The Royce Funds
Royce Total Return Fund
PROSPECTUS -- April 30, 1996, as amended July 24, 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
INVESTMENT
OBJECTIVE AND
POLICIES
Royce Total Return Fund (the "Fund") seeks long-term growth of capital and
current income by investing 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 ten series. This Prospectus relates to Royce Total Return Fund
only.
ABOUT THIS
PROSPECTUS
This Prospectus sets forth concisely the information that you should know
about the Fund before you invest. It should be retained for future
reference. A "Statement of Additional Information" containing further
information about the Fund and the Trust has been filed with the Securities
and Exchange Commission. The Statement is dated July 1, 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
TABLE OF CONTENTS Page
Fund Expenses. . . . . . . . 2
Financial Highlights . . . . 3
Investment Performance . . . 4
Investment Objective . . . . 4
Investment Policies. . . . . 4
Investment Risks . . . . . . 5
Investment Limitations . . . 5
Management of the Trust . . 6
General Information. . . . . 7
Page
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. . . . . 11
Redeeming Your Shares. . . . . . . . . 13
Exchange Privilege . . . . . . . . . . 15
Transferring Ownership . . . . . . . . 15
Other Services . . . . . . . . . . . . 15
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EX- CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
The Fund is
no-load and no
12b-1 fees are
being charged
The following table illustrates all expenses and fees that you would incur as
a shareholder of the Fund.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends. . . . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . None
Redemption Fee -- 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.
<PAGE>
FINANCIAL
HIGHLIGHTS
(For a share out-
standing through-
out each period)
The following financial highlights are part of the Fund's financial statements
and have been audited by Coopers & Lybrand L.L.P., independent accountants.
The Fund's financial statements and Coopers & Lybrand L.L.P.'s report on them
are included in the Fund's 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
Period ended
Year ended December 31, Dec. 31, 1993
1995 1994 (2)
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%
(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.
<PAGE>
INVESTMENT
PERFORMANCE
Total Return is the
change in value over
a given time period,
assuming reinvestment
of dividends and capital
gains distributions
The Fund may include in communications to current or prospective shareholders
figures reflecting Total Return over various time periods. "Total Return" is
the rate of return on an amount invested in the Fund from the beginning to
the end of the stated period. "Average annual Total Return" is the annual
compounded percentage change in the value of an amount invested in the Fund
from the beginning until the end of the stated period. Total Returns are
historical measures of past performance and are not intended to indicate
future performance. Total Returns assume the reinvestment of all 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%
INVESTMENT
OBJECTIVE
Royce Total Return Fund's investment objective is an equal focus on both
long-term growth of capital and current income. It seeks to achieve this
objective through investments in a broadly diversified portfolio of
dividend-paying common stocks of companies selected on a value basis. 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
POLICIES
The Fund invests
on a "value basis
Quest uses a "value" method in managing the Fund's assets. In its selection
process, Quest puts primary emphasis on the understanding of various internal
returns indicative of profitability, balance sheet quality, cash flows and
the relationships that these factors have to the price of a given security.
This is in contrast to other methods that focus on high growth or emerging
growth companies.
The Fund invests
primarily in small
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. 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
<PAGE>
in securities with higher stock market capitalizations, non-dividend-paying
common stocks and convertible and non-convertible securities. While most of
the Fund's securities will be income-producing, the composite yield of the
Fund will vary and may be either higher or lower than the composite yield of
the stocks in the Standard & Poor's 500 Index.
INVESTMENT RISKS
The Fund is subject
to certain investment
risks
As a mutual fund investing primarily in common stocks and/or securities
convertible into common stocks, the Fund is subject to market risk, that is,
the possibility that common stock prices will decline over short or even
extended periods. The Fund 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
LIMITATIONS
The Fund has adopted
certain
fundamental
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 outstanding voting shares, as that term is
defined in the 1940 Act. These limitations are set forth in the Statement of
Additional Information and provide, among other things, that the Fund will
not:
(a) with respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer, excluding obligations of the U.S.
Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of management.
Other Investment
Practices:
In addition to investing primarily in the equity and fixed income securities
described above, the Fund may follow a number of additional investment
practices.
Short-term fixed
income securities
The Fund may invest in short-term fixed income securities for temporary
defensive purposes, to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. These securities consist of United
States Treasury bills, domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements collateralized by U.S. Government
securities. In a repurchase agreement, a bank sells a security to the Fund at
one price and agrees to repurchase it at the Fund's cost plus interest within
a specified period of seven or fewer days. In these transactions, which are,
in effect, secured loans by the Fund, the securities purchased by the Fund
will have a value equal to or in excess of the value of the repurchase
agreement and will be held by the Fund's custodian bank until repurchased.
Should the Fund implement a temporary investment policy, its investment
objective may not be achieved.
<PAGE>
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.
Warrants, rights and
options
The Fund may invest up to 5% of its total assets in warrants, rights and
options.Lower-rated debt securitiesUp to 20% of the Fund's assets may be
invested in debt securities in the lowest category of investment grade debt.
These bonds may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade bonds. 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
Quest Advisory Corp.
is responsible for
management of the
Fund's portfolio
The Trust's business and affairs are managed under the direction of its Board
of Trustees. Quest, the Fund's investment adviser, is responsible for the
management of the Fund's portfolio, subject to the authority of the Board of
Trustees. Quest was organized in 1967 and has been the Fund's adviser since
its inception. Charles M. Royce, Quest's President, Chief Investment Officer
and sole voting shareholder since 1972, is primarily responsible for
supervising Quest's investment management activities. Mr. Royce is assisted
by 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, 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.
<PAGE>
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
INFORMATION
The Royce Fund (the "Trust") is a Delaware business trust, registered with the
Securities and Exchange Commission as an open-end, diversified management
investment company. It is the successor to a Massachusetts business trust
established in October 1985 and merged into the Trust in June 1996. The
Trustees have the authority to issue an unlimited number of shares of
beneficial interest, without shareholder approval, and these shares may be
divided into an unlimited number of series and classes. Shareholders are
entitled to one vote per share. Shares vote by individual series on all
matters, except that shares are voted in the aggregate and not by individual
series when required by the 1940 Act and that if the Trustees determine that a
matter affects only one series, then only shareholders of that series are
entitled to vote on that matter.
Meetings of shareholders will not be held except as required by the 1940 Act
or other applicable law. A meeting will be held to vote on the removal of a
Trustee or Trustees of the Trust if requested in writing by the holders of
not less than 10% of the outstanding shares of the Trust.
The custodian for securities, 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.
<PAGE>
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
The Fund pays
dividends and capital
gains annually in
December
The Fund pays dividends from net investment income (if any) and distributes
its net realized capital gains annually in December. Dividends and
distributions will be automatically reinvested in additional shares of the
Fund unless the shareholder chooses otherwise.
Shareholders receive information annually as to the tax status of
distributions made by the Fund for the calendar year. For Federal income tax
purposes, all distributions by the Fund are taxable to shareholders when
declared, whether received in cash or reinvested in shares. Distributions
paid from the Fund's net investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends. A portion of the
Fund's dividends may qualify for the corporate dividends received deduction,
subject to certain limitations. The portion of the Fund's dividends
qualifying for such deduction is generally limited to the aggregate taxable
dividends received by the Fund from domestic corporations.
Distributions paid from long-term capital gains of the Fund are treated by a
shareholder for Federal income tax purposes as long-term capital gains,
regardless of how long the shareholder has held Fund shares. If a
shareholder disposes of shares held for six months or less at a loss, such
loss is treated as a long-term capital loss to the extent of any long-term
capital gains reported by the shareholder with respect to such shares.
The redemption of shares is a taxable event, and a shareholder may realize a
capital gain or capital loss. The Fund will report to redeeming shareholders
the proceeds of their redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in the redeemed shares
for tax purposes, shareholders should retain their account statements for use
in determining their tax liability on a redemption.
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.
<PAGE>
NET ASSET VALUE
PER SHARE
Net asset value per
share (NAV) is
determined each day
the New York Stock
Exchange is open
Fund shares are purchased and redeemed at their net asset value per share next
determined after an order is received by the Fund's transfer agent or an
authorized service agent or sub-agent. Net asset value per share is
determined by dividing the total value of the Fund's investments and other
assets, less any liabilities, by the number of outstanding shares of the Fund.
Net asset value per share is calculated at the close of regular trading on
the New York Stock Exchange on each day the Exchange is open for business.
In determining net asset value, securities listed on an exchange or the Nasdaq
National Market System are valued on the basis of the last reported sale
price prior to the time the valuation is made or, if no sale is reported for
that day, at their bid price for exchange-listed securities and at the
average of their bid and ask prices for Nasdaq securities. Quotations are
taken from the market where the security is primarily traded. Other
over-the-counter securities for which market quotations are readily available
are valued at their bid price. Securities for which market quotations are
not readily available are valued at their fair value under procedures
established and supervised by the Board of Trustees. Bonds and other fixed
income securities may be valued by reference to other securities with
comparable ratings, interest rates and maturities, using established
independent pricing services.
SHAREHOLDER GUIDE
OPENING AN
ACCOUNT AND
PURCHASING
SHARES
The Fund's shares are offered on a no-load basis. New accounts (other than
IRA or 403(b)(7) accounts) can be opened either by mail, by telephone or by
wire. An Account Application must be completed and returned, regardless of
the method selected. If you need assistance with the Account Application or
have any questions about the Fund, please call Investor Information at
1-800-221-4268. Note: For certain types of account registrations (e.g.,
corporations, partnerships, foundations, associations, other organizations,
trusts or powers of attorney), please call Investor Information to determine
if you need to provide additional forms with your application.
Type of Account Minimum
Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
403(b)(7) accounts * None
* Separate forms must be used for opening IRAs or 403(b)(7) accounts; please
call Investor Information if you need these forms.
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).
<PAGE>
Purchasing By Mail
Complete and sign the
enclosed Account
Application
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Please include the amount of your initial Additional investments should
investment on the Application Form, make include the Invest-by-Mail
your check payable to The Royce Fund, and remittance form attached to your
mail to: Fund account confirmation
statements. Please make your check
The Royce Funds payable to The Royce Fund, write
P.O. Box 419012 your account number on your check
Kansas City, MO 64141-6012 and, using the return envelope
provided, mail to the address
indicated on the Invest-by-Mail
form.
For express or
registered mail,
send to:
The Royce Funds All written requests should be
c/o National Financial Data Services mailed to one of the addresses
1004 Baltimore, 5th Floor indicated for new accounts.
Kansas City, MO 64105
Purchasing By
Telephone
To open an account by telephone, you should
call Investor Information (1-800-221-4268)
before 4:00 p.m., Eastern time. You will be
given a confirming order number for your
purchase. This number must be placed on
your completed Application before mailing.
If a completed and signed Application is not
received on an account opened by telephone,
the account may be subject to backup
withholding of Federal income taxes.
Subsequent telephone purchases ($500
minimum) may also be made by calling
Investor Information. For all telephone
purchases, payment is due within three
business days and may be made by wire or
personal, business or bank check, subject to
collection.
Purchasing By
Wire:
Before Wiring:
For a new account,
please contact Investor
Information at 1-800-221-4268
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: Royce Total Return Fund
Order Number or Account Number____________________
Account Name ____________________________________
To ensure proper receipt, please be sure your bank includes the name of the
Fund and your order number (for telephone purchases) or account number. If
you are opening a new account, you must call Investor Information to obtain
an order number, and complete the Account Application and mail it to the "New
Account" address above after completing your wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the Fund and its
custodian are open for business.
<PAGE>
Purchasing By
Express
Service
You can purchase shares automatically or at your discretion through the
following options:
Expedited Purchase Option permits you, at your discretion, to transfer funds
($100 minimum and $200,000 maximum) from your bank account to purchase shares
in your Royce Fund account by telephone 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.
Payroll Direct Deposit Plan and Government Direct Deposit Plan let you have
investments ($50 minimum) made from your net payroll or government check into
your existing Royce Fund account each pay period. Your employer must have
direct deposit capabilities through ACH (Automated Clearing House) available
to its employees. You may terminate participation in these programs by
giving written notice to your employer or government agency, as appropriate.
The Fund is not responsible for the efficiency of the employer or government
agency making the payment or any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for
Direct Deposit form which may be obtained from Investor Information by
calling 1-800-221-4268.
CHOOSING A
DISTRIBUTION
OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option--Both net investment income dividends and
capital gains distributions will be reinvested in additional Fund shares.
This option will be selected for you automatically unless you specify one of
the other options.
2. Cash Dividend Option--Your dividends will be paid in cash and your
capital gains distributions will be reinvested in additional Fund shares.
3. All Cash Option--Both dividends and capital gains distributions will be
paid in cash.
You may change your option by calling Shareholder Services at 1-800-841-1180.
IMPORTANT
ACCOUNT
INFORMATION
The easiest way to establish optional services on your account is to select
the options you desire when you complete your Account Application. 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.
<PAGE>
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.
CertificatesCertificates for whole shares will be issued upon request. If a
certificate is lost, stolen or destroyed, you may incur an expense to replace
it.
Purchases Through
Service Providers
If you purchase shares of the Fund through a program of services offered or
administered by a broker-dealer, financial institution or other service
provider, you should read the program materials provided by the service
provider, including information regarding fees which may be charged, in
conjunction with this Prospectus. Certain shareholder servicing features of
the Fund may not be available or may be modified in connection with the
program of services offered. When shares of the Fund are purchased in this
way, the service provider, rather than the customer, may be the shareholder
of record of the shares. Certain service providers may receive compensation
from the Fund, QDI and/or Quest for providing such services.
Telephone and
Online Access
Transactions
Neither the Fund nor its transfer agent will be liable for following
instructions 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 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
Purchases
Your trade date is the date on which share 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.
<PAGE>
REDEEMING YOUR
SHARES
You may redeem any portion of your account at any time. You may request a
redemption in writing or by telephone. Redemption proceeds normally will be
sent within two business days after the receipt of the request in Good Order.
Redeeming By Mail
Redemption requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box
419012, Kansas City, MO 64141-6012. (For express or registered mail, send
your request to The Royce Funds, c/o National Financial Data Services, 1004
Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset value next determined
after NFDS 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 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 and Online
Access Transactions".
Redeeming By
Express
Service
If you select the Express Service Automatic Withdrawal option, shares will be
automatically redeemed from your Fund account and the proceeds transferred to
your bank account according to the schedule you have selected. You must have
at least $25,000 in your Fund account to establish the Automatic Withdrawal
option.
<PAGE>
The Expedited Redemption option lets you redeem up to $50,000 of shares from
your Fund
account by telephone and transfer the proceeds directly to your bank account.
You may elect Express Service on the Account Application or call Shareholder
Services at 1-800-841-1180 for an Express Service application.
Important Redemption
Information
If you are redeeming shares recently purchased by check, Express Service
Expedited Purchase or Automatic Investment Plan, the proceeds of the
redemption may not be sent until payment for the purchase is collected, which
may take up to fifteen calendar days. Otherwise, redemption proceeds must be
sent to you within seven days of receipt of your request in Good Order. 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
Fee
In order to discourage short-term trading, the Fund 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.
<PAGE>
Minimum Account
Balance Requirement
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to involuntarily redeem shares in any Fund account that
falls below the minimum initial investment due to redemptions by the
shareholder. If at any time the balance in an account does not have a value
at least equal to the minimum initial investment or, if an Automatic
Investment Plan is discontinued before an account reaches the minimum initial
investment that would otherwise be required, you may be notified that the
value of your account is below the Fund's minimum account balance
requirement. You would then have sixty days to increase your account balance
before the account is liquidated. Proceeds would be promptly paid to the
shareholder.
EXCHANGE
PRIVILEGE
Exchanges between series of the Trust and with other open-end Royce funds are
permitted by telephone, 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 are mailed
semi-annually. To reduce expenses, only one copy of most shareholder reports
may be mailed to a household. Please call Investor Information if you need
additional copies.
Tax-sheltered
Retirement Plans
Shares of the Fund are available for purchase in connection with certain types
of tax-sheltered retirement plans, including Individual Retirement Accounts
(IRA's) for individuals and 403(b)(7) Plans for employees of certain
tax-exempt organizations.
These plans should be established with the 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.
<PAGE>
The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268 The Royce Funds
[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 Royce
New York, NY 10019 Total Return
Fund
Transfer Agent
State Street Bank and Trust Company A No-Load Mutual Fund
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers Prospectus
Charles M. Royce, President and Treasurer April 30, 1996,
Thomas R. Ebright, Vice President As amended July 24, 1996
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
John E. Denneen, Secretary
