registrant are included
in the Registrant's Annual Reports to Shareholders for the fiscal year or period
ended December 31, 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, 1995;
Royce Value Fund -- Statement of Assets and Liabilities at December
31, 1995;
Royce Value Fund -- Statement of Changes in Net Assets for the years
ended December 31, 1995 and 1994;
Royce Value Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Value Fund -- Financial Highlights for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991;
Royce Value Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Premier Fund -- Schedule of Investments at December 31, 1995;
Royce Premier Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Premier Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994;
Royce Premier Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Premier Fund -- Financial Highlights for the years ended
December 31, 1995, 1994 and 1993;
Royce Premier Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Equity Income Fund -- Schedule of Investments at December 31,
1995;
Royce Equity Income Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Equity Income Fund -- Statement of Changes in Net Assets for
the years ended December 31, 1995 and 1994;
Royce Equity Income Fund -- Statement of Operations for the year
ended December 31, 1995;
Royce Equity Income Fund -- Financial Highlights for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991;
Royce Equity Income Fund -- Notes to Financial Statements -- Report
of Independent Accountants dated February 7, 1996;
Royce Micro-Cap Fund -- Schedule of Investments at December 31,
1995;
Royce Micro-Cap Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Micro-Cap Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994;
Royce Micro-Cap Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Micro-Cap Fund -- Financial Highlights for the years ended
December 31, 1995, 1994 and 1993;
Royce Micro-Cap Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Low-Priced Stock Fund -- Schedule of Investments at December
31, 1995;
Royce Low-Priced Stock Fund -- Statement of Assets and Liabilities
at December 31, 1995;
Royce Low-Priced Stock Fund -- Statement of Changes in Net Assets
for the years ended December 31, 1995 and 1994;
Royce Low-Priced Stock Fund -- Statement of Operations for the year
ended December 31, 1995;
Royce Low-Priced Stock Fund -- Financial Highlights for the years
ended December 31, 1995 and 1994 and the period from December 15,
1993 through December 31, 1993;
Royce Low-Priced Stock Fund -- Notes to Financial Statements --
Report of Independent Accountants dated February 7, 1996;
Royce Total Return Fund -- Schedule of Investments at December 31,
1995;
Royce Total Return Fund -- Statement of Assets and Liabilities at
December 31, 1995;
2
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Total Return Fund -- Statement of Changes in Net Assets for
the year ended December 31, 1995 and 1994;
Royce Total Return Fund -- Statement of Operations for the year
ended December 31, 1995;
Royce Total Return Fund -- Financial Highlights for the years ended
December 31, 1995 and 1994 and the period from December 15, 1993
through December 31, 1993;
Royce Total Return Fund -- Notes to Financial Statements -- Report
of Independent Accountants dated February 7, 1996;
Royce Global Services Fund -- Schedule of Investments at December
31, 1995;
Royce Global Services Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Global Services Fund -- Statement of Changes in Net Assets for
the year ended December 31, 1995 and the period from December 15,
1994 through December 31, 1994;
Royce Global Services Fund -- Statement of Operations for the year
ended December 31, 1995;
Royce Global Services Fund -- Financial Highlights for the year
ended December 31, 1995 and the period from December 15, 1994
through December 31, 1994;
Royce Global Services Fund -- Notes to Financial Statements --
Report of Independent Accountants dated February 7, 1996;
Royce GiftShares Fund -- Schedule of Investments at December 31,
1995;
Royce GiftShares Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce GiftShares Fund -- Statement of Changes in Net Assets for the
period from December 27, 1995 through December 31, 1995;
Royce GiftShares Fund -- Statement of Operations for the period from
December 27, 1995 through December 31, 1995;
Royce GiftShares Fund -- Financial Highlights for the period from
December 27, 1995 through December 31, 1995;
Royce GiftShares 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.
3
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
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, 34
and 35 thereto and are incorporated by reference herein.
(4) Agreement Between State Street Bank and Trust Company, The Royce Fund
and Quest Advisory Corp. regarding appointment as Trustee of various
Royce GiftShares Fund Trusts.
(11) Consent of Coopers & Lybrand L.L.P. relating to all Funds except The
REvest Growth & Income Fund.
(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 March 31, 1996, the number of record holders of shares of each Fund
of the Registrant was as follows:
<TABLE>
<CAPTION>
<S> <C>
Title of Fund Number of Record Holders
------------- ------------------------
Royce Value Fund 7,918
Royce Premier Fund 12,176
Royce Equity Income Fund 1,945
Royce Micro-Cap Fund 7,013
Royce Low-Priced Stock Fund 219
Royce Total Return Fund 44
Royce Global Services Fund 54
The REvest Growth and Income Fund 491
Royce GiftShares Fund 5
</TABLE>
4
<PAGE>
<PAGE>
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:
(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
5
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
(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).
(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.
6
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
(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 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.
7
<PAGE>
<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."
(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.
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
8
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
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 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."
9
<PAGE>
<PAGE>
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
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.
10
<PAGE>
<PAGE>
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.
11
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, and State
of New York, on the 29th day of April, 1996.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of Rule 485
under the Securities Act of 1933 and that no material event requiring disclosure
in the prospectus, other than one listed in paragraph (b)(1) of such Rule or one
for which the Commission has approved a filing under paragraph (b)(1)(ix) of the
Rule, has occurred since the latest of the following three dates: (i) the
effective date of the Registrant's Registration Statement; (ii) the effective
date of the Registrant's most recent Post-Effective Amendment to its
Registration Statement which included a prospectus; or (iii) the filing date of
a post-effective amendment filed under paragraph (a) of Rule 485 which has not
become effective.
THE ROYCE FUND
By: /s/ Charles M. Royce
----------------------------------
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Charles M. Royce President, Treasurer 4/29/96
- ------------------------ and Trustee (Principal
Charles M. Royce Executive, Accounting
and Financial Officer)
/s/ Richard M. Galkin Trustee 4/29/96
- ------------------------
Richard M. Galkin
/s/ Stephen L. Isaacs Trustee 4/29/96
- ------------------------
Stephen L. Isaacs
/s/ David L. Meister Trustee 4/29/96
- ------------------------
David L. Meister
</TABLE>
NOTICE
A copy of the Declaration of Trust of The Royce Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Registrant by an officer of the
Registrant as an officer and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Registrant.
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
(4) Agreement Between State Street Bank and 151
Trust Company, The Royce Fund and Quest
Advisory Corp.
(11) Consent of Coopers & Lybrand L.L.P. 157
(16) Schedule For Computation Of Performance 158
Quotations Provided in Item 22
(17) Financial Data Schedule 161
</TABLE>
STATEMENT OF DIFFERENCES
Mathematical powers normally expressed
as superscript shall be preceeded as........................'pp'
<PAGE>
<PAGE>
AGREEMENT
Between
STATE STREET BANK AND TRUST COMPANY,
THE ROYCE FUND and QUEST ADVISORY CORP.
State Street Bank and Trust Company (hereinafter "State Street"), The Royce
Fund (hereinafter the "Fund"), and Quest Advisory Corp. (hereinafter "Quest")
hereby enter into this Agreement in which State Street agrees to accept
appointment as Trustee of various Royce GiftShares Fund Trusts (hereinafter the
"Trusts") and the Fund and Quest, in consideration of State Street's agreeing to
serve as Trustee of the Trusts, accept the terms of this Agreement.
I. State Street hereby agrees:
1) To accept appointment as Trustee of the Trusts, provided that there
are no material changes to the Standard Trust Agreement and Adoption
Agreement attached as Exhibit A, and to carry out the terms of each
Trust in accordance with the option selected by the Donor in the
Adoption Agreement.
2) As Trustee under the Standard Trust Agreement and Adoption Agreement,
State Street shall, among other things, prepare and file all required
federal and state fiduciary income tax returns for the Trusts and pay
any taxes due from the Trusts; and prepare and file all required
federal and state estimates and pay any estimated income tax payments
from the Trusts; provided, however, that the Fund provides State
Street with
<PAGE>
<PAGE>
sufficient information to prepare and file such returns and pay any
taxes due.
3) To retain original Standard Trust Agreements and Adoption Agreements.
4) For its services as Trustee, State Street will charge compensation in
accordance with Exhibit B. State Street agrees that it will not
increase its compensation for a period of two years from the date all
parties have signed this Agreement. State Street will notify the Fund
and Quest in writing at least forty-five (45) days prior to any
change in State Street's compensation.
5) State Street agrees that it will not enter into any agreements with
other open-end management investment companies to provide services
which are substantially similar to the services State Street will
provide under this Agreement for a period which begins on the date
this Agreement is signed by all parties and which ends on January 1,
1997.
II. The Fund agrees:
1) In accordance with paragraph 14(c) of the Standard Trust Agreement,
to appoint a Successor Trustee within sixty (60) days of State
Street's resignation as Trustee.
2) State Street's name will not be used in any advertising or marketing
materials without the prior written consent of State Street.
2
<PAGE>
<PAGE>
3) The Standard Trust Agreement and the Adoption Agreement will not be
modified in any material respect without the prior written consent of
State Street. The Taxation sections of the Fund's Prospectus and
Statement of Additional Information applicable to the Trusts will not
be modified in a manner that increases the responsibility of State
Street without State Street's prior written consent. State Street's
consents will not be unreasonably withheld.
4) The Fund agrees to pay for appropriate out-of-pocket costs.
5) The Fund assumes responsibiity for keeping the Taxation section of
its Statement of Additional Information applicable to the Trusts
current.
6) The Fund assumes responsibility for the delivery of a current
prospectus and the Taxation section of its Statement of Additional
Information applicable to the Trusts to the Donor. The Fund shall be
responsible for any losses, claims or penalties which result from its
failure to so deliver a current prospectus. State Street reserves the
right to reject any Adoption Agreement not properly completed and
shall promptly notify the Fund's Director of Operations of said
rejection by State Street of an Adoption Agreement and shall identify
its reason for rejecting an Adoption Agreement.
7) The Fund will establish a unit to respond to telephone inquiries from
donors and beneficiaries who have been referred to the Fund by State
Street or any of State Street's agents.
3
<PAGE>
<PAGE>
III. Quest agrees:
8) In its capacity as investment advisor to Royce GiftShares Fund
(hereinafter "RGF"), Quest agrees to indemnify State Street for any
and all losses or claims, including reasonable attorneys' fees, which
may be brought against State Street, now or at any time, relating to
the Trusts; provided, however, that such losses and claims are not
primarily a result of State Street's own wilful misconduct,
negligence, or breach of its obligations hereunder or under the
Standard Trust Agreement and Adoption Agreement, and such claims
and/or losses cannot be indemnified by the Trusts. The obligation to
indemnify State Street will survive and continue in effect after the
termination of this Agreement.
IV. All parties agree:
1) That this Agreement may be modified with the prior written consent of
all parties to the Agreement.
2) That any party may terminate this Agreement, by giving sixty (60)
days written notice of its intention to terminate this Agreement to
the non- terminating parties.
3) That this Agreement may only be assigned with the prior written
consent of all the parties to this Agreement.
4
<PAGE>
<PAGE>
4) That the provisions of this Agreement will be construed and governed
by the laws of the Commonwealth of Massachusetts.
STATE STREET BANK AND TRUST COMPANY
3/20/96
___________________ By: ________________________________
Date
THE ROYCE FUND
3/26/96 DAN O'BRIEN V.P.
___________________ By: ________________________________
Date
QUEST ADVISORY CORP.
3/26/96 DAN O'BRIEN V.P.
__________________ By: ________________________________
Date
5
<PAGE>
<PAGE>
EXHIBIT B
FEES
$ 50 - SET-UP
$ 150 - TERMINATION
$ 185 - ANNUAL
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of The Royce Fund:
We hereby consent to the following with respect to Post-Effective
Amendment No. 36 to the Registration Statement on Form N-1A (File No. 2-80348)
under the Securities Act of 1933, as amended, of The Royce Fund (consisting of
Royce Value Fund, Royce Total Return Fund, Royce Global Services Fund, Royce
Premier Fund, Royce Equity Income Fund, Royce Low-Priced Stock Fund, Royce
Micro-Cap Fund, and Royce GiftShares Fund) (collectively, the "Funds"):
1. The reference to our firm under the heading "Financial Highlights"
in each Fund's Prospectus.
2. The incorporation by reference of our reports dated February 7,
1996 accompanying each Fund's Annual Report for the year ended
December 31, 1995, in each Fund's Prospectus and Statement of
Additional Information.
3. The reference to our firm under the heading "Independent Accountants"
in the Statement of Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1996
<PAGE>
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial investment in
each Fund of the Trust by applying the "Annual Total Return" and the "Average
Annual Total Return" percentages set forth in this Registration Statement in
response to Item 22 to the following total return formula:
P(1+T)'pp'n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the 1, 5 or 10
year or other periods at the end of the 1, 5 or 10
year or other periods.
Royce Value Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a $1,000
investment for the one year period ended December
31, 1995:
$1,000 (1+ .1869)'pp'1 = $1,186.90 ERV
(b) 5 Year ERV of a $1,000 investment for the five (5)
year period ended December 31, 1995:
$1,000 (1+ .1441)'pp'5 = $1,960.10 ERV
(c) 10 Year ERV of a $1,000 investment for the ten (10)
year period ended December 31, 1995:
$1,000 (1+ .1001)'pp'10 = $2,597.20 ERV
Royce Premier Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a $1,000
investment for the one year period ended December
31, 1995:
$1,000 (1+ .1782)'pp'1 = $1,178.20 ERV
<PAGE>
<PAGE>
(b) ERV of a $1,000 investment for the period from the
Fund's inception on January 1, 1992 through
December 31, 1995:
$1,000 (1+ .1380)'pp'4 = $1,677.40 ERV
Royce Equity Income Fund
(a) 1 Year ERV of a $1,000 investment for the one year
period ended December 31, 1995:
$1,000 (1+ .1637)'pp'1 = $1,163.70 ERV
(b) 5 Year ERV of a $1,000 investment for the five year
period ended December 31, 1995:
$1,000 (1+ .1464)'pp'5 = $1,980.00 ERV
(c) ERV of a $1,000 investment for the period from the
Fund's inception on January 2, 1990 through
December 31, 1995:
$1,000 (1+ .0899)'pp'6 = $1,676.00 ERV
Royce Micro-Cap Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a $1,000
investment for the one year period ended December
31, 1995:
$1,000 (1+ .1906)'pp'1 = $1,190.60 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on January 1, 1992 through
December 31, 1995:
$1,000 (1+ .1852)'pp'4 = $1,973.10 ERV
Royce Low-Priced Stock Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a $1,000
investment for the one year period ended December
31, 1995:
$1,000 (1+ .2253)'pp'1 = $1,225.30 ERV
<PAGE>
<PAGE>
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 15, 1993 through
December 31, 1995:
$1,000 (1+ .1215)'pp'2.04 = $1,264.20 ERV
Royce Total Return Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a $1,000
investment for the one year period ended December
31, 1995:
$1,000 (1+ .2685)'pp'1 = $1,268.50 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 15, 1993 through
December 31, 1995:
$1,000 (1+ .1514)'pp'2.04 = $1,333.90 ERV
Royce Global Services Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a $1,000
investment for the one year period ended December
31, 1995:
$1,000 (1+ .2079)'pp'1 = $1,207.90 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 15, 1994 through
December 31, 1995:
$1,000 (1+ .2123)'pp'1.04 = $1,212.30 ERV
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 1
<NAME> ROYCE VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 120592519
<INVESTMENTS-AT-VALUE> 166496966
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<TOTAL-ASSETS> 167723757
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<SHARES-REINVESTED> 11764560
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<ACCUMULATED-NII-PRIOR> 77262
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<GROSS-EXPENSE> 3578333
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> ROYCE EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 52726365
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<PAYABLE-FOR-SECURITIES> 275390
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<OTHER-ITEMS-LIABILITIES> 120216
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<SENIOR-EQUITY> 9859
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<ACCUMULATED-NET-GAINS> 67969
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<ACCUM-APPREC-OR-DEPREC> 3102419
<NET-ASSETS> 56177182
<DIVIDEND-INCOME> 1995242
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<EXPENSES-NET> 813811
<NET-INVESTMENT-INCOME> 2289102
<REALIZED-GAINS-CURRENT> 2816539
<APPREC-INCREASE-CURRENT> 5050556
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<DISTRIBUTIONS-OF-GAINS> 394120
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<NUMBER-OF-SHARES-SOLD> 8488920
<NUMBER-OF-SHARES-REDEEMED> 38773144
<SHARES-REINVESTED> 1878994
<NET-CHANGE-IN-ASSETS> (20953484)
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 5515
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 655813
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<GROSS-EXPENSE> 870841
<AVERAGE-NET-ASSETS> 65581270
<PER-SHARE-NAV-BEGIN> 5.12
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> .21
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<PER-SHARE-NAV-END> 5.70
<EXPENSE-RATIO> 1.24
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<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> ROYCE MICRO-CAP FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 92604170
<INVESTMENTS-AT-VALUE> 99420470
<RECEIVABLES> 707419
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<TOTAL-ASSETS> 100136646
<PAYABLE-FOR-SECURITIES> 2164166
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<TOTAL-LIABILITIES> 2407411
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<SHARES-COMMON-STOCK> 12970866
<SHARES-COMMON-PRIOR> 4134829
<ACCUMULATED-NII-CURRENT> 55739
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 142098
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6816300
<NET-ASSETS> 97729235
<DIVIDEND-INCOME> 629358
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<EXPENSES-NET> 1079814
<NET-INVESTMENT-INCOME> 55739
<REALIZED-GAINS-CURRENT> 2372160
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<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> ROYCE PREMIER FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 277289836
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<SHARES-REINVESTED> 18955637
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> ROYCE LOW-PRICED STOCK FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4540476
<INVESTMENTS-AT-VALUE> 4562276
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<TOTAL-ASSETS> 4589865
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> ROYCE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2320584
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<RECEIVABLES> 16992
<ASSETS-OTHER> 5754
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<TOTAL-ASSETS> 2584396
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4482
<ACCUM-APPREC-OR-DEPREC> 241066
<NET-ASSETS> 2547674
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<EXPENSES-NET> 36195
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51027
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> ROYCE GLOBAL SERVICES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 1614574
<INVESTMENTS-AT-VALUE> 1700712
<RECEIVABLES> 3767
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<TOTAL-ASSETS> 1719911
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 93254
<SENIOR-EQUITY> 286
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<ACCUMULATED-NET-GAINS> 42027
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<ACCUM-APPREC-OR-DEPREC> 86138
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<EXPENSES-NET> 26600
<NET-INVESTMENT-INCOME> (7845)
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> ROYCE GIFTSHARES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 212406
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<OTHER-ITEMS-LIABILITIES> 20048
<TOTAL-LIABILITIES> 232454
<SENIOR-EQUITY> 100
<PAID-IN-CAPITAL-COMMON> 500900
<SHARES-COMMON-STOCK> 100200
<SHARES-COMMON-PRIOR> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 839
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<DIVIDEND-INCOME> 48
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<EXPENSES-NET> 48
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 839
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<NUMBER-OF-SHARES-SOLD> 500000
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