ROYCE FUND, N-30D, 1996-03-04

ROYCE FUND
N-30D, 1996-03-04

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ROYCE
MICRO-CAP
FUND
ANNUAL REPORT
DECEMBER 31, 1995
THE ROYCE FUNDS

The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
(212) 355-7311
(800) 221-4268

Dear Shareholder:

Harold Geneen, former CEO of the giant conglomerate ITT Corp., once offered
the following advice: 'In the business world, everyone is paid in two coins:
cash and experience. Take the experience first; the cash will come later.' In
1995, however, the formula seemed to be reversed as investors were paid with
'cash' in the form of high stock market returns. One can only wonder when
investors will be paid with 'experience.'

'ABLE TO LEAP TALL BUILDINGS
IN A SINGLE BOUND'

[GRAPHIC] This familiar phrase describes popular superhero Superman,
but it could also reflect 1995's stock market performance.
1995, like Superman, was extraordinary by any standard of
measurement. The large-cap oriented S&P 500, which was up 37.5%, had its best
calendar year return since 1958. Propelled by strong performance in 1995's first
two quarters, the S&P 500 took a breather in the third quarter only to resume a
leadership role in the final quarter of the year. Small-cap securities emerged
as performance leaders in the middle of the year, but were unable to keep up
with the 'faster than a speeding bullet' S&P 500. For the year, the Russell 2000
index of small-cap companies was up 28.4%.

ROYCE MICRO-CAP FUND'S ('RMC') micro-cap value orientation, which has served
its shareholders well since its inception on December 31, 1991, was no match for
the performance of the raging bull market of 1995. Just as 'small and micro-cap'
under-performed large-cap, 'value' under-performed growth within the investment
category. Also, a low exposure to the market's best performing sector,
technology, and an above-average exposure to the retail and service sectors
acted like kryptonite in holding back the Fund's relative short-term
performance. Nevertheless, RMC's risk-averse style produced a 19.1% return in
1995, quite reasonable on an absolute basis.

The Fund now has $98 million in assets and four years of performance history.
Average annual total returns for the Fund during the preceding three and four
year periods were 15.1% and 18.5%, respectively. According to mutual fund
evaluation service Morningstar, RMC had one of the lowest risk profiles out of
the 171 small-cap funds in the category, as measured by Morningstar's risk
ratio, standard deviation and beta for the last three years*. We believe that
managing risk is critical to delivering above average long-term returns in the
micro-cap sector.

THE RELEVANCE OF RELATIVE PERFORMANCE

At some point in every modern bull market, generally at the later [GRAPHIC]
stages, the concept of relative performance becomes dominant in any
discussion of investment results. As prospects of financial loss become distant
memories, investors shift their focus from absolute gains to relative rewards.
Investment strategies are changed, portfolio managers are replaced and solid
results are ignored in the quest for better relative performance. The problem
is . . . you can't eat relative performance! The whole concept dies quickly
in a period of

2
<PAGE>
<PAGE>
negative returns. When markets turn south, new car purchases are deferred and
vacation plans are canceled, relative performance soon becomes irrelevant. While
relative performance may make a great conversation topic at the cocktail party,
it is positive absolute returns, compounded at reasonable rates, which put
dinner on the table.

THE VALUE IN VALUE INVESTING

A basic premise of value investing is that stocks, like other goods and
services, should be purchased at the most attractive prices possible, preferably
at a discount to their 'intrinsic worth.' The reality for most investors is just
the opposite. In other words, investor comfort levels and, therefore, demand
increase when prices rise, and diminish as prices decline. The higher a stock
rises, the greater the perceived opportunity.

Value investing, on the other hand, takes a contrary view to this highly
emotional process. By systematically reducing risk when others ignore it and
taking risk when it is feared, one can capitalize on valuation discrepancies
(opportunities) which develop from time to time. The greatest risk that the
value investor confronts is the loss of either patience or discipline when faced
with the prospect of being out-of-sync with the market. THE VALUE IN 'VALUE
INVESTING' IS TO PROVIDE A COHERENT SYSTEM FOR RATIONAL DECISION
MAKING . . . THE PURPOSE OF WHICH IS TO COMPOUND WEALTH WHILE MINIMIZING RISK.
ITS BASIC PREMISE IS THAT THE PRICE ONE PAYS FOR AN INVESTMENT MAKES A
SIGNIFICANT DIFFERENCE IN THE RETURN ONE RECEIVES.

WHAT WE DO

[GRAPHIC] Royce Micro-Cap Fund uses a risk-averse approach to invest in
the securities of companies with market capitalizations below $300
million, the sector known as 'micro-cap.' Experience tells us that
paying attention to risk does not diminish long-term results, although
individual market phases may not always confirm this assumption's validity.

Our approach attempts to understand and value a company's 'private worth.'
Private worth is what we believe the company would bring if the entire
enterprise were sold in a private transaction to a rational buyer. The price we
will pay for a security must be significantly under our appraisal of its private
worth. The consistent use of this discipline, applied to less well-known
securities, is the source of our performance.

NO OTHER PLACE WE WOULD RATHER BE

While the Fund focuses on companies with market caps below $300 million, our
weighted average and median market caps are actually much lower; $162 million
and $101 million, respectively, at December 31, 1995. Although our orientation
is micro-cap stocks, the capitalization of our picking universe is by no means
tiny. The micro-cap segment is huge in numbers, with over 6,000 companies valued
at more than $300 billion in total market capitalization. It is both robust and
perpetuating; IPO's, spin-offs and reorganizations create hundreds of new
prospects each year. The micro-cap sector is rich in opportunity and easily
accommodates our strategy given the size of the investable universe.

3
<PAGE>
<PAGE>

HOW IT WORKS

Our approach to investing in [GRAPHIC]
individual small-cap companies has proven
long-term benefits, but can be both unpredictable
and frustrating in the near-term. We believe that the
stock market in the short-term is a polling place, and in the long-term, a
highly efficient weighing device. While our ultimate success will continue to be
driven by the process of 'weighing the true value' of the small companies in
which we have invested, the following provides a brief glimpse of some of last
year's 'election results.'

IDEAS THAT WORKED

[GRAPHIC] During calendar 1995, the usual but somewhat arbitrary
measurement period of choice, each of these companies made
meaningful positive contributions to our overall performance. More importantly,
they represent specific examples of our discipline at work. Royce Micro-Cap
Fund's BEST PERFORMERS, as measured by dollar impact to the portfolio, were:

<TABLE>
<CAPTION>
SECURITY % GAIN $ GAIN
- -------------------------------- ------ ----------
<S> <C> <C>
Conso Products Co. 86% $1,057,080
Amresco Holdings, Inc. 89% $ 416,929
Nichols Research Corporation 102% $ 336,880
Richardson Electronics, Ltd. 39% $ 332,487
Indigo, N.V. 185% $ 324,708
</TABLE>

The most interesting insight to be found in last year's winners is the
variety of circumstances through which micro-cap opportunities present
themselves. Conso Products and Indigo were newly created public companies that
received a cool initial reception and fell between the cracks of most
portfolios, but then were discovered to be rapid growth stocks. Amresco Holdings
was the creation of a reverse merger whereby smart, motivated management was
infused into a sleepy, asset rich, public company. Nichols Research and
Richardson Electronics are examples of once successful companies which had to
take time out to resolve growing pains, but now appear back on track for rapid
expansion.

GOOD IDEAS AT THE TIME

[GRAPHIC] Our greatest opportunities often occur when we identify good
businesses which have fallen from favor due to some sort of short-term,
but correctable, problem. Even the best small-cap companies are not
immune to the flu. Usually, if their balance sheets are strong and they have a
solid history of high internal returns, these companies will rebound. Although
recoveries can take longer than we anticipate, we are generally rewarded for our
persistence. Unfortunately, a few of our investments never recover. The five
WORST PERFORMERS in 1995, as measured by dollar impact, were:

<TABLE>
<CAPTION>
SECURITY % LOSS $ LOSS
- ---------------------------------- ------ --------
<S> <C> <C>
Charming Shoppes, Inc. 57% $415,648
Treadco, Inc. 50% $287,186
River Oaks Furniture, Inc. 33% $258,824
K-Swiss, Inc. 45% $188,796
Midwest Grain Products, Inc. 14% $176,840
</TABLE>

Of these five losers, Midwest Grain Products appears to have the best
prospects for a quick and full recovery. Its problems and performance stem from
a difficult year in the prices and quantities of the grains it processes. While
the weatherman may have better insight on Midwest's short-term prospects, we
remain confident in the long-run. The challenges for Treadco, River Oaks
Furniture and K-Swiss are great. Each of these companies face difficult industry
conditions that, when combined with their size, have placed them in the
intensive care section of our portfolio. Finally, Charming Shoppes, formerly a
premier apparel retailer, may never recover completely, but a new management
team will certainly do everything in its power to earn us a better return next
year. The good news is that in aggregate, our five worst

investments combined had less than a 1.5% negative impact on the Fund's
performance in 1995.

ANYTHING BUT TYPICAL

What do you get when interest rates fall precipitously, inflation is low,
demand for equities is strong and corporate earnings outpace analysts'
estimates? Answer: the LAST FIVE YEARS (actually the last 5 1/4 years)! The last
five years have been an exceptional period for equity investing, one in which
all the 'right stuff' was in place. Consider the following:

There has not been a correction of 10% or more for the S&P 500 or 15% or more
for the Russell 2000 since October of 1990, the longest stretch ever for both
indices.

The last five years were an anomaly in that a full market cycle did not take
place, but rather a trough (bottom) to peak (top) experience only.

It was the best (in terms of return and duration) trough to peak period in the
17 year history of the Russell 2000.

It was only the 8th time out of 49 quarterly trailing five year return periods
that the Russell 2000 generated a 20%+ average annual return.

Within this market cycle, short-term interest rates had one of their most
significant declines -- three month T-bills went from 8.2% in September 1989
to 2.7% in September 1992.

It was one of the least volatile periods on record, and especially so in the
years 1993, 1994 and 1995.

Very simply, the last five years were a period in which risk and reward were
synonymous and one in which risk management provided virtually no benefit. It's
highly likely that we have completed the best five year performance period for
this decade.

CAUSE OR EFFECT

[GRAPHIC] An interesting aspect of this five year rise in both stocks
and bonds is the ever increasing participation of individual
investors. Demand for liquid securities has grown to
proportions that now cloud our understanding as to whether it is the cause or
the effect of this bull market. While it seemed clear several years ago that
repeated and uninterrupted gains in stocks and bonds would heighten mass appeal,
few predicted the growing appetite we have today. Now, armed with demographic
studies and a healthy dose of 20-20 hindsight, it is the consensus belief that
our population has become a nation of savers and that demand for stocks will
remain steady, if not grow. In fact, it is that very same demand which is
believed to ensure future success and prevent any major reversal in market
fortunes.

We are a bit uncomfortable with this widely held assumption of continuous
prosperity. Just as rising markets initially created greater demand for
equities, corrections could dampen enthusiasm. We think there may be limits as
to how long individuals will forgo consumption in pursuit of savings.
Furthermore, we know there are alternative investments, like real estate or
natural resources, at times more attractive, for individuals to pursue. Finally,
we are certain, particularly in a global economy, that an ample supply of
securities can be created to meet and even exceed investors' demands. The
suggestion that continued success is nearly guaranteed by demand is an absurd
proposition. WE REMAIN MOST ASTONISHED, NOT WITH THE MAGNITUDE OF INVESTOR
APPETITE FOR STOCKS, BUT THE NEARLY UNIVERSAL ASSUMPTION OF ITS PERMANENCE. THE
REAL WORLD IS CYCLICAL AND SO ARE ITS MARKETS.

A NEW ERA?

As the bull market enters its sixth year [GRAPHIC]
uninterrupted by normal corrections, we find
ourselves asking (and more to the point, others
asking us) is this a new era in investing? Have changes in national demographics
and attitudes and, therefore, investing patterns evolved to the point where
traditional assumptions are obsolete? By sticking to our own time tested and
cycle proven discipline, have we become the 'Clark Kent' of the investment
world, permanently nerdy within the new order?

We believe fundamental economic principles and human nature remain unchanged
in the '90s. Our national economy has not entered a new era of accelerated
growth. In fact, we would argue the opposite. American corporations, despite
restructuring and down-sizing, are not measurably more profitable if cumulative
retained earnings are any gauge. We still believe that individual investors are
motivated by fear and greed. In the current environment, greed has driven fear
from the investment dictionary.

Before long, we expect some normal balance in people's spending habits to
resume. Appetites for mutual fund investing may moderate in favor of consumption
or debt repayments. Weak sectors of our economy like apparel retailing and
infrastructure construction will recover. Basic commodity prices could rise and
equities would once again represent long-term interests in business, as opposed
to trading vehicles. Absolute return goals, previously forgotten, will regain
the spotlight.

THE NEXT FIVE YEARS WILL BE DIFFERENT

'It is not the going out of port, but the coming in, that determines the
success of a journey.' Henry Ward Beecher

It's not likely that the next five years will rival the previous five in
terms of 'ideal wind conditions' or 'spectacular performance.' History tells us
that periods of high valuation and high return are usually followed by periods
of lower, less dynamic returns. Historical performance returns are built with
periods of over-performance and periods of under-performance and, over the
long-term, small-cap stocks have averaged approximately 12.5% per annum, not
the 20% provided by the last five years. (1926 - 1995; source: Ibbotson and
Associates). We see no reason why performance should not revert to the mean
and, thus, a period of lower five year returns is likely.

The primary driver behind the most recent rally (and almost 15 years of a
strong market) has been interest rates. Although short-term rates remain at the
lower end of their trading range, it's the change in interest rates and not the
absolute level, which drives price earnings multiples and stock prices. The
magnitude of the decline in interest rates is virtually not repeatable.
Consequently, a further decline in interest rates will not have the same
favorable impact on stock prices, no matter how bullish one is on rates.

[GRAPHIC]

The last five years were also unique in that never in our nation's history
have so many traditional bank savers become stock market investors. The primary
reason for the massive level of CD conversions has been the high returns
afforded stock market investors compared to the declining returns available in
traditional bank products. A strong contributing factor has been the stock
market's lack of volatility. Volatility has been so low that new investors have
been lulled by the apparent 'safety' of equity investing. Volatility, which has
always been a part of the investment equation, is likely to resurface and resume
a more normal course as background conditions change.

TIME FOR CHANGE . . . WE THINK NOT

We have been discussing what has happened. Now it's time to [GRAPHIC]
talk about what has not happened.

First, we have not changed our investment time horizon even though it seems
the rest of the world has. We view companies and investment performance with the
same long-term horizon because attractive valuations and returns, like the
planting and harvesting seasons, are never one and the same. Although our
risk-averse approach has worked against us in the most recent performance
period, it has provided very decent returns in the context of history.

Second, we have not changed our underlying investment premise, that a
disciplined approach to investing in high quality, small-cap companies using
absolute valuation standards can provide attractive long-term returns.
Experience tells us that failure to 'stay the course' results in failure.

Third, the natural laws of gravity and market cycles have not been rescinded.

And finally, our confidence in the ultimate outcome of our approach has not
changed. We expect our approach to micro-cap investing to have both an absolute
and relative pay-off as it has in the past. Your continued confidence is
appreciated.

Yours faithfully,

<TABLE>
<S> <C>
CHARLES M. ROYCE
Charles M. Royce Jack E. Fockler, Jr.
President W. Whitney George
Vice Presidents
</TABLE>

February 15, 1996

- ---------------

NOTE: S&P 500 and Russell 2000 are unmanaged indices and include the
reinvestment of dividends.

* Morningstar's proprietary risk ratio, beta and standard deviation are measures
of a fund's relative risk and are calculated for the trailing 36-month period.
Morningstar risk ratio measures a fund's downside volatility relative to all
equity funds which have an average score of 1.00. Beta is a measure of
sensitivity to market movements compared to the unmanaged S&P 500 index, with
the Beta of the S&P 500 equal to 1.00. Standard deviation is a statistical
measure within which a fund's total return falls. The average Morningstar risk
ratio, beta and standard deviation for the 171 small-cap funds with a
three-year history as of 12/31/95 were: 1.04, 0.91 & 11.79, respectively. The
Morningstar risk ratio, beta and standard deviation for Royce Micro-Cap Fund
over the same period were: 0.56, 0.48 & 7.35, respectively. Source:
Morningstar, Inc.

7
<PAGE>
<PAGE>
FINANCIAL REVIEW

<TABLE>
<CAPTION>
ANNUAL RETURNS
- ---------------------------------------
<S> <C>
1995........................... 19.1%
1994........................... 3.6%
1993........................... 23.7%
1992........................... 29.4%
</TABLE>

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------
(THROUGH 12/31/95)
<S> <C>
Since Inception*............... 18.5%
3-Year......................... 15.1%
</TABLE>

ROYCE MICRO-CAP FUND VERSUS S&P 500
VALUE OF $10,000 INVESTED ON 12/31/91

[GRAPHIC]

* Inception Date - December 31, 1991

The results presented in this report should not be considered
representative of the total return from an investment in the Fund today. They
are only provided to give an historical perspective of the Fund. The investment
return and principal value of Fund shares will fluctuate so that the shares may
be worth more or less than their original cost when redeemed. Redemption fees
are not included because they apply only to those accounts open less than one
year.

8
<PAGE>
<PAGE>
PORTFOLIO SUMMARY

The following information is provided as a 'bird's eye' view of the Royce
Micro-Cap Fund portfolio. For a more complete picture, the full portfolio and
accompanying financial statements should be read in their entirety.

<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION VALUE % OF NET ASSETS
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Common Stocks $83,302,145 85.2%
Preferred Stocks 315,725 0.3
Cash & Other Net Assets 14,111,365 14.5
--------------- -------
Total Net Assets $97,729,235 100.0%
--------------- -------
--------------- -------

PORTFOLIO DIAGNOSTICS (unaudited)
- -----------------------------------------------------------------------------------------------------------
Weighted Average Market Capitalization $162 Million
Median Market Capitalization $101 Million
Weighted Average P/E Ratio 12.8x
Weighted Average P/B Ratio 1.5x
Weighted Average Portfolio Yield 1.2%

COMMON STOCKS SECTORS % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Industrial Cyclicals 22.3%
Financial 12.8
Consumer Durables 12.2
Services 10.5
Retail 9.6
Energy 6.1
Technology 5.9
Consumer Staples 3.4
Health 1.5
Utilities 0.9

TOP TWENTY POSITIONS VALUE % OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------
1 Conso Products Co. $2,285,813 2.3%
2 Lilly Industries, Inc. Cl. A 1,269,900 1.3
3 Richardson Electronics, Ltd. 1,229,800 1.3
4 Thor Industries, Inc. 1,178,000 1.2
5 Trenwick Group Inc. 1,141,875 1.2
6 Curtiss-Wright Corporation 1,123,375 1.1
7 Tide West Oil Company 1,099,425 1.1
8 PXRE Corporation 1,083,850 1.1
9 Tom Brown, Inc. 1,067,625 1.1
10 The Dress Barn, Inc. 1,050,700 1.1
11 Juno Lighting, Inc. 1,044,800 1.1
12 Midwest Grain Products, Inc. 1,044,400 1.1
13 Oshkosh Truck Corporation Cl. B 1,040,050 1.1
14 MAIC Holdings, Inc. 1,037,000 1.1
15 Simpson Manufacturing Co., Inc. 996,300 1.0
16 Shorewood Packaging Corporation 993,225 1.0
17 Nobel Insurance Limited 966,989 1.0
18 The Rival Company 960,225 1.0
19 Paul Mueller Company 938,450 1.0
20 CATHERINES STORES CORPORATION 924,825 0.9
</TABLE>

9
<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
COMMON STOCKS - 85.2%

<TABLE>
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
<C> <S> <C>
CONSUMER DURABLES - 12.2%
149,300 *Aldila, Inc. ............ $ 634,513
3,500 Allen Organ Company Cl.
B....................... 147,438
22,000 *Bell Industries, Inc. ... 495,000
16,200 First Years Inc. ......... 352,350
42,200 Garan Incorporated........ 712,125
8,333 *Jim Hjelm's Private
Collection, Ltd. ....... 9,375
65,300 Juno Lighting, Inc. ...... 1,044,800
50,000 Justin Industries, Inc. .. 550,000
29,500 K-Swiss Inc. Cl. A........ 320,813
32,200 *Kit Manufacturing Co. ... 450,800
98,582 *Lifetime Hoan
Corporation............. 911,884
14,300 *Marisa Christina,
Incorporated............ 243,100
46,500 Matthews International
Corporation Cl. A....... 906,750
42,000 *Maxwell Shoe Company Inc.
Cl.A. .................. 231,000
12,500 National Presto
Industries, Inc. ....... 496,875
34,400 *Numerex Corp. Cl.A. ..... 223,600
19,525 Rauch Industries, Inc. ... 246,503
43,400 The Rival Company......... 960,225
84,400 *River Oaks Furniture..... 527,500
26,800 *The Sirena Apparel Group,
Inc. ................... 167,500
71,500 Thomaston Mills, Inc. Cl.
A....................... 902,688
60,800 Thor Industries, Inc. .... 1,178,000
6,400 Weyco Group, Inc. ........ 251,200
-----------
11,964,039
-----------
CONSUMER STAPLES - 3.4%
34,700 Alico, Inc. .............. 910,875
13,100 *J & J Snack Foods
Corp. .................. 144,100
74,600 Midwest Grain Products,
Inc. ................... 1,044,400
20,000 *Pentech International,
Inc. ................... 40,000
33,300 The Smithfield Companies,
Inc. ................... 391,275
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
<C> <S> <C>
4,500 Velcro Industries N.V. ... $ 275,625
30,000 WLR Foods, Inc. .......... 495,000
-----------
3,301,275
-----------
ENERGY - 6.1%
108,300 *American Oilfield Divers,
Inc. ................... 771,638
30,000 *Belden & Blake
Corporation............. 525,000
73,000 *Tom Brown, Inc. ......... 1,067,625
45,800 *Cliffs Drilling
Company................. 681,275
31,600 *Dreco Energy Services
Ltd. Cl. A.............. 560,900
50,900 *Equity Oil Company....... 299,038
28,000 Lufkin Industries, Inc. .. 633,500
13,000 *Noble Drilling
Corporation............. 117,000
5,500 Penn Virginia
Corporation............. 177,375
82,200 *Tide West Oil Company.... 1,099,425
-----------
5,932,776
-----------

FINANCIAL - 12.8%
41,000 ALLIED Life Financial
Corporation............. 743,125
40,000 BHI Corporation........... 630,000
20,000 Benson Financial
Corporation............. 375,000
25,000 E.W. Blanch Holdings,
Inc. ................... 584,375
11,300 CMAC Investment
Corporation............. 497,200
11,000 Capitol Transamerica
Corporation............. 222,750
21,200 *Desert Community Bank.... 307,400
15,000 Eaton Vance Corp. ........ 423,750
32,300 *Gryphon Holdings Inc. ... 621,775
39,600 Hilb, Rogal & Hamilton
Company................. 529,650
50,900 Intercargo Corporation.... 509,000
4,198 Investors Financial
Services Corp. ......... 87,109
</TABLE>

The accompanying notes are an integral part of the financial statements.

INDUSTRIAL CYCLICALS - 22.3%
29,700 Aceto Corporation......... 475,200
1,500 American Filtrona
Corporation............. 51,750
60,500 Guy F. Atkinson Company of
California.............. 605,000
36,643 BHA Group, Inc. Cl. A..... 485,520
54,700 Blessings Corporation..... 567,513
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
<C> <S> <C>
35,600 *Chemfab Corporation...... $ 747,600
125,250 *Conso Products Co. ...... 2,285,813
18,000 Culp, Inc. ............... 200,250
20,900 Curtiss-Wright
Corporation............. 1,123,375
22,400 *Devcon International
Corp. .................. 179,200
178,000 *DeVlieg-Bullard, Inc. ... 400,500
21,000 Fab Industries, Inc. ..... 669,375
22,600 Florida Rock Industries,
Inc. ................... 661,050
37,750 Gilbert Associates, Inc.
Cl. A................... 471,875
6,100 Haskel International, Inc.
Cl. A................... 35,838
55,400 *Hauser Chemical Research,
Inc. ................... 249,300
66,628 Hawkins Chemical, Inc. ... 616,309
15,000 *C. H. Heist Corp. ....... 105,000
20,125 *Hirsh International Corp.
Cl. A................... 256,594
15,600 *Insituform Technologies,
Inc. ................... 181,350
61,700 *Kasler Holdings Co. ..... 401,050
4,400 Knape & Vogt Manufacturing
Company................. 76,450
99,600 Lilly Industries, Inc. Cl.
A....................... 1,269,900
172,900 *MK Gold Company.......... 432,250
27,400 Paul Mueller Company...... 938,450
26,800 Myers Industries, Inc. ... 438,850
68,200 Oshkosh Truck Corporation
Cl. B................... 1,040,050
31,500 Peerless Mfg. Co. ........ 295,313
7,300 Penn Engineering and
Manufacturing Corp. .... 708,100
27,900 *Perini Corporation....... 230,175
5,000 Puerto Rican Cement
Company, Inc. .......... 165,625
69,700 *Shorewood Packaging
Corporation............. 993,225
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
INDUSTRIAL CYCLICALS - (continued)
<C> <S> <C>
73,800 *Simpson Manufacturing
Co., Inc. .............. $ 996,300
83,700 *Steel of West Virginia,
Inc. ................... 774,225
39,000 Thermal Industries,
Inc. ................... 351,000
56,500 *Todd Shipyards
Corporation............. 331,938
50,600 Treadco, Inc. ............ 290,950
43,000 *Vallen Corporation....... 843,875
13,500 Versa Technologies,
Inc. ................... 205,875
55,000 *Webco Industries, Inc. .. 312,813
17,000 Zero Corporation.......... 301,750
-----------
21,766,576
-----------
RETAIL - 9.6%
24,500 J. Baker, Inc. ........... 140,875
5000 *Bombay Inc. ............. 31,875
10,000 *Brookstone, Inc. ........ 82,500
33,800 *The Buckle, Inc. ........ 599,950
112,100 *CATHERINES STORES
CORPORATION............. 924,825
96,500 Cato Corporation.......... 747,875
218,900 Charming Shoppes, Inc. ... 629,338
48,000 *The Clothestime, Inc. ... 30,000
31,000 *Crown Books
Corporation............. 379,750
52,100 Deb Shops Inc. ........... 179,094
60,000 *Designs, Inc. ........... 420,000
106,400 *The Dress Barn, Inc. .... 1,050,700
24,999 Frederick's of Hollywood,
Inc. Cl. A.............. 106,246
13,266 Frederick's of Hollywood,
Inc. Cl. B.............. 51,406
2,500 *Garden Ridge
Corporation............. 96,875
20,000 *InterTAN Inc. ........... 145,000
45,300 *Mikasa, Inc. ............ 611,550
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
<C> <S> <C>
23,626 *Monro Muffler Brake,
Inc. ................... $ 327,811
7,500 *One Price Clothing
Stores, Inc. ........... 22,500
2,000 Oshkosh B'Gosh, Inc. Cl.
A....................... 35,000
29,000 *Shoe Carnival, Inc. ..... 108,750
63,700 *Stein Mart, Inc. ........ 700,700
13,000 Strawbridge & Clothier.... 312,000
128,100 *Suzy Shier Ltd. ......... 277,080
90,200 *TBC Corporation.......... 777,975
88,413 *The Wet Seal, Inc........ 596,788
-----------
9,386,463
-----------

SERVICES - 10.5%
15,000 *Ag Services Of America,
Inc. ................... 142,500
10,000 Air Transportation Holding
Company, Inc. .......... 39,375
35,400 AMRESCO Holdings, Inc. ... 451,350
15,000 *Bertucci's, Inc. ........ 75,000
63,400 *Jenny Craig, Inc. ....... 626,075
15,300 Dames & Moore............. 185,513
16,500 DUFF & PHELPS CREDIT
RATING CO. ............. 237,188
20,900 Ecology and Environment,
Inc..................... 175,038
41,000 Ennis Business Forms,
Inc. ................... 502,250
148,400 *FCA International Ltd. .. 337,312
101,750 Frozen Food Express
Industries, Inc. ....... 890,313
20,000 Heidemij N.V. ............ 185,000
6,300 *Hornbeck Offshore
Services, Inc. ......... 123,638
36,700 Jackpot Enterprises,
Inc. ................... 426,638
1,430 Kenan Transport Company... 30,745
42,700 Merrill Corporation....... 683,200
10,700 *MovieFone, Inc. Cl. A.... 58,850
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
SERVICES - (continued)
<C> <S> <C>
35,700 *Nichols Research
Corporation............. $ 919,275
48,800 *Offshore Logistics,
Inc. ................... 616,100
10,000 PCA International,
Inc. ................... 110,000
18,500 Plenum Publishing
Corporation............. 721,500
16,000 *RENO AIR, INC. .......... 126,000
114,400 Richardson Electronics,
Ltd. ................... 1,229,800
25,000 *SOS Staffing Services,
Inc. ................... 234,375
2,000 SkyWest, Inc. ............ 25,750
40,000 The Standard Register
Company................. 805,000
27,000 *Steck-Vaughn Publishing
Corporation............. 199,125
7,500 Uniforce Temporary
Personel, Inc. ......... 82,500
-----------
10,239,410
-----------
TECHNOLOGY - 5.9%
4,700 Astro-Med, Inc. .......... 43,475
14,800 BEI Electronics, Inc. .... 109,150
18,000 BGS Systems, Inc. ........ 666,000
5,000 *Banyan Systems
Incorporated............ 51,250
23,000 *CEM Corporation.......... 304,750
21,900 *CSP Inc. ................ 197,100
9,100 *Continental Circuits
Corp. .................. 147,875
1,900 *Dionex Corporation....... 107,825
39,900 *Exar Corporation......... 588,525
17,400 *Figgie International Inc.
Cl. A................... 180,525
30,000 *Giga-tronics
Incorporated............ 236,250
66,020 *ILC Technology, Inc. .... 610,685
36,200 Landauer Inc.............. 787,350
<CAPTION>
Value
Shares (Note 1)
- --------- -----------
<C> <S> <C>
34,700 *Liberty Technologies,
Inc. ................... $ 173,500
28,000 *MDL Information Systems,
Inc. ................... 644,000
20,400 *M-Wave, Inc. ............ 137,700
3,600 MacNeal-Schwendler
Corporation............. 57,600
5,000 *Moore Products Co. ...... 89,375
46,800 Newport Corporation....... 380,250
1,900 The Oilgear Company....... 32,300
16,000 *Phoenix Technologies
Ltd. ................... 252,000
800 *Programming & Systems,
Inc. ................... 200
-----------
5,797,685
-----------
UTILITIES - 0.9%
40,000 *Compression Labs,
Incorporated............ 250,000
23,625 *Southern Union Company... 596,531
3,780 Southwest Water Company... 36,384
-----------
882,915
-----------
Total Common Stocks
(Cost $76,455,839)...... 83,302,145
-----------
PREFERRED STOCKS - .3%
4,900 Bird Corp. $1.85 Conv. ... 93,100
137,000 *United Services Advisors,
Inc. 5% Non. Cum. ...... 222,625
-----------
Total Preferred Stocks
(Cost $349,752)......... 315,725
-----------
U.S. GOVERNMENT OBLIGATION - 5.1%
Principal
Amount
- ----------
<C> <S> <C>
$5,000,000 U.S. Treasury Bill due
2/08/96 (Cost
$4,971,579)............. 4,975,600
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Value
(Note 1)
-----------
<S> <C>
REPURCHASE AGREEMENT - 11.1%
State Street Bank and Trust Company,
5.25% due 1/02/96, collateralized by
U.S. Treasury Notes, 7.25% due
5/15/16, valued at $11,044,820 (Cost
$10,827,000)......................... $10,827,000
-----------
<CAPTION>
Value
(Note 1)
-----------
<S> <C>
TOTAL INVESTMENTS - 101.7%
(COST $92,604,170)................... $99,420,470
LIABILITIES LESS CASH AND OTHER
ASSETS - (1.7%)...................... (1,691,235)
-----------
NET ASSETS - 100.0%.................... $97,729,235
-----------
-----------
</TABLE>

* Non-income producing.

INCOME TAX INFORMATION - The cost of total investments for federal income tax
purposes was $92,612,521. At December 31, 1995, net unrealized appreciation for
all securities amounted to $6,807,949, consisting of aggregate gross unrealized
apprecation of $11,250,621 and aggregate gross unrealized depreciation of
$4,442,672. The Fund designates $409,267 as a capital gain dividend for the
purpose of the dividend paid deduction.

The accompanying notes are an integral part of the financial statements.

14
<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
STATEMENT OF ASSETS AND LIABILITIES AT DECEMBER 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments at value (identified cost $81,777,170) (Note 1)....................................... $88,593,470
Repurchase agreement.............................................................................. 10,827,000
Receivable for investments sold................................................................... 82,440
Receivable for shares of beneficial interest sold................................................. 517,078
Receivable for dividends and interest............................................................. 107,901
Prepaid expenses and other assets................................................................. 8,757
-----------
TOTAL ASSETS.................................................................................... 100,136,646
-----------
LIABILITIES:
Payable for investments purchased................................................................. 2,164,166
Payable for shares of beneficial interest redeemed................................................ 56,467
Investment advisory fee payable (Note 2).......................................................... 115,868
Accrued expenses.................................................................................. 70,910
-----------
TOTAL LIABILITIES............................................................................... 2,407,411
-----------
NET ASSETS...................................................................................... $97,729,235
-----------
-----------
ANALYSIS OF NET ASSETS:
Undistributed net investment income............................................................... $ 55,739
Accumulated net realized gain on investments...................................................... 142,098
Net unrealized appreciation on investments........................................................ 6,816,300
Shares of beneficial interest (Note 3)............................................................ 12,971
Additional paid-in capital........................................................................ 90,702,127
-----------
NET ASSETS...................................................................................... $97,729,235
-----------
-----------
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($97,729,235[div]12,970,866 shares outstanding) (Note 3)........................................ $7.53
-----------
-----------

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income.......................................................... $ 55,739 $ 4,348
Net realized gain on investments............................................... 2,372,160 837,727
Net unrealized appreciation (depreciation) on investments...................... 6,249,422 (78,268)
----------- -----------
Increase in net assets resulting from operations............................... 8,677,321 763,807
Distributions paid from net realized gains..................................... (2,163,270) (882,286)
FROM CAPITAL SHARE TRANSACTIONS:
Increase in net assets from capital share transactions (Note 3)................ 64,441,461 16,631,149
----------- -----------
INCREASE IN NET ASSETS........................................................... 70,955,512 16,512,670
NET ASSETS:
Beginning of year.............................................................. 26,773,723 10,261,053
----------- -----------
End of year (including undistributed net investment income of $55,739 and $0,
respectively)............................................................... $97,729,235 $26,773,723
----------- -----------
----------- -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends........................................................................................ $ 629,358
Interest......................................................................................... 506,195
----------
Total Income............................................................................. 1,135,553
----------
Expenses:
Investment advisory fees (Note 2)................................................................ 818,952
Custodian and transfer agent fees................................................................ 109,841
Federal and state registration fees.............................................................. 52,450
Supplies and postage............................................................................. 37,362
Administrative and clerical services............................................................. 23,299
Shareholder reports and notices.................................................................. 20,065
Legal and auditing fees.......................................................................... 15,521
Facilities and office space...................................................................... 6,567
Miscellaneous.................................................................................... 4,786
Trustees' fees................................................................................... 3,758
Organizational costs............................................................................. 1,260
Fee waived by investment adviser (Note 2)........................................................ (14,047)
----------
Total Expenses........................................................................... 1,079,814
----------
Net Investment Income.................................................................... 55,739
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments..................................................................... 2,372,160
Net unrealized appreciation on investments........................................................... 6,249,422
----------
Net realized and unrealized gain on investments...................................................... 8,621,582
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................. $8,677,321
----------
----------
</TABLE>

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance over the last four years.

<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
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 (loss)(a)............................... -- -- -- (0.01)
Net realized and unrealized gain on investments............... 1.24 0.23 1.38 1.48
----- ----- ----- -----
Total from investment operations............................ 1.24 0.23 1.38 1.47
----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends paid from net investment income..................... -- -- -- --
Distributions paid from net realized gain..................... (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%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands)........................ $97,729 $26,774 $10,261 $3,373
Ratio of Expenses to Average Net Assets(b).................... 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>

- ------------
(a) Net investment income is shown after waivers of fees by the investment
adviser and distributor. For the years ended December 31, 1994, 1993 and
1992, the per share effect of these waivers is $0.01, $0.03 and $0.12,
respectively.
(b) Expense ratios are shown after waivers of fees by the investment adviser and
distributor. For the years ended December 31, 1995, 1994, 1993 and 1992, the
expense ratios before the waivers and reimbursements would have been 1.97%,
2.34%, 2.49% and 3.77%, respectively.

The accompanying notes are an integral part of the financial statements.

16
<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Royce Micro-Cap Fund (the 'Fund') is a series of The Royce Fund (the
'Trust'), a diversified open-end management investment company established as a
business trust under the laws of Massachusetts. The Fund commenced operations on
December 31, 1991.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.

a. Valuation of Investments

Securities listed on an exchange or on the Nasdaq National Market System
are valued on the basis of the last reported sale prior to the time the
valuation is made or, if no sale is reported for such day, at their bid price
for exchange-listed securities and at the average of their bid and asked 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.

b. Investment transactions and related investment income:

Investment transactions are accounted for on the trade date and dividend
income is recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. Realized gains and losses from investment transactions and
unrealized appreciation and depreciation of investments are determined on the
basis of identified cost for book and tax purposes.

c. Taxes:

As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal year.
The schedule of investments includes information regarding income taxes under
the caption 'Income Tax Information'.

d. Distributions:

Dividends and capital gain distributions are recorded on the ex-dividend
date and paid annually in December. These distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Permanent book and tax basis differences relating to
shareholder distributions will result in reclassifications to paid-in capital
and may affect net investment income per share. Undistributed net investment
income may include temporary book and tax basis

<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
differences which will reverse in a subsequent period. Any taxable income or
gain remaining at fiscal year end is distributed in the following year.

e. Repurchase agreements:

The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ('SSB&T'), the
custodian of its assets. The Fund restricts repurchase agreements to maturities
of no more than seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.

2. INVESTMENT ADVISER:

Under the Trust's investment advisory agreement with Quest Advisory Corp.
('Quest'), the Fund accrued and paid Quest fees totaling $804,905 (net of
$14,047 voluntarily waived by Quest) for the year ended December 31, 1995. The
agreement provides for fees equal to 1.5% per annum of the Fund's average net
assets. Such fees are computed daily and are payable monthly to Quest.

3. FUND SHARES:

The Board of Trustees has authority to issue an unlimited number of shares
of beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:

<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1994
-------------------------- ------------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold.............................................. 10,880,987 $ 78,958,661 3,065,935 $20,016,833
Issued as reinvested dividends and
distributions................................... 246,326 1,847,447 122,730 795,288
Redeemed.......................................... (2,291,276) (16,364,647) (639,780) (4,180,972)
</TABLE>

Shares redeemed within one year are subject to a 1% redemption fee, payable
to the Fund, which is used to offset costs associated with the redemption.

4. PURCHASES AND SALES OF SECURITIES:

For the year ended December 31, 1995, the cost of purchases and the
proceeds from sales of portfolio securities, other than short-term securities,
amounted to $61,260,464 and $10,039,275, respectively.

18
<PAGE>
<PAGE>
ROYCE MICRO-CAP FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

To the Board of Trustees of The Royce Fund and Shareholders of Royce Micro-Cap
Fund:

We have audited the accompanying statement of assets and liabilities of
Royce Micro-Cap Fund, including the schedule of investments as of December 31,
1995, the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the four years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Royce Micro-Cap Fund as of December 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
February 7, 1996

19
<PAGE>
<PAGE>
POSTSCRIPT: CRUISES, DECK CHAIRS AND INVESTING

Charlie Brown and his friends frequently offer sage commentary on life. In
one Peanuts cartoon, Lucy remarks to Charlie Brown that 'life is like a deck
chair.' Some people on a cruise take their chairs to the rear of the ship so
they can see where they have been. Others face their chairs forward, to see
where they are going. Charlie Brown laments that on his ship of life, he has
never been able to get his chair unfolded.

Investing is much the same way. Investors often get different views from
their deck chairs. Sometimes the view on the 'large-cap growth' side is better,
while at other times the views in the direction of 'mid-cap blend' or of
'small-cap value' may be better. What is most important is that an investor be
on the cruise to begin with; being left standing on the pier is no fun at all.
It is equally important that an investor not get seasick by running from one
side of the ship to the other trying to get the best view. Studies have shown
that the average investor does far worse than the market in general largely
because he buys into, or sells out of, a fund or investment style at the wrong
time in an attempt to chase the best returns.

On the most recent leg of this cruise, large-cap stocks and technology
issues provided beautiful sunsets, while our investment style provided scenery
that was much less exciting. Such market swings between market capitalization
and investment style are well documented, and the most recent under-performance
by small-cap value is just as common as the over-performance in 1992 and 1993.
Remember, the sun usually sets on the other side of the ship on the way back to
port.

As to the remainder of our cruise, we are sitting not on the deck, but in
the engine room making sure the engines are in good working order. We remain
confident in our approach and the absolute results it produces over the
long-term, even though they may not be relatively dynamic at all times. We are
not concerned with how the rest of the chairs face or if they are folded or
unfolded, just whether our passengers will get to their final destination.

------------------------------------------------------

THE ROYCE FUNDS

General Information and Telephone Purchases ......... 1 (800) 221-4268
Shareholder Account Services ........................ 1 (800) 841-1180
Investment Advisor Services ......................... 1 (800) 33-ROYCE
The Royce Funds InfoLine ............................ 1 (800) 78-ROYCE
E-mail Address ................................ [email protected]
Internet Homepage .......... http://www.galt.com/www/home/mutual/royce

1414 Avenue of the Americas, New York, New York 10019
This report must be accompanied by or preceded by a current prospectus of the
Fund.

STATEMENT OF DIFFERENCES
------------------------

The division sign shall be expressed as [div]

GRAPHIC APPENDIX

On page 2 of the paper format Royce Micro-Cap Fund report:
Picture of a man in a cape flying
Picture of Albert Einstein

On page 3 of the paper format Royce Micro-Cap Fund report:
A picture of a scale balancing a dollar sign and a factory

On page 4 of the paper format Royce Micro-Cap Fund report:
A picture of a man in a long white coat pointing with a pointer
A bullseye
A picture of a sad face

On page 5 of the paper format Royce Micro-Cap Fund report:
A picture of a boy daydreaming

On page 6 of the paper format Royce Micro-Cap Fund report:
A picture of two Stone-Age men building a rocket

On page 7 of the paper format Royce Micro-Cap Fund report:
A line graph showing the Dow Jones Industrial Average's performance from
December 1975 to December 1995
A picture of a happy alarm clock ringing

On page 8 of the paper format Royce Micro-Cap Fund report:
A line graph showing performance of the Fund and the S&P 500
over the period indicated