<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on July 3, 1996.
Registration Nos. 2-80348
811-3599
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
---
Pre-Effective Amendment No. ______ / /
----
Post-Effective Amendment No. 37 /X /
------ ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 38 /X /
----- ----
(Check appropriate box or boxes)
THE ROYCE FUND*
--------------------------------------------------
(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 355-7311
------------------
Charles M. Royce, President
The Royce Fund
1414 Avenue of the Americas, New York, New York 10019
--------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Royce Fund has registered an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Its 24f-2 Notice for its most recent fiscal year was filed on February
28, 1996.
Total number of pages: ___
Index to Exhibits is located on page: ___
- --------------
*Effective as of the close of business on June 28, 1996 (the "Merger Date"), The
Royce Fund, a Delaware business trust (the "Trust"), succeeded by merger to all
of the then existing assets, obligations and liabilities of The Royce Fund, a
Massachusetts business trust (the "Mass. Trust"). The Trust hereby expressly
adopts, pursuant to 17 C.F.R. 'SS'230,414, Registration Statement No. 2-80348
of the Mass. Trust as its own, effective immediately, for all purposes of
the Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940.
<PAGE>
<PAGE>
CROSS REFERENCE SHEET (Pursuant
to Rule 481 of Regulation C)
<TABLE>
<CAPTION>
Item of Form N-1A CAPTION or Location in Prospectus
- ----------------- ---------------------------------
Part A
<S> <C> <C>
I. Cover Page....................................... Cover Page
II. Synopsis......................................... FUND EXPENSES
III. Condensed Financial Information.................. FINANCIAL HIGHLIGHTS
IV. General Description of Registrant................ INVESTMENT OBJECTIVES,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
SIZE LIMITATIONS***,
GENERAL INFORMATION
V. Management of the Fund........................... MANAGEMENT OF THE TRUST,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance............................... *
VI. Capital Stock and Other Securities .............. GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
IMPORTANT ACCOUNT INFORMATION,
REDEEMING YOUR SHARES,
TRANSFERRING OWNERSHIP,
OTHER SERVICES
VII. Purchase of Securities Being
Offered ...................................... INVESTMENT POLICIES****,
NET ASSET VALUE PER SHARE,
OPENING AN ACCOUNT AND
PURCHASING SHARES,
EXCHANGE PRIVILEGE,
OTHER SERVICES
VIII. Redemption or Repurchase......................... REDEEMING YOUR SHARES
IX. Pending Legal Proceedings........................ *
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
- ----------------- --------------------------------
Part B
<S> <C> <C>
X. Cover Page....................................... Cover Page
XI. Table of Contents................................ TABLE OF CONTENTS
XII. General Information and History.................. *
XIII. Investment Objectives and Policies............... INVESTMENT POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund........................... MANAGEMENT OF THE TRUST
XV. Control Persons and Principal
Holders of Securities.......................... MANAGEMENT OF THE TRUST,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services ...................................... MANAGEMENT OF THE TRUST,
INVESTMENT ADVISORY SERVICES,
CUSTODIAN,
INDEPENDENT ACCOUNTANTS
XVII. Brokerage Allocation and Other
Practices...................................... PORTFOLIO TRANSACTIONS
XVIII. Capital Stock and Other Securities............... DESCRIPTION OF THE TRUST
XIX. Purchase, Redemption and Pricing
of Securities Being Offered.................... PRICING OF SHARES BEING OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status....................................... TAXATION
XXI. Underwriters..................................... *
XXII. Calculation of Performance Data.................. PERFORMANCE DATA
XXIII. Financial Statements............................. **
</TABLE>
- -------------------
* Not applicable.
** Incorporated by reference.
*** Relates only to The REvest Growth & Income Fund, a series of the Trust.
****Relates only to Royce GiftShares Fund, a series of the Trust.
<PAGE>
<PAGE>
THE ROYCE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PENNSYLVANIA MUTUAL FUND ROYCE EQUITY INCOME FUND
ROYCE PREMIER FUND ROYCE LOW-PRICED STOCK FUND
ROYCE MICRO-CAP FUND ROYCE GIFTSHARES FUND
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- JULY 1, 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
- --------------------------------------------------------------------------------
Pennsylvania Mutual Fund, Royce Premier Fund, Royce Micro-Cap Fund, Royce Equity
Income Fund, Royce Low-Priced Stock Fund and Royce GiftShares Fund (the 'Funds')
are no-load series of The Royce Fund (the 'Trust'), a diversified open-end
management investment company. The Funds have in common an investment focus on
small companies that are selected on a value basis. The Trust is currently
offering shares of ten series. This Prospectus relates to the above Funds only.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 3
Fund Performance and Volatility................... 6
Investment Objectives............................. 7
Investment Policies............................... 8
Investment Risks.................................. 10
Investment Limitations............................ 11
Management of the Trust........................... 12
General Information............................... 13
Royce GiftShares Fund Investors................... 14
Dividends, Distributions and Taxes................ 15
Net Asset Value Per Share......................... 17
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.......... 17
Choosing a Distribution Option.................... 19
Important Account Information..................... 20
Redeeming Your Shares............................. 21
Exchange Privilege................................ 23
Transferring Ownership............................ 23
Statements and Reports............................ 23
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information that you should know about a Fund before
you invest. It should be retained for future reference. A 'Statement of Additional
Information' containing further information about the Funds and the Trust has been filed with
the Securities and Exchange Commission. The Statement is dated 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 online computer
service, you may request a printed version free of charge by calling Investor Information.
The E-mail address for The Royce Funds is [email protected] and the Internet Home Page
is http://www.roycefunds.com
</TABLE>
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
FUND EXPENSES The following table illustrates all expenses and fees that you would incur as a shareholder
of the Funds.
Shareholder Transaction Expenses and Other Costs
The Funds are Sales Load Imposed on Purchases...................................................... None
no-load, and no Sales Load Imposed on Reinvested Dividends........................................... None
12b-1 fees are Deferred Sales Load.................................................................. None
being charged Redemption Fee -- on purchases held for 1 year or more............................... None
Early Redemption Fee -- on purchases held for less than 1 year....................... 1%*
Annual Trustee's Fee (Royce GiftShares Fund only).................................... $50
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
---------------------------------------------------------------------------------------
Total
Management Operating
Fees** 12b-1 Fees** Other Expenses**
(after waivers) (after waivers) Expenses (after waivers)
--------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Pennsylvania Mutual Fund....... .77% None .21% .98%
Royce Premier Fund............. 1.00% None .25% 1.25%
Royce Micro-Cap Fund........... 1.45% None .49% 1.94%
Royce Equity Income Fund....... .91% None .33% 1.24%
Royce Low-Priced Stock
Fund......................... .25% .00% 1.72% 1.97%
Royce GiftShares Fund.......... .00% None 1.99% 1.99%
The purpose of the above tables is to assist you in understanding the various costs and
expenses that you would bear directly or indirectly as an investor in the Funds. The
following examples illustrate the expenses that you would incur on a $1,000 investment
over various periods, assuming a 5% annual rate of return and redemption at the end of
each period.
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Pennsylvania Mutual Fund.............................. $ 10 $31 $ 54 $120
Royce Premier Fund.................................... 13 40 69 151
Royce Micro-Cap Fund.................................. 20 61 105 226
Royce Equity Income Fund.............................. 13 39 68 150
Royce Low-Priced Stock Fund........................... 20 62 106 230
Royce GiftShares Fund***.............................. 20 62
</TABLE>
<TABLE>
<S> <C>
---------------------
* Early redemption fee does not apply to Royce GiftShares Fund.
** Management fees would have been 1.50%, 1.00%, 1.50% and 1.25% for Royce Micro-Cap, Equity
Income, Low-Priced Stock and GiftShares Funds, respectively, 12b-1 fees would have been .25%
for Royce Low-Priced Stock Fund and total operating expenses would have been 1.97%, 1.33%,
3.47% and 3.24% for Royce Micro-Cap, Equity Income, Low-Priced Stock and GiftShares Funds,
respectively, without waivers of management fees by Quest Advisory Corp. ('Quest'), the
Funds' investment adviser, and of 12b-1 fees by Quest Distributors, Inc. ('QDI'), the Funds'
distributor. Quest and QDI have committed to waive their fees on Royce Micro-Cap, Low-Priced
Stock and GiftShares Funds through December 31, 1996 to the extent necessary to maintain
total operating expenses at or below 1.99%.
*** Exclusive of Royce GiftShares Fund's $50 annual trustee's fee per account. For trust
accounts opened during 1996, Quest will pay that portion of the currently effective annual
trustee's fee in excess of $50 per account and the trustee's fees for establishing and
terminating the accounts.
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES OR
PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
</TABLE>
2
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS Except for the financial highlights of Royce GiftShares Fund for the six months ended June
30, 1996, which are unaudited, the following financial highlights are part of the Funds'
financial statements and have been audited by Coopers & Lybrand L.L.P., independent
accountants. The Funds' financial statements and Coopers & Lybrand L.L.P.'s reports on them
are included in the Funds' Annual Reports to Shareholders and are incorporated by reference
into the Statement of Additional Information and this Prospectus. Further information about
the Funds' performance is contained elsewhere in this Prospectus and in the Funds' Annual
Reports to Shareholders for 1995, which may be obtained without charge by calling Investor
Information.
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUTUAL FUND
-------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $ 7.41 $ 8.31 $ 8.00 $ 7.29 $ 5.78 $ 6.85 $ 6.41 $ 5.47 $ 6.98
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......... 0.11 0.12 0.11 0.11 0.12 0.17 0.21 0.14 0.14
Net realized and unrealized
gain (loss) on investments... 1.27 (0.18) 0.79 1.07 1.72 (0.96) 0.86 1.20 (0.02)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Operations............... 1.38 (0.06) 0.90 1.18 1.84 (0.79) 1.07 1.34 0.12
-------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends paid from net
investment income............ (0.11) (0.11) (0.11) (0.10) (0.12) (0.16) (0.22) (0.12) (0.33)
Distributions paid from capital
gains........................ (0.97) (0.73) (0.48) (0.37) (0.21) (0.12) (0.41) (0.28) (1.30)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions........ (1.08) (0.84) (0.59) (0.47) (0.33) (0.28) (0.63) (0.40) (1.63)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR....... $ 7.71 $ 7.41 $ 8.31 $ 8.00 $ 7.29 $ 5.78 $ 6.85 $ 6.41 $ 5.47
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
TOTAL RETURN....................... 18.7% -0.7% 11.3% 16.2% 31.8% -11.5% 16.7% 24.6% 1.4%
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(millions)................... $ 630 $ 771 $1,022 $1,102 $ 789 $ 549 $ 551 $ 444 $ 276
Ratio of Expenses to
Average Net Assets........... .98%(A) .98% .98% .91% .95% .96% .97% 1.01% .99%
Ratio of Net Investment Income
to Average Net Assets........ 1.18% 1.33% 1.23% 1.48% 1.73% 2.62% 2.93% 2.35% 2.02%
Portfolio Turnover Rate........ 10% 17% 24% 22% 29% 15% 23% 24% 23%
<CAPTION>
1986
-------
<S> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $7.43
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......... 0.14
Net realized and unrealized
gain (loss) on investments... 0.65
-------
Total from Investment
Operations............... 0.79
-------
LESS DISTRIBUTIONS
Dividends paid from net
investment income............ (0.13)
Distributions paid from capital
gains........................ (1.11)
-------
Total Distributions........ (1.24)
-------
NET ASSET VALUE, END OF YEAR....... $6.98
-------
-------
TOTAL RETURN....................... 11.2%
-------
-------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(millions)................... $ 333
Ratio of Expenses to
Average Net Assets........... .98%
Ratio of Net Investment Income
to Average Net Assets........ 1.85%
Portfolio Turnover Rate........ 19%
</TABLE>
(a) Expense ratio before waiver of fees by the investment adviser would have
been .99% for the year ended December 31, 1995.
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ROYCE PREMIER ROYCE MICRO-CAP
-------------------------------------------- -------------------------------
Year ended December 31, Year ended December 31,
-------------------------------------------- -------------------------------
1995 1994 1993 1992 1995 1994 1993
-------- -------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.... $ 6.48 $ 6.41 $ 5.52 $ 5.00 $ 6.48 $ 6.47 $5.83
-------- -------- ------- ------ ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss)(1)... 0.10 0.06 0.02 0.02 0.00 0.00 0.00
Net realized and unrealized gain
(loss) on investments.......... 1.05 0.15 1.03 0.77 1.24 0.23 1.38
-------- -------- ------- ------ ------- ------- -------
Total from Investment
Operations................. 1.15 0.21 1.05 0.79 1.24 0.23 1.38
-------- -------- ------- ------ ------- ------- -------
LESS DISTRIBUTIONS
Dividends paid from net investment
income......................... (0.09) (0.05) (0.02) (0.02) (0.00) (0.00) (0.00)
Distributions paid from capital
gains.......................... (0.42) (0.09) (0.14) (0.25) (0.19) (0.22) (0.74)
-------- -------- ------- ------ ------- ------- -------
Total Distributions.......... (0.51) (0.14) (0.16) (0.27) (0.19) (0.22) (0.74)
-------- -------- ------- ------ ------- ------- -------
NET ASSET VALUE, END OF YEAR.......... $ 7.12 $ 6.48 $ 6.41 $ 5.52 $ 7.53 $ 6.48 $6.47
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL RETURN.......................... 17.8% 3.3% 19.0% 15.8% 19.1% 3.6% 23.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's)... $302,239 $202,390 $47,143 $2,329 $97,729 $26,774 $10,261
Ratio of Expenses to Average Net
Assets(2)...................... 1.25% 1.38% 1.50% 1.77% 1.94% 1.99% 1.99%
Ratio of Net Investment Income to
Average Net Assets............. 1.48% 1.19% 0.68% 0.53% 0.10% 0.02% (0.09%)
Portfolio Turnover Rate........... 39% 38% 85% 116% 25% 54% 116%
<CAPTION>
1992
------
<S> <C>
NET ASSET VALUE, BEGINNING OF YEAR.... $5.00
------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss)(1)... (0.01)
Net realized and unrealized gain
(loss) on investments.......... 1.48
------
Total from Investment
Operations................. 1.47
------
LESS DISTRIBUTIONS
Dividends paid from net investment
income......................... (0.00)
Distributions paid from capital
gains.......................... (0.64)
------
Total Distributions.......... (0.64)
------
NET ASSET VALUE, END OF YEAR.......... $5.83
------
------
TOTAL RETURN.......................... 29.4%
------
------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's)... $3,373
Ratio of Expenses to Average Net
Assets(2)...................... 1.69%
Ratio of Net Investment Income to
Average Net Assets............. (0.21%)
Portfolio Turnover Rate........... 171%
</TABLE>
- ---------------------
(1) Net investment income is shown after waiver of fees by the investment
adviser and distributor. The per share effect of these waivers was $.01 and $.09
for 1993 and 1992, respectively for Royce Premier Fund and $.01, $.03 and $.12
for 1994, 1993 and 1992, respectively for Royce Micro-Cap Fund.
(2) Expense ratios before waivers of fees by the investment adviser and
distributor would have been 1.68% and 4.17% for 1993 and 1992, respectively, for
Royce Premier Fund, and 1.97%, 2.34%, 2.49% and 3.77% for 1995, 1994, 1993 and
1992, respectively, for Royce Micro-Cap Fund.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ROYCE LOW-PRICED STOCK
ROYCE EQUITY INCOME ----------------------------------
------------------------------------------------------------------- Year Period
ended ended
Year ended December 31, December 31, December 31,
------------------------------------------------------------------- ----------------- ------------
1995 1994 1993 1992 1991 1990 1995 1994 1993(3)
------- ------- ------- ------- ------- ------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$5.12 $5.58 $5.49 $4.93 $4.03 $5.00 $5.07 $5.01 $5.00
------- ------- ------- ------- ------- ------- ------ ------ ------
0.21 0.19 0.21 0.22 0.22 0.23 0.00 (0.03) 0.00
0.62 (0.37) 0.50 0.72 0.99 (0.98) 1.14 0.18 0.01
------- ------- ------- ------- ------- ------- ------ ------ ------
0.83 (0.18) 0.71 0.94 1.21 (0.75) 1.14 0.15 0.01
------- ------- ------- ------- ------- ------- ------ ------ ------
(0.21) (0.18) (0.21) (0.22) (0.22) (0.22) (0.00) (0.00) (0.00)
(0.04) (0.10) (0.41) (0.16) (0.09) (0.00) (0.59) (0.09) (0.00)
------- ------- ------- ------- ------- ------- ------ ------ ------
(0.25) (0.28) (0.62) (0.38) (0.31) (0.22) (0.59) (0.09) (0.00)
------- ------- ------- ------- ------- ------- ------ ------ ------
$5.70 $5.12 $5.58 $5.49 $4.93 $4.03 $5.62 $5.07 $5.01
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
16.4% (3.3%) 13.1% 19.4% 30.3% (15.4%) 22.5% 3.0% 0.2%
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
$56,177 $77,131 $84,661 $54,101 $41,063 $19,497 $4,215 $1,880 $452
1.24% 1.27% 1.00% 0.99% 0.99% 1.00% 1.97% 1.89% 0.29%*
3.49% 3.43% 3.79% 4.31% 4.58% 4.74% (1.11%) (1.11%) (0.29%)*
29% 47% 100% 59% 72% 28% 114% 95% 0%
<CAPTION>
ROYCE GIFTSHARES
----------------------------
Six months Period
ended ended
June 30, December 31,
------------ ------------
1996 1995(4)
------------ ------------
(unaudited)
<S> <C> <C>
$5.01 $5.00
---------- ------
(0.02) 0.00
0.76 0.01
---------- ------
0.74 0.06
---------- ------
(0.00) (0.00)
(0.00) (0.00)
---------- ------
(0.00) (0.00)
---------- ------
$5.75 $5.01
------------------------
------------------------
14.8% 0.2%
------------------------
------------------------
$601 $502
1.93%* .70%*
(0.78%)* 0%
18% 0%
</TABLE>
- ---------------------
(1) Net investment income is shown after waiver of fees by the investment
adviser and distributor. The per share effect of these waivers was $.01, $.01,
$.01, $.02, $.02 and $.06 for 1995, 1994, 1993, 1992, 1991 and 1990,
respectively, for Royce Equity Income Fund, $.05 and $.08 for 1995 and 1994,
respectively, for Royce Low-Priced Stock Fund and $.15 per share for the six
months ended June 30, 1996 for Royce GiftShares Fund.
(2) Expense ratios before waivers of fees by the investment adviser and
distributor would have been 1.33%, 1.33%, 1.39%, 1.30%, 1.30% and 1.34% for
1995, 1994, 1993, 1992, 1991 and 1990, respectively, for Royce Equity Income
Fund, 3.47%, 3.63% and 2.04% for 1995, 1994 and 1993, respectively, for Royce
Low-Priced Stock Fund, and 7.04% and 1.95% for the six month period ended June
30, 1996 and the period from inception to December 31, 1995, respectively, for
Royce GiftShares Fund.
(3) From inception of the Fund on December 15, 1993.
(4) From inception of the Fund on December 27, 1995.
* Annualized.
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
FUND From time to time, the Funds may include in communications to current or prospective
PERFORMANCE shareholders figures reflecting total return over various time periods. 'Total return' is the
AND VOLATILITY rate of return on an amount invested in a Fund from the beginning to the end of the stated
period. 'Average annual total return' is the annual compounded percentage change in the value
Total return is the of an amount invested in a Fund from the beginning until the end of the stated period. Total
change in value over a returns are historical measures of past performance and are not intended to indicate future
given time period, performance. Total returns assume the reinvestment of all net investment income dividends and
assuming reinvestment of capital gains distributions. The figures do not reflect a Fund's early redemption fee because
any dividends and it applies only to redemptions of share purchases held for less than one year.
capital gains
distributions The Funds' average annual total returns for the periods ended December 31, 1995 were:
</TABLE>
<TABLE>
<CAPTION>
ONE THREE FIVE TEN TWENTY SINCE
YEAR YEAR YEAR YEAR YEAR INCEPTION INCEPTION DATE
---- ----- ---- ---- ------ --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
18.7% 9.5 % 15.0% 11.3% 17.8% --
Pennsylvania Mutual...
17.8% 13.2 % -- -- -- 13.8% December 31, 1991
Royce Premier.........
19.1% 15.1 % -- -- -- 18.5% December 31, 1991
Royce Micro-Cap.......
16.4% 8.4 % 14.6% -- -- 9.0% January 2, 1990
Royce Equity
Income................
22.5% -- -- -- -- 12.2% December 15, 1993
Royce Low-Priced
Stock.................
</TABLE>
<TABLE>
<S> <C>
'Risk' defined as The relative risk of investing in a particular fund should be considered in addition to the
the volatility of a total returns of the fund. Risk, in terms of how volatile an investor's returns have been,
Fund's total returns can be measured in a number of ways, including standard deviation and beta.
over time
Standard deviation measures the range of performance within which a fund's total returns
have fallen. The lower the standard deviation of the fund the less volatile and more
consistent the fund's monthly total returns have been over that period. When the
standard deviation of a fund is lower than the standard deviation of an index such as
the S&P 500, the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If the fund has a beta greater than 1.00, it
has been more volatile than the index; if its beta is less than 1.00, it has been less
volatile than the index.
These measures of risk, which are historical in nature and subject to change monthly, are
more fully described in the Statement of Additional Information. For the three year period
ended December 31, 1995, standard deviation and beta for the Funds and for the S&P 500
(Source: Morningstar, Inc.) were:
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
STANDARD
DEVIATION BETA
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6.48 .61
Pennsylvania Mutual.................
5.28 .42
Royce Premier.......................
7.35 .48
Royce Micro-Cap.....................
5.61 .49
Royce Equity Income.................
7.96 1.00
S&P 500.............................
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Investors evaluating these and other quantitative measures of risk should understand that the
risk profiles of the Funds' portfolios may change over time, and that none of such measures
are predictive of future volatility.
The investment risks associated with the types of securities in which the Funds may invest
are described below under 'Investment Risks'.
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INVESTMENT Each Fund has different investment objectives and/or its own method of achieving its
OBJECTIVES objectives and is designed to meet different investment needs. Since certain risks are
inherent in owning any security, there can be no assurance that any of the Funds will achieve
their objectives.
PENNSYLVANIA MUTUAL FUND'S investment objective is long-term capital appreciation, primarily
through investments in common stocks and convertible securities of small companies.
Production of income is incidental to this objective.
ROYCE PREMIER FUND'S investment objectives are primarily long-term growth and secondarily
current income. It seeks to achieve these objectives through investments in a limited
portfolio of common stocks and convertible securities of companies viewed by Quest as having
superior financial characteristics and/or unusually attractive business prospects.
ROYCE MICRO-CAP FUND seeks long-term capital appreciation, primarily through investments in
common stocks and convertible securities of small and micro-cap companies. Production of
income is incidental to this objective.
ROYCE EQUITY INCOME FUND seeks reasonable income by investing primarily in dividend-paying
common and preferred stocks and debt securities convertible into common stocks. In choosing
these securities, Quest will also consider their potential for capital appreciation.
ROYCE LOW-PRICED STOCK FUND's investment objective is long-term capital appreciation. It
seeks to achieve this objective primarily through investments in common stocks and
convertible securities of companies with shares that trade at prices below $15 per share.
ROYCE GIFTSHARES FUND seeks long-term capital appreciation, primarily through investments in
a limited portfolio of common stocks and convertible securities of small and micro-cap
companies.
These investment objectives are fundamental and may not be changed without the approval of a
majority of the Fund's outstanding voting shares.
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INVESTMENT Quest uses a 'value' method in managing the Funds' assets. In its selection process, Quest
POLICIES puts primary emphasis on various internal returns indicative of profitability, balance sheet
The Funds invest on a quality, cash flows and the relationships that these factors have to the current price of a
value basis given security.
The Funds invest Quest's value method is based on its belief that the securities of certain small companies
primarily in small and may sell at a discount from its estimate of such companies' 'private worth', that is, what a
micro-cap knowledgeable buyer would pay for the entire company. Quest attempts to identify and invest
companies in these securities for each of the Funds, with the expectation that this 'value discount'
will narrow over time and thus provide capital appreciation for the Funds.
PENNSYLVANIA MUTUAL FUND
Normally, Pennsylvania Mutual Fund will invest at least 65% of its assets in common stocks,
convertible preferred stocks and convertible bonds of small companies with stock market
capitalizations under $1 billion at the time of investment. In the upper end of this range,
$300 million to $1 billion in stock market capitalization, the Fund focuses on a limited
number of companies with superior financial characteristics and/or unusually attractive
business prospects, companies Quest classifies as 'premier.' The Fund also focuses on
companies in the lower end of the range, below $300 million, the sector known as 'micro-cap.'
The remainder of its assets may be invested in securities of companies with higher stock
market capitalizations and non-convertible preferred stocks and debt securities.
ROYCE PREMIER FUND
Normally, Royce Premier Fund will invest at least 80% of its assets in a limited number of
common stocks, convertible preferred stocks and convertible bonds. At least 65% of these
securities will be income-producing and/or issued by companies with stock market
capitalizations under $1 billion at the time of investment. The remainder of its assets may
be invested in securities of companies with higher stock market capitalizations,
non-dividend-paying common stocks and non-convertible preferred stocks and debt securities.
In its selection process for the Fund, Quest puts primary emphasis on companies which have
unusually strong returns on assets, cash flows and balance sheets or unusual business
strengths and/or prospects. Other characteristics, such as a company's growth potential and
valuation considerations, are also used in selecting investments for the Fund.
ROYCE MICRO-CAP FUND
At least 80% of the assets of Royce Micro-Cap Fund will normally be invested in common stocks
and securities convertible into common stocks of small and micro-cap companies, and at least
65% of these securities will be issued by companies with stock market capitalizations under
$300 million at the time of investment. The remainder of its assets may be invested in
securities of companies with higher stock market capitalizations and non-convertible
preferred stocks and debt securities.
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ROYCE EQUITY INCOME FUND
In accordance with its objective of seeking reasonable income, Royce Equity Income Fund will
normally invest at least 80% of its assets in common stocks, convertible preferred stocks and
convertible bonds. At least 90% of these securities will be income-producing, and at least
65% of these securities will be issued by companies with stock market capitalizations under
$1 billion at the time of investment. The remainder of the Fund's assets may be invested in
securities of companies with higher stock market capitalizations, non-dividend-paying common
stocks and non-convertible preferred stocks and debt securities. Quest seeks to invest the
Fund's portfolio in a manner that produces a composite yield which is higher than the
composite yield of the stocks in the Standard & Poor's 500 Index and considers the capital
appreciation potential of the securities it selects for the Fund's portfolio.
ROYCE LOW-PRICED STOCK FUND
Normally, Royce Low-Priced Stock Fund will invest at least 65% of its assets in common stocks
and securities convertible into common stocks of companies with shares that trade at prices
below $15 at the time of initial investment. In addition, at least 65% of these securities
will be issued by companies with stock market capitalizations under $1 billion at the time of
investment. In determining whether a convertible security is low-priced, Quest may consider
either the price of the convertible security itself or the price of the security into which
it is convertible. The remainder of its assets may be invested in stocks of companies with
higher prices or higher stock market capitalizations and non-convertible preferred stocks and
debt securities.
ROYCE GIFTSHARES FUND
Royce GiftShares Fund will normally invest at least 80% of its assets in a limited number of
common stocks and securities convertible into common stocks. At least 75% of these securities
will be issued by small (under $1 billion in market capitalization) and micro-cap (under $300
million in market capitalization) companies. The remainder of its assets may be invested in
securities of companies with higher stock market capitalizations and non-convertible
preferred stocks and debt securities.
Investments in Royce GiftShares Fund are suitable for making long-term gifts which may
qualify for the Federal annual gift tax exclusion and which may also be designed to help fund
the beneficiary's college and post-graduate education. See 'Royce GiftShares Fund Investors'
below for further information.
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INVESTMENT As mutual funds investing primarily in common stocks and/or securities convertible into
RISKS common stocks, the Funds are subject to market risk, that is, the possibility that common
stock prices will decline over short or even extended periods. The Funds invest substantial
The Funds are subject to portions of their assets in securities of small and/or micro-cap companies. Such companies
certain investment risks 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, purchases and sales of such
securities may have a greater impact on their market prices than would be the case with
larger capitalization stocks. Accordingly, Quest's investment method requires a long-term
investment horizon, and the Funds should not be used to play short-term swings in the market.
Although Royce Premier and GiftShares Funds are diversified within the meaning of the
Investment Company Act of 1940 (the '1940 Act'), they will normally be invested in a limited
number of securities. The Funds' relatively limited portfolios may involve more risk than
investing in other Royce Funds or in a broadly diversified portfolio of common stocks of
large and well-known companies. To the extent that the Funds invest in a limited number of
securities, they may be more susceptible to any single corporate, economic, political or
regulatory occurrence than a more widely diversified fund.
Quest may employ a more aggressive approach to investing for Royce Micro-Cap, Low-Priced
Stock and GiftShares Funds that involves substantially higher than average portfolio turnover
rates. In addition, these Funds invest primarily in micro-cap and/or low-priced securities
that are followed by relatively few securities analysts, with the result that there tends to
be less publicly available information concerning the securities. The securities of these
companies may have more limited trading volumes and be subject to more abrupt or erratic
market movements than the securities of non-micro-cap companies and/or higher priced
securities or the market averages in general, and Quest may be required to deal with only a
few market-makers when purchasing and selling these securities. Companies in which Royce
Micro-Cap, Low-Priced Stock and GiftShares Funds are likely to invest also may have limited
product lines, markets or financial resources, may lack management depth and may be more
vulnerable to adverse business or market developments. Thus, these Funds may involve
considerably more risk than a mutual fund investing in the more liquid equity securities of
companies traded on the New York or American Stock Exchanges.
Royce Low-Priced Stock Fund may invest in securities of issuers of low-priced stocks which
are financially stressed or involved in bankruptcy, liquidation, reorganization or
recapitalization. Specifically because of their lower prices relative to other companies,
low-priced securities may be subject to even more abrupt or erratic market movements.
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INVESTMENT Each of the Funds has adopted certain fundamental limitations, designed to reduce its
LIMITATIONS 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
The Funds have adopted are set forth in the Statement of Additional Information and provide, among other things,
certain fundamental that no Fund will:
limitations
(a) as to not less than 75% of its assets, invest more than 5% of its assets in the
securities of any one issuer, excluding obligations of the U.S. Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of management.
OTHER INVESTMENT In addition to investing primarily in the equity and fixed income securities described above,
PRACTICES: the Funds may follow a number of additional investment practices.
Short-term fixed The Funds may invest in short-term fixed income securities for temporary defensive purposes,
income securities to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions.
These securities consist of United States Treasury bills, domestic bank certificates of
deposit, high-quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security to the Fund at one
price and agrees to repurchase it at the Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a value equal to or in excess of the
value of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should a Fund implement a temporary investment policy, its investment objectives
may not be achieved.
Securities lending The Funds may lend up to 25% of their assets to qualified institutional investors for the
purpose of realizing additional income. Loans of securities of the Funds will be
collateralized by cash or securities issued or guaranteed by the United States Government or
its agencies or instrumentalities. The collateral will equal at least 100% of the current
market value of the loaned securities. The risks of securities lending include possible
delays in receiving additional collateral or in recovery of loaned securities or loss of
rights in the collateral if the borrower defaults or becomes insolvent.
Foreign securities Each of the Funds may invest up to 10% of its assets in debt and/or equity securities of
foreign issuers. Foreign investments involve certain risks, such as political or economic
instability of the issuer or of the country of issue, fluctuating exchange rates and the
possibility of imposition of exchange controls. These securities may also be subject to
greater fluctuations in price than the securities of U.S. corporations, and there may be less
publicly available information about their operations. Foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S. companies, and foreign
markets may be less liquid or more volatile than U.S. markets and may offer less protection
to investors such as the Funds.
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Warrants, rights and Each of the Funds other than Pennsylvania Mutual Fund may invest up to 5% of its total assets
options in warrants, rights and options.
Lower-rated debt Each of the Funds may invest no more than 5% of its net assets in lower-rated (high- risk)
securities non-convertible debt securities, which are below investment grade. The Funds do not expect to
invest in non-convertible debt securities that are rated lower than Caa by Moody's Investors
Service, Inc. or CCC by Standard & Poor's Corp. or, if unrated, determined to be of
comparable quality.
Portfolio turnover Although the Funds generally seek to invest for the long term, they retain the right to sell
securities regardless of how long they have been held. The Funds' annual portfolio turnover
rates are shown in the 'Financial Highlights'. Portfolio turnover rates for the Funds have
ranged from 15% to 171%. For 1996, Royce GiftShares Fund's portfolio turnover rate may exceed
100%. Rates which exceed 100% are higher than those of other funds. A 100% turnover rate
occurs, for example, if all of a Fund's portfolio securities are replaced in one year. High
portfolio activity increases the Fund's transaction costs, including brokerage commissions.
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MANAGEMENT OF THE TRUST The Trust's business and affairs are managed under the direction of its Board of Trustees.
Quest, the Funds' investment adviser, is responsible for the management of the Funds'
Quest Advisory Corp. is portfolios, subject to the authority of the Board of Trustees. Quest was organized in 1967
responsible for the and has been the Funds' adviser since their inception. Charles M. Royce, Quest's President,
management of the Funds' Chief Investment Officer and sole voting shareholder since 1972, is primarily responsible for
portfolios 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 Royce Value, Total Return and Global Services
Funds, which are other series of the Trust, and to other investment and non-investment
company accounts.
As compensation for its services to the Funds, Quest is entitled to receive annual advisory
fees of 1% of the average net assets of Royce Premier and Equity Income Funds, 1.5% of the
average net assets of Royce Micro-Cap and Low-Priced Stock Funds and 1.25% of the average net
assets of Royce GiftShares Fund. These fees are payable monthly from the assets of the Funds
involved and are higher (substantially higher in the case of Royce Micro-Cap, Low-Priced
Stock and GiftShares Funds) than those paid by most other mutual funds with similar
investment objectives. For 1995, the fees paid to Quest on average net assets were .77%,
1.00%, 1.45%, .91% and .25% (net of voluntary waivers) for Pennsylvania Mutual, Royce
Premier, Micro-Cap, Equity Income and Low-Priced Stock Funds, respectively.
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Quest selects the brokers who execute the purchases and sales of the Funds' portfolio
securities and may place orders with brokers who provide brokerage and research services to
Quest. Quest is authorized, in recognition of the value of brokerage and research services
provided, to pay commissions to a broker in excess of the amount which another broker might
have charged for the same transaction.
Quest Distributors, Inc. ('QDI'), which is wholly-owned by Charles M. Royce, acts as
distributor of the Funds' shares. The Trust has adopted a distribution plan for Royce
Low-Priced Stock Fund pursuant to Rule 12b-1. The plan provides for payment to QDI of .25%
per annum of the average net assets of the Fund, which may be used for payment of sales
commissions and other fees to those who introduce investors to the Fund and for various other
promotional, sales-related and servicing costs and expenses. QDI has committed to waive its
fees through April 1997.
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GENERAL The Royce Fund (the 'Trust') is a Delaware business trust, registered with the Securities and
INFORMATION Exchange Commission as a diversified open-end management investment company. It is the
successor to a Massachusetts business trust established in October 1985 and merged into the
Trust in June 1996, when Pennsylvania Mutual Fund was also merged into the Trust as a
separate series. Pennsylvania Mutual Fund previously operated for more than 20 years as a
Quest-advised diversified open-end management investment company. The Trustees have the
authority to issue an unlimited number of shares of beneficial interest, without shareholder
approval, and these shares may be divided into an unlimited number of series. Shareholders
are entitled to one vote per share. Shares vote by individual series on all matters, except
that shares are voted in the aggregate and not by individual series when required by the 1940
Act and that if the Trustees determine that a matter affects only one series, then only
shareholders of that series are entitled to vote on that matter.
Meetings of shareholders will not be held except as required by the 1940 Act or other
applicable law. A meeting will be held to vote on the removal of a Trustee or Trustees of the
Trust if requested in writing by the holders of not less than 10% of the outstanding shares
of the Trust.
The custodian for securities, cash and other assets of the Funds is State Street Bank and
Trust Company. State Street, through its agent National Financial Data Services ('NFDS'),
also serves as the Funds' Transfer Agent. Coopers & Lybrand L.L.P. serves as independent
accountants for the Funds.
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ROYCE A Royce GiftShares Fund investment is a unique way to make a gift to a child (minor or adult)
GIFTSHARES or another individual. (You may not open an account in GiftShares Fund for yourself or your
FUND spouse.) A GiftShares Fund investment is suitable for making a long-term gift which may
INVESTORS qualify in whole or in part for the Federal annual gift tax exclusion and which may also be
designed to help fund the beneficiary's college and post-graduate education. To open a
GiftShares Fund account, call Investor Information (1-800-221-4268) for a GiftShares
Information Packet. (A GiftShares Fund account may also be opened by a trustee for an
individual or organization if the trust has a long-term duration, the provisions of the trust
instrument are acceptable to the Trust and the trustee has his, her or its own tax adviser.)
The minimum initial investment in GiftShares Fund is $5,000. Additional investments may be
made in amounts of $50 or more at any time during the existence of the trust.
The shares in a GiftShares Fund account are held in trust for the beneficiary by State Street
Bank and Trust Company, as independent trustee, until the termination date you specify. The
duration of the trust may be as long as you wish, but generally must be at least 10 years
from the time you make the first contribution to the GiftShares Fund trust or until the
beneficiary reaches the age of majority, whichever is later. The GiftShares Fund trust is
irrevocable, and neither you nor the beneficiary may amend its terms in any way. When the
trust terminates, the beneficiary will receive the shares in the account. The beneficiary may
then continue to own the shares, but, except for reinvestment of distributions, may not
purchase additional shares.
Options available to a donor under the Royce GiftShares Fund trust adoption agreement are:
WITHDRAWAL OPTION:
This option will be used primarily by a donor to make a gift that may qualify for the Federal
annual gift tax exclusion or when the donor wants to allow the beneficiary to make
withdrawals from the trust to pay for higher education and related costs.
The full amount of the gift may qualify for the Federal annual gift tax exclusion
The trust may be designed to permit withdrawals to help fund the beneficiary's college or
post-graduate education
The beneficiary will be taxed on all of the trust's income and capital gains, and the trustee
will, if requested by the beneficiary, redeem Fund shares in order to allow for withdrawals
in order for the beneficiary to pay these taxes
The trustee will send an information statement to the beneficiary each year, showing the
amount of income and capital gains to be reported on his or her income tax returns for that
year
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ACCUMULATION OPTION:
This option should generally be used by a donor who is not concerned about the Federal annual
gift tax exclusion and who does not want the beneficiary to be required to pay the taxes on
the trust's income or capital gains or to file tax returns.
No part of the gift qualifies for the Federal annual gift tax exclusion
The trust will be taxed on all income and capital gains in excess of $100 per year
The trustee of the trust will prepare and file all Federal and state income tax returns that
are required each year, and will pay the taxes from the assets of the trust by redeeming
Fund shares
SPLIT OPTION:
This option generally is for a donor who wants to use a portion of the Federal annual gift
tax exclusion and wants the trust to pay the taxes on its capital gains.
A portion of the gift may qualify for the Federal annual gift tax exclusion
The trust will be taxed on its capital gains, and the trustee will pay the taxes from the
assets of the trust by redeeming Fund shares; the beneficiary will be taxed on the trust's
ordinary income, which will be distributed to the beneficiary annually
The trustee will send an information statement to the beneficiary each year, showing the
amount of income to be reported on his or her income tax returns for that year
See 'Dividends, Distributions and Taxes -- Royce GiftShares Fund' below for further
information. A donor should consider consulting with an attorney or qualified tax adviser
before investing in Royce GiftShares Fund.
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DIVIDENDS, Royce Equity Income Fund pays quarterly dividends from net investment income. Pennsylvania
DISTRIBUTIONS Mutual, Royce Premier, Micro-Cap, Low-Priced Stock and GiftShares Funds pay dividends from
AND TAXES net investment income (if any) annually in December. Each Fund distributes its net realized
capital gains in December. Dividends and distributions will be automatically reinvested in
additional shares of the Fund unless the shareholder chooses otherwise.
Shareholders will receive information annually as to the tax status of distributions made by
each Fund for the calendar year. For Federal income tax purposes, all distributions by a Fund
are taxable to shareholders when declared, whether received in cash or reinvested in shares.
Distributions paid from a Fund's net investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends. A portion of a Fund's dividends may
qualify for the corporate dividends-received deduction, subject to certain limitations. The
portion of a Fund's dividends qualifying for such deduction is generally limited to the
aggregate taxable dividends received by the Fund from domestic corporations.
Distributions paid from long-term capital gains of a Fund are treated by a shareholder for
Federal income tax purposes as long-term capital gains, regardless of how long a shareholder
has held Fund shares. If a shareholder disposes of shares held for six months or less at a
loss, such loss will be treated as a long-term capital loss to the extent of any long-term
capital gains reported by the shareholder with respect to such shares.
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The redemption of shares is a taxable event, and a shareholder may realize a capital gain or
capital loss. Each Fund will report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a redemption.
At the time of a shareholder's purchase, a Fund's net asset value may reflect undistributed
income or capital gains. A subsequent distribution of these amounts by a Fund will be taxable
to the shareholder even though the distribution economically is a return of part of the
shareholder's investment.
The Funds are required to withhold 31% of taxable dividends, capital gain distributions and
redemptions paid to non-corporate shareholders who have not complied with Internal Revenue
Service taxpayer identification regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to backup
withholding.
The discussion of Federal income taxes above is for general information only. Shareholders
may also be subject to state and local taxes on their investment. Investors should consult
their own tax advisers concerning the tax consequences of an investment in the Funds. The
Statement of Additional Information includes an additional description of Federal income tax
aspects that may be relevant to a shareholder.
Royce GiftShares Fund The creation of a Royce GiftShares Fund trust account for a beneficiary and any addition to
an existing account will be subject to the reporting requirements of Federal gift tax law,
which requires, in general, that a Federal gift tax return be filed reporting all gifts made
by an individual during any calendar year, other than gifts of present interests in property
that qualify for, and do not exceed, the amount of the Federal annual gift tax exclusion
(currently, $10,000). Whether a particular gift of Fund shares qualifies for the annual
exclusion will depend on the option selected by the donor in the adoption agreement. A gift
of Fund shares may also be subject to state gift tax reporting requirements under the laws of
the state in which the donor of the gift resides.
See 'Royce GiftShares Fund Investors' above and 'Taxation -- Royce GiftShares Fund' in the
Statement of Additional Information for more detailed information about these and other tax
matters applicable to an investment in Royce GiftShares Fund. Due to the complexity of
Federal and state laws pertaining to all gifts in trust, prospective donors should consider
consulting with an attorney or other qualified tax adviser before investing in Royce
GiftShares Fund.
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NET ASSET VALUE Fund shares are purchased and redeemed at their net asset value per share next determined
PER SHARE after an order is received by the Funds' transfer agent or an authorized service agent or
sub-agent. Net asset value per share is determined by dividing the total value of the Fund's
Net asset value per investments and other assets, less any liabilities, by the number of outstanding shares of
share (NAV) is the Fund. Net asset value per share is calculated at the close of regular trading on the New
determined each day the York Stock Exchange on each day the Exchange is open for business.
New York Stock Exchange In determining net asset value, securities listed on an exchange or the Nasdaq National
is open Market System are valued on the basis of the last reported sale price prior to the time the
valuation is made or, if no sale is reported for that day, at their bid price for
exchange-listed securities and at the average of their bid and ask prices for Nasdaq
securities. Quotations are taken from the market where the security is primarily traded.
Other over-the-counter securities for which market quotations are readily available are
valued at their bid price. Securities for which market quotations are not readily available
are valued at their fair value under procedures established and supervised by the Board of
Trustees. Bonds and other fixed income securities may be valued by reference to other
securities with comparable ratings, interest rates and maturities, using established
independent pricing services.
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SHAREHOLDER GUIDE
OPENING AN Each Fund's shares are offered on a no-load basis. To open a new account other than an IRA or
ACCOUNT AND 403(b)(7) account or a Royce GiftShares Fund account, either by mail, by telephone or by
PURCHASING wire, simply complete and return an Account Application. If you need assistance with the
SHARES Account Application or have any questions about the Funds, please call Investor Information
at 1-800-221-4268. NOTE: For certain types of account registrations (e.g., corporations,
partnerships, foundations, associations, other organizations, trusts or powers of attorney),
please call Investor Information to determine if you need to provide additional forms with
your application.
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Minimum Initial TYPE OF ACCOUNT MINIMUM
Investments --------------- -------
Regular Accounts $2,000
IRAs* $ 500
$ 500
Accounts established with Automatic Investment Plan or
Direct Deposit Plan
401(k) and 403(b)(7) accounts* None
Royce GiftShares Fund accounts $5,000
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Additional Subsequent investments may be made by mail ($50 minimum), telephone ($500 minimum), wire or
Investments Express Service (a system of electronic funds transfer from your bank account).
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* Separate forms must be used for opening IRAs or
403(b)(7) accounts and Royce GiftShares Fund
accounts; please call Investor Information at
1-800-221-4268 if you need these forms.
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of your initial Additional investments should include the
Complete and sign the investment on the Account Application, make Invest-by-Mail remittance form attached to
enclosed Account your check payable to The Royce Fund, and your Fund confirmation statements. Please
Application mail to: make your check payable to The Royce Fund,
The Royce Funds write your account number on your check and,
P.O. Box 419012 using the return envelope provided, mail to
Kansas City, MO 64141-6012 the address indicated on the Invest-by-Mail
form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY To open an account by telephone, you should Subsequent telephone purchases ($500 minimum)
TELEPHONE call Investor Information (1-800-221-4268) may also be made by calling Investor
before 4:00 p.m., Eastern time. You will be Information. For all telephone purchases,
given a confirming order number for your payment is due within three business days and
purchase. This number must be placed on your may be made by wire or personal, business or
completed Application before mailing. If a bank check, subject to collection.
completed and signed Application is not
received on an account opened by telephone,
the account may be subject to backup
withholding of Federal income taxes.
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PURCHASING BY WIRE Money should be wired to:
BEFORE WIRING State Street Bank and Trust Company
For a new account, ABA 011000028 DDA 9904-712-8
please contact Ref: (Name of Fund)
Investor Information Order Number or Account Number _______________________
at 1-800-221-4268 Account Name _________________________________________
To ensure proper receipt, please be sure your bank includes the name of the Fund and your
order number (for telephone purchases) or account number. If you are opening a new account,
you must call Investor Information to obtain an order number, and complete the Account
Application and mail it to the 'New Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
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PURCHASING BY You can purchase shares automatically or at your discretion through the following options:
EXPRESS
SERVICE EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds ($100 minimum
and $200,000 maximum) from your bank account to purchase shares in your Royce Fund account by
telephone or computer online access.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or the Automatic Investment Plan, please
provide the appropriate information on the Account Application Form and ATTACH A VOIDED
CHECK. We will send you a confirmation of Express Service activation. Please wait three weeks
before using the service.
To make an Expedited Purchase, other than through computer online access, please call
Shareholder Services at 1-800-841-1180 before 4:00 p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have investments ($50
minimum) made from your net payroll or government check into your existing Royce Fund account
each pay period. Your employer must have direct deposit capabilities through ACH (Automated
Clearing House) available to its employees. You may terminate participation in these programs
by giving written notice to your employer or government agency, as appropriate. The Fund is
not responsible for the efficiency of the employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct Deposit
form, which may be obtained from Investor Information by calling 1-800-221-4268.
- -----------------------------------------------------------------------------------------------------------------------
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option -- Both net investment income dividends and capital
gains distributions will be reinvested in additional Fund shares. This option will be
selected for you automatically unless you specify one of the other options.
2. Cash Dividend Option -- Your dividends will be paid in cash and your capital gains
distributions will be reinvested in additional Fund shares.
3. All Cash Option -- Both dividends and capital gains distributions will be paid in
cash.
You may change your option by calling Shareholder Services at 1-800-841-1180.
Distribution options available for Royce GiftShares Fund trust accounts are dependent on
the trust option selected by the donor.
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19
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- -----------------------------------------------------------------------------------------------------------------------
IMPORTANT The easiest way to establish optional services on your account is to select the options you
ACCOUNT desire when you complete your Account Application. If you want to add or change shareholder
INFORMATION options later, you may need to provide additional information and a signature guarantee.
Please call Shareholder Services at 1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature guarantee on certain written
transaction requests. A signature guarantee verifies the authenticity of your signature and
may be obtained from banks, brokerage firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon request. If a certificate is lost, stolen
or destroyed, you may incur an expense to replace it.
Purchases Through If you purchase shares of a Fund through a program of services offered or administered by a
Service Providers broker-dealer, financial institution or other service provider, you should read the program
materials provided by the service provider, including information regarding fees which may be
charged, in conjunction with this Prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of services
offered. When shares of a Fund are purchased in this way, the service provider, rather than
the customer, may be the shareholder of record of the shares. Certain service providers may
receive compensation from the Funds, QDI and/or Quest for providing such services.
Telephone and Online Neither the Funds nor their transfer agent will be liable for following instructions
Access Transactions communicated by telephone or computer online access that are reasonably believed to be
genuine. The transfer agent uses certain procedures designed to confirm that telephone and
computer online access instructions are genuine, which may include requiring some form of
personal identification prior to acting on the instructions, providing written confirmation
of the transaction and/or recording incoming calls, and if it does not follow such
procedures, the Fund or the transfer agent may be liable for any losses due to unauthorized
or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment is not received for any telephone or
computer online access purchase, the transaction will be cancelled and you will be
responsible for any loss the Fund incurs. If you are already a shareholder, the Fund can
redeem shares from any identically registered account in the Fund as reimbursement for any
loss incurred.
Trade Date for Purchases Your TRADE DATE is the date on which share purchases are credited to your account. If your
purchase is made by telephone, computer online access, check, Federal Funds wire or exchange
and is received by the close of regular trading on the New York Stock Exchange (generally
4:00 p.m., Eastern time), your trade date is the date of receipt. If your purchase is
received after the close of regular trading on the Exchange, your trade date is the next
business day. Your shares are purchased at the net asset value determined on your trade date.
</TABLE>
20
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In order to prevent lengthy processing delays caused by the clearing of foreign checks, the
Funds will accept only a foreign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a United States correspondent bank.
The Trust reserves the right to suspend the offering of Fund shares to new investors. The
Trust also reserves the right to reject any specific purchase request.
- -----------------------------------------------------------------------------------------------------------------------
REDEEMING YOUR You may redeem any portion of your account at any time. You may request a redemption in
SHARES writing or by telephone. Redemption proceeds normally will be sent within two business days
after the receipt of the request in Good Order.
REDEEMING BY MAIL Requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. (For express or registered mail, send your request to The Royce Funds, c/o NFDS,
1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
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 Shareholders who have not established Express Service may redeem up to $50,000 of their Fund
TELEPHONE 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'.
</TABLE>
21
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REDEEMING BY If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be automatically
EXPRESS redeemed from your Fund account and the proceeds transferred to your bank account according
SERVICE to the schedule you have selected. You must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from your Fund
account by telephone and transfer the proceeds directly to your bank account. You may elect
Express Service on the Account Application Form or call Shareholder Services at
1-800-841-1180 for an Express Service application.
---------------------------------------------------------------------------------------------
IMPORTANT REDEMPTION If you are redeeming shares recently purchased by check, Express Service Expedited Purchase
INFORMATION or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment
for the purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined after your request has been
received by the transfer agent in Good Order. The Trust reserves the right to revise or
terminate the telephone redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times when the New York
Stock Exchange is closed or under any emergency circumstances as determined by the Securities
and Exchange Commission.
Although the Trust will normally make redemptions in cash, it may cause the Funds to redeem
in kind under certain circumstances.
Early Redemption In order to discourage short-term trading, the Funds assess an early redemption fee of 1% on
Fee redemptions of share purchases held for less than one year. Purchases of Fund shares prior to
July 1, 1996 are exempt from the fee. Redemption fees will be paid to the Fund, out of the
redemption proceeds otherwise payable to the shareholder, to help offset transaction costs.
The Funds will use the 'first-in, first-out' (FIFO) method to determine the one-year holding
period. Under this method, the date of the redemption will be compared with the earliest
purchase date of the share purchases held in the account. If this holding period is less than
one year, the fee will be assessed. In determining 'one year', the Funds will use the
anniversary month of a transaction. Thus, shares purchased in August 1996, for example, will
be subject to the fee if they are redeemed prior to August 1997. If they are redeemed on or
after August 1, 1997, they will not be subject to the fee.
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22
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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) current
participants in an Automatic Investment Plan or an Automatic Withdrawal Plan, (c) certain
Trust-approved Group Investment Plans and charitable organizations, (d) profit-sharing
trusts, corporations or other institutional investors who are investment advisory clients of
Quest, (e) omnibus or similar account customers of certain Trust-approved broker-dealers and
other institutions or (f) shareholders of Royce GiftShares Fund.
Minimum Account Due to the relatively high cost of maintaining smaller accounts, the Trust reserves the right
Balance Requirement to involuntarily redeem shares in any Fund (except Royce GiftShares Fund) account that falls
below the minimum initial investment due to redemptions by the shareholder. If at any time
the balance in an account does not have a value at least equal to the minimum initial
investment or, if an Automatic Investment Plan is discontinued before an account reaches the
minimum initial investment that would otherwise be required, you may be notified that the
value of your account is below the Fund's minimum account balance requirement. You would then
have sixty days to increase your account balance before the account is liquidated. Proceeds
would be promptly paid to the shareholder.
Royce GiftShares Fund Until a Royce GiftShares Fund trust terminates, only the independent trustee, as the legal
owner of the shares, may redeem them. The ability of the trustee to redeem shares, and of the
beneficiary to compel redemption, is subject to the terms and conditions of the Royce
GiftShares Fund Trust Instrument.
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE Exchanges between series of the Trust (except Royce GiftShares Fund), and with other open-end
PRIVILEGE Royce funds are permitted by telephone, computer online access or by mail. An exchange is
treated as a redemption and purchase; therefore, you could realize a taxable gain or loss on
the transaction. Exchanges are accepted only if the registrations and the tax identification
numbers of the two accounts are identical. Minimum investment requirements must be met when
opening a new account by exchange, and exchanges may be made only for shares of a series or
fund then offering its shares for sale in your state of residence. The Trust reserves the
right to revise or terminate the exchange privilege at any time.
- -----------------------------------------------------------------------------------------------------------------------
TRANSFERRING You may transfer the ownership of any of your Fund shares to another person by writing to:
OWNERSHIP 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.
- -----------------------------------------------------------------------------------------------------------------------
STATEMENTS AND REPORTS A confirmation statement will be sent to you each time you have a transaction in your account
and semi-annually. Financial reports will be mailed semi-annually. To reduce expenses, only
one copy of most shareholder reports may be mailed to a household. Please call Investor
Information if you need additional copies.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
23
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__________________________________ __________________________________
THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected]
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
DISTRIBUTOR
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President
and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Asst. Secretary
John E. Denneen, Secretary
__________________________________ __________________________________
__________________________________ __________________________________
THE ROYCE FUNDS
---------------
PENNSYLVANIA MUTUAL FUND
ROYCE PREMIER FUND
ROYCE MICRO-CAP FUND
ROYCE EQUITY INCOME FUND
ROYCE LOW-PRICED
STOCK FUND
ROYCE GIFTSHARES FUND
NO-LOAD MUTUAL FUNDS
PROSPECTUS
JULY 1, 1996
__________________________________ __________________________________
[LOGO]
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THE ROYCE FUNDS
ACCOUNT APPLICATION FORM
- ---------------------------------------------
Mail to: The Royce Funds c/o NFDS For help with this application,
PO Box 419012, or for more information,
Kansas City, MO 64141-6012 call us at (800) 221-4268
- ---------------------------------------------
PLEASE PRINT, PREFERABLY WITH BLACK INK
</TABLE>
PLEASE READ THE INSTRUCTIONS ON THE REVERSE SIDE BEFORE YOU COMPLETE THIS FORM.
PLEASE DO NOT USE THIS APPLICATION TO OPEN A ROYCE FUND SPONSORED IRA, 403(b)(7)
RETIREMENT PLAN OR ROYCE GIFTSHARES FUND ACCOUNT.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION (Check one box)
- ---------------------------------------------------------------
[ ] INDIVIDUAL OR JOINT ACCOUNT
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Owner's Name: First, Initial, Last
_________ - _____ - __________
Owner's Social Security Number
- ---------------------------------------------------------------
Joint Owner's Name: First, Initial, Last
JOINT ACCOUNTS WILL BE REGISTERED AS JOINT TENANTS WITH
RIGHT OF SURVIVORSHIP UNLESS OTHERWISE INDICATED.
[ ] GIFT OR TRANSFER TO MINOR
- ---------------------------------------------------------------
Custodian's Name (One name only: First, Initial, Last)
- ---------------------------------------------------------------
Name (One name only: First, Initial, Last)
_________ - _____ - __________
Minor's Social Security Number
under the ____________________________ Uniform Gift/Transfer to Minors Act
(State of Minor's Residence)
[ ] TRUST (Including Corporate Retirement Plans)
- ---------------------------------------------------------------
Trustee Name(s)
- ---------------------------------------------------------------
Name of Trust or Retirement Plan
- ---------------------------------------------------------------
Date of Trust Agreement
- ---------------------------------------------------------------
For Benefit Of (Name, if applicable)
- ---------------------------------------------------------------
Social Security Number or Taxpayer ID Number
[ ] OTHER ENTITIES
Type: [ ] Corporation [ ] Partnership [ ] Nominee
[ ] Foundation [ ] Charitable Organization
[ ] Other (___)
- ---------------------------------------------------------------
Name of Entity
_________ - _____ - __________ [ ] Tax-Exempt Entity Under
Taxpayer ID Number IRS Sec. 501(c)3)
</TABLE>
- ---------------------------------------------------------------
2 MAILING ADDRESS
- ---------------------------------------------------------------
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- ---------------------------------------------------------------
Street or PO Box Number
- ---------------------------------------------------------------
City State Zip
- ---------------------------------------------------------------
Daytime Phone Evening Phone
</TABLE>
<PAGE>
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
(must be completed to receive copies of account statements)
- ---------------------------------------------------------------
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- ---------------------------------------------------------------
Representative Name Rep. Number
- ---------------------------------------------------------------
Firm Phone
- ---------------------------------------------------------------
Address State Zip
</TABLE>
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
(see instructions below for initial investment minimums)
- ---------------------------------------------------------------
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Pennsylvania Mutual Fund (260) $
Royce Equity Income Fund (263) $
Royce Micro-Cap Fund (264) $
Royce Premier Fund (265) $
Royce Low-Priced Stock Fund (266) $
</TABLE>
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
- ---------------------------------------------------------------
Payment of:
[ ] Initial Investment (check enclosed)
[ ] Telephone Order, previously submitted on
(Date) _______________________________________________________________________
Telephone order number _______________________________________________________
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS (check one box)
- ---------------------------------------------------------------
If no box is checked, all income dividends and capital gain distributions will
be reinvested.
[ ] Reinvest both dividends and capital gain distributions
[ ] Pay dividends in cash, reinvest capital gain distributions
[ ] Pay dividends and capital gain distributions in cash
- ---------------------------------------------------------------
7 EXPRESS SERVICE
- ---------------------------------------------------------------
To arrange for Express Service, please provide the information below. Passbook
savings accounts are not eligible.
A VOIDED CHECK MUST BE ATTACHED
Please indicate the type of Express Service you wish to establish:
[ ] AUTOMATIC INVESTMENT PLAN: On the ____ day each [ ] month [ ] quarter,
transfer $___________ from my bank account to purchase shares in my Royce
Fund account ($50 minimum). I wish to begin my plan in __________ (select
month).
[ ] AUTOMATIC WITHDRAWAL PLAN: On the ____ day each month, redeem and transfer
$___________ from my Royce Fund account to my bank account ($100 minimum).
[ ] EXPEDITED PURCHASES AND REDEMPTIONS: To purchase or redeem shares at any
time, using a bank account to clear the transaction ($100 minimum).
[ ] WIRE REDEMPTIONS: To have redemption proceeds wired to my commercial bank
($1,000 minimum).
(APPLICATION MUST BE SIGNED ON REVERSE SIDE)
<PAGE>
<PAGE>
- ---------------------------------------------------------------
8 SIGNATURE (Please be sure to sign below)
- ---------------------------------------------------------------
I am (we are) of legal age, have full capacity to make this investment, have
read the Prospectus for the Fund and agree to its terms. Neither the Fund nor
its transfer agent will be liable for any loss or expense for acting upon
written, telephone or computer online access instructions reasonably believed to
be genuine and in accordance with the procedures described in the Prospectus.
AS REQUIRED BY FEDERAL LAW, I (WE) CERTIFY UNDER PENALTIES OF PERJURY (1) THAT
THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER PROVIDED ABOVE IS CORRECT
AND (2) THAT THE IRS HAS NEVER NOTIFIED ME (US) THAT I AM (WE ARE) SUBJECT TO
31% BACKUP WITHHOLDING, OR HAS NOTIFIED ME (US) THAT I AM (WE ARE) NO LONGER
SUBJECT TO SUCH BACKUP WITHHOLDING. (Note: if part (2) of this sentence is not
true in your case, please strike out that part before signing.) The IRS does not
require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
CHECK ONE:
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[ ] U.S. Citizen [ ] Resident Alien [ ] Non-Resident Alien _________________________
(Country of Citizenship)
</TABLE>
_____________________________________________________________________
Signature of Owner, Trustee or Custodian Date
_____________________________________________________________________
Signature of Joint Owner or Co-trustee (if any) Date
- ---------------------------------------------------------------
ACCOUNT REGISTRATION INSTRUCTIONS
- ---------------------------------------------------------------
If you need assistance in completing this form, please call us at (800)
221-4268.
This form cannot be used to open a Royce Fund sponsored IRA or 403(b)(7)
account. Please call us to receive the appropriate retirement application
forms.
- ---------------------------------------------------------------
1 ACCOUNT REGISTRATION
- ---------------------------------------------------------------
Please provide the information exactly as you wish it to appear on your account
(e.g., as your name appears on your other legal/ financial records such as your
bank account, will, etc.). Please provide your Taxpayer Identification Number to
avoid withholding of taxes. For most individuals, this is your Social Security
Number.
- ---------------------------------------------------------------
2 MAILING ADDRESS
- ---------------------------------------------------------------
Please provide your complete mailing address.
- ---------------------------------------------------------------
3 ADVISER/DEALER INFORMATION
- ---------------------------------------------------------------
This section should be completed by your financial adviser or dealer if
applicable.
- ---------------------------------------------------------------
4 INITIAL INVESTMENT
- ---------------------------------------------------------------
Please indicate the dollar amount you wish to invest. Minimum initial investment
is $2,000 ($500 minimum for accounts opened with an Automatic Investment Plan).
- ---------------------------------------------------------------
5 METHOD OF PAYMENT
- ---------------------------------------------------------------
Checks should be made payable to The Royce Fund. If you have placed a telephone
order to open your account and purchase shares, please include the order number
on the application. Payment is due within 3 business days after placing the
order.
- ---------------------------------------------------------------
6 DIVIDEND AND CAPITAL GAIN PAYMENT
OPTIONS
- ---------------------------------------------------------------
All distributions will be reinvested if a box is not checked.
<PAGE>
- ---------------------------------------------------------------
7 EXPRESS SERVICE
- ---------------------------------------------------------------
Express Service is a convenient way to purchase or sell shares automatically or
at your discretion. You may choose from the following Express Service options:
AUTOMATIC INVESTMENT PLAN -- automatically purchases shares in your Royce Fund
account by transferring money from your bank account on a monthly or quarterly
basis.
AUTOMATIC WITHDRAWAL PLAN -- automatically sells shares in your Royce Fund
account and transfers the money to your bank account on a monthly basis.
$25,000 minimum account balance required to initiate Plan.
EXPEDITED PURCHASES AND REDEMPTIONS -- enables you, at your discretion, to
transfer up to $200,000 on a purchase or $50,000 on a redemption between your
Royce Fund account and your bank account with a toll-free telephone call.
WIRE REDEMPTIONS -- allows for telephone redemption proceeds to be wired to
your commercial bank. Institutional investors must attach wire instructions in
lieu of a voided check.
To arrange for Express Service, you must check the appropriate box and ATTACH A
VOIDED CHECK. Passbook accounts are not eligible for Express Service, and your
bank must be a member of the Automated Clearing House (ACH) network.
Please be sure to specify the amount of the investment/withdrawal and the
transaction date. You may not establish both an Automatic Investment Plan and an
Automatic Withdrawal Plan on the same account. Expedited Purchases and
Redemptions may be established with either of the automatic plans. A signature
guarantee may be required if your bank registration does not match your Royce
Fund account registration. A signature guarantee may be obtained from a bank,
broker or other guarantor that NFDS deems acceptable.
Please allow 3 weeks for set up before using Express Service.
- ---------------------------------------------------------------
8 SIGNATURE
- ---------------------------------------------------------------
Please sign exactly as your name is registered in Section 1. Both owners must
sign on joint accounts.
<PAGE>
<PAGE>
THE ROYCE FUND
STATEMENT OF ADDITIONAL INFORMATION
THE ROYCE FUND (the "Trust"), a Delaware business trust, is a
professionally managed, open-end registered investment company, which offers
investors the opportunity to invest in ten portfolios or series. Each series has
distinct investment objectives and/or policies, and a shareholder's interest is
limited to the series in which the shareholder owns shares. The ten series are:
PENNSYLVANIA MUTUAL FUND
ROYCE PREMIER FUND
ROYCE MICRO-CAP FUND
ROYCE EQUITY INCOME FUND
ROYCE LOW-PRICED STOCK FUND
ROYCE GIFTSHARES FUND
ROYCE VALUE FUND
ROYCE TOTAL RETURN FUND
ROYCE GLOBAL SERVICES FUND
THE REVEST GROWTH & INCOME FUND
This Statement of Additional Information relates to all of the series
other than Revest Growth & Income Fund ("Funds"). Revest is covered by its own
separate Statement of Additional Information.
The Trust is designed for long-term investors, including those who wish
to use shares of any Fund (other than Royce GiftShares Fund) as a funding
vehicle for certain tax-deferred retirement plans (including Individual
Retirement Account (IRA) plans), and not for investors who intend to liquidate
their investments after a short period of time.
This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Trust's current Prospectuses dated July
1, 1996. Please retain this document for future reference. The audited financial
statements included in the Annual Reports to Shareholders of such Funds for the
fiscal year or period ended December 31, 1995 and the unaudited financial
statements included in the Semi-Annual Report to Shareholders of Royce
GiftShares Fund for the six months ended June 30, 1996 are incorporated herein
by reference. To obtain an additional copy of the Prospectus or Annual for any
of these Funds, please call Investor Information at 1-800-221-4268.
INVESTMENT ADVISER TRANSFER AGENT
Quest Advisory Corp. ("Quest") State Street Bank and Trust Company
c/o National Financial Data Services
DISTRIBUTOR CUSTODIAN
Quest Distributors, Inc. ("QDI") State Street Bank and Trust Company
JULY 1, 1996
TABLE OF CONTENTS
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PAGE
INVESTMENT POLICIES AND LIMITATIONS ....................................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS ................................... 5
MANAGEMENT OF THE TRUST ................................................... 10
PRINCIPAL HOLDERS OF SHARES ............................................... 13
INVESTMENT ADVISORY SERVICES .............................................. 17
DISTRIBUTOR ............................................................... 20
CUSTODIAN ................................................................. 23
INDEPENDENT ACCOUNTANTS ................................................... 23
PORTFOLIO TRANSACTIONS .................................................... 23
CODE OF ETHICS AND RELATED MATTERS ........................................ 25
PRICING OF SHARES BEING OFFERED ........................................... 26
REDEMPTIONS IN KIND ....................................................... 26
TAXATION .................................................................. 26
DESCRIPTION OF THE TRUST .................................................. 34
PERFORMANCE DATA .......................................................... 35
</TABLE>
<PAGE>
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement those set
forth in the Funds' Prospectuses. Unless otherwise noted, whenever an investment
policy or limitation states a maximum percentage of a Fund's assets that may be
invested in any security or other asset or sets forth a policy regarding quality
standards, the percentage limitation or standard will be determined immediately
after giving effect to the Fund's acquisition of the security or other asset.
Accordingly, any subsequent change in values, net assets or other circumstances
will not be considered in determining whether the investment complies with the
Fund's investment policies and limitations.
A Fund's fundamental investment policies cannot be changed without the
approval of a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 the ("1940 Act")) of the Fund. Except for the
fundamental investment restrictions set forth below, the investment policies and
limitations described in this Statement of Additional Information are operating
policies and may be changed by the Board of Trustees without shareholder
approval. However, shareholders will be notified prior to a material change in
an operating policy affecting their Fund.
NO FUND MAY, AS A MATTER OF FUNDAMENTAL POLICY:
1. Issue any senior securities;
2. Purchase securities on margin or write call options on its
portfolio securities;
3. Sell securities short;
4. Borrow money, except that each of the Funds may borrow
money from banks as a temporary measure for extraordinary
or emergency purposes in an amount not exceeding 5% of such
Fund's total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 10% of its total assets in the securities
of foreign issuers (except for Royce Global Services Fund,
which is not subject to any such limitation);
7. Invest in restricted securities (except for Royce Global
Services Fund, which may invest up to 15% of its net assets
in illiquid securities, including restricted securities) or
in repurchase agreements which mature in more than seven
days;
8. Invest more than 10% (15% for Royce Global Services Fund)
of its assets in securities without readily available
market quotations (i.e., illiquid securities)(except for
Pennsylvania Mutual Fund which is not subject to any such
limitation);
9. Invest, with respect to Royce Value and Royce Equity Income
Funds, more than 5% of such Fund's assets in the securities
of any one issuer (except U.S. Government securities) or,
with respect to 75% of the other Funds' total assets,
2
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<PAGE>
more than 5% of such Fund's assets in the securities of any
one issuer (except U.S. Government securities);
10. Invest more than 25% of its assets in any one industry;
11. Acquire (own, in the case of Pennsylvania Mutual Fund) more
than 10% of the outstanding voting securities of any one
issuer;
12. Purchase or sell real estate or real estate mortgage loans
or invest in the securities of real estate companies unless
such securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other
securities, whether or not such purchases are made upon the
original issuance of such securities, and except that each
Fund may loan up to 25% of its assets to qualified brokers,
dealers or institutions for their use relating to short
sales or other securities transactions (provided that such
loans are fully collateralized at all times);
15. Invest in companies for the purpose of exercising control
of management;
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers,
employees or investment adviser, as principal for their own
accounts;
17. Invest in the securities of other investment companies
(except for Pennsylvania Mutual Fund and Royce Global
Services Fund, which may invest in the securities of other
investment companies to the extent permitted by the 1940
Act); or
18. Invest more than 5% of its total assets in warrants, rights
and options (except for Pennsylvania Mutual Fund, which may
not purchase any warrants, rights or options).
3
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<PAGE>
NO FUND MAY, AS A MATTER OF OPERATING POLICY:
1. Invest more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, which
have been in operation for less than three years;
2. Invest in oil, gas or other mineral leases or development
programs;
3. Invest more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities;
4. Enter into repurchase agreements with any party other than
the custodian of its assets or having a term of more than
seven days; or
5. Invest more than 2% of its net assets, valued at the lower
of cost or market, in warrants that are not listed on the
New York or American Stock Exchanges.
PENNSYLVANIA MUTUAL FUND
Pennsylvania Mutual Fund may invest up to 25% of the value of its total
assets in the securities of other investment companies (open or closed-end) and
up to 5% of its total assets in the securities of any one other investment
company. All such securities must be acquired in the open market, in
transactions involving no commissions or discounts to a sponsor or dealer (other
than customary brokerage commissions). The issuers of such securities are not
required to redeem them in an amount exceeding 1% of such issuers' total
outstanding securities during any period of less than 30 days, and Pennsylvania
Mutual Fund will vote all proxies with respect to such securities in the same
proportion as the vote of all other holders of such securities. Pennsylvania
Mutual Fund has not, during the past 5 years, invested in the securities of any
open-end investment companies and has no intention of doing so in the future.
ROYCE GLOBAL SERVICES FUND
Global Services Fund may invest in the securities of a company that is
engaged in securities related activities as a broker, a dealer, an underwriter,
an investment adviser registered under the Investment Advisers Act of 1940 or an
investment adviser to an investment company, subject to the following
limitations in the case of a company that, in its most recent fiscal year,
derived more than 15% of its gross revenues from such activities:
(a) The purchase cannot cause more than 5% of the Fund's assets to be
invested in the securities of the company;
4
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<PAGE>
(b) For an equity security, the purchase cannot result in the Fund
owning more than 5% of the company's outstanding securities of that
class; and
(c) For a debt security, the purchase cannot result in the Fund owning
more than 10% of the principal amount of the company's outstanding debt
securities.
In applying the gross revenues test, a company's gross revenues from
its own securities related activities and from its ratable share of the
securities related activities of enterprises of which it owns 20% or more of the
voting or equity interest are considered in determining the degree to which the
company is engaged in securities related activities. The limitations apply only
at the time of the Fund's purchase of the securities of such a company. When
Quest is considering purchasing or has purchased warrants or convertible
securities of a securities related business for the Fund, the required
determination is made as though such warrants or conversion privileges had been
exercised.
Global Services Fund is not permitted to acquire a general partnership
interest or a security issued by its investment adviser or principal underwriter
or any affiliated person of its investment adviser or principal underwriter.
Global Services Fund may invest up to 20% of its assets in the
securities of other investment companies, provided that (i) the Fund and all
affiliated persons of the Fund do not invest in more than 3% of the total
outstanding stock of any one such company and (ii) the Fund does not offer or
sell its shares at a public offering price which includes a sales load of more
than 1 1/2%. (The 20% and 3% limitations do not apply to securities received as
dividends, through offers of exchange or as a result of a reorganization,
consolidation or merger.) The other investment company is not obligated to
redeem those of its securities held by the Fund in an amount exceeding 1% of its
total outstanding securities during any period of less than thirty days, and the
Fund will be obligated to exercise voting rights with respect to any such
security by voting the securities held by it in the same proportion as the vote
of all other holders of the security.
Global Service Fund does not currently intend to invest more than 5% of
its assets in the securities of any one other investment company, to purchase
securities of other investment companies, except in the open market where no
commission other than the ordinary broker's commission is paid, or to purchase
or hold securities issued by other open-end investment companies.
RISK FACTORS AND SPECIAL CONSIDERATIONS
FUNDS' RIGHTS AS STOCKHOLDERS
As noted above, no Fund may invest in a company for the purpose of
exercising control of management. However, a Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to
management, the board of directors and/or stockholders if Quest or the Board of
Trustees determine that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that a Fund may
engage in, either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a
5
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<PAGE>
company's corporate structure or business activities; seeking changes in a
company's board of directors or management; seeking changes in a company's
direction or policies; seeking the sale or reorganization of a company or a
portion of its assets; or supporting or opposing third party takeover attempts.
This area of corporate activity is prone to litigation, and it is possible that
a Fund could be involved in lawsuits related to such activities. Quest will
monitor such activities with a view to mitigating, to the extent possible, the
risk of litigation against the Funds and the risk of actual liability if a Fund
is involved in litigation. However, no guarantee can be made that litigation
against a Fund will not be undertaken or liabilities incurred.
A Fund may, at its expense or in conjunction with others, pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if Quest and the Trust's Board of
Trustees determine this to be in the best interests of a Fund's shareholders.
SECURITIES LENDING
Each Fund may lend up to 25% of its assets to brokers, dealers and
other financial institutions. Securities lending allows the Fund to retain
ownership of the securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned securities or even a
loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to parties that participate in a Global Securities
Lending Program monitored by the Funds' custodian and who are deemed by it to be
of good standing. Furthermore, such loans will be made only if, in Quest's
judgment, the consideration to be earned from such loans would justify the risk.
Quest understands that it is the current view of the staff of the
Securities and Exchange Commission that a Fund may engage in such loan
transactions only under the following conditions: (i) the Fund must receive 100%
collateral in the form of cash or cash equivalents (e.g., U.S. Treasury bills or
notes) from the borrower; (ii) the borrower must increase the collateral
whenever the market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (iii) after giving notice, the Fund
must be able to terminate the loan at any time; (iv) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest or other distributions on the
securities loaned and to any increase in market value; (v) the Fund may pay only
reasonable custodian fees in connection with the loan; and (vi) the Fund must be
able to vote proxies on the securities loaned, either by terminating the loan or
by entering into an alternative arrangement with the borrower.
LOWER-RATED (HIGH-RISK) DEBT SECURITIES
Each Fund may invest up to 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities. They may be rated from Ba to Ca by
Moody's Investors Service, Inc. or from BB to D by Standard & Poor's Corporation
or may be unrated. These securities have poor protection with respect to the
payment of interest and repayment of principal and may be in default as to the
payment of principal or interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to changes in
the issuer's capacity to pay. The market prices of lower-rated
6
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<PAGE>
(high-risk) debt securities may fluctuate more than those of higher-rated debt
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.
While the market for lower-rated (high-risk) corporate debt securities
has been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such securities
to fund highly leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods of economic
recession. In fact, from 1989 to 1991, the percentage of lower-rated (high-risk)
debt securities that defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may be thinner
and less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. If market quotations cease to be
readily available for a lower-rated (high-risk) debt security in which a Fund
has invested, the security will then be valued in accordance with procedures
established by the Board of Trustees. Judgment plays a greater role in valuing
lower-rated (high-risk) debt securities than is the case for securities for
which more external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions may affect a
Fund's ability to dispose of lower-rated (high-risk) debt securities.
Since the risk of default is higher for lower-rated (high-risk) debt
securities, Quest's research and credit analysis may play an important part in
managing securities of this type for the Funds. In considering such investments
for the Funds, Quest will attempt to identify those issuers of lower-rated
(high-risk) debt securities whose financial condition is adequate to meet future
obligations, has improved or is expected to improve in the future. Quest's
analysis may focus on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects and the experience and
managerial strength of the issuer.
FOREIGN INVESTMENTS
Except for Royce Global Services Fund, which is not subject to any such
limitation, each Fund may invest up to 10% of its total assets in the securities
of foreign issuers. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies and of dividends and interest
from such securities can change significantly when foreign currencies strengthen
or weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading
7
<PAGE>
<PAGE>
practices, including those involving the release of assets in advance of
payment, may involve increased risks in the event of a failed trade or the
insolvency of a broker-dealer, and may involve substantial delays. It may also
be difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest or adverse diplomatic
developments. There is no assurance that Quest will be able to anticipate these
potential events or counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
American Depositary Receipts (ADRs) are certificates held in trust by a
bank or similar financial institution evidencing ownership of securities of a
foreign-based issuer. Designed for use in U.S. securities markets, ADRs are
alternatives to the purchase of the underlying foreign securities in their
national markets and currencies.
ADR facilities may be established as either unsponsored or sponsored.
While ADRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Sponsored ADR
facilities are created in generally the same manner as unsponsored facilities,
except that the issuer of the deposited securities enters into a deposit
agreement with the depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.
8
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REPURCHASE AGREEMENTS
In a repurchase agreement, a Fund in effect makes a loan by purchasing
a security and simultaneously committing to resell that security to the seller
at an agreed upon price on an agreed upon date within a number of days (usually
not more than seven) from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked to market daily) of the underlying
security.
The Funds may engage in repurchase agreements with respect to any U.S.
Government security. While it does not presently appear possible to eliminate
all risks from these transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as delays and costs to
the Fund in connection with bankruptcy proceedings), it is the policy of the
Trust to enter into repurchase agreements only with its custodian, State Street
Bank and Trust Company, and having a term of seven days or less.
WARRANTS, RIGHTS AND OPTIONS
Each Fund, other than Pennsylvania Mutual Fund, may invest up to 5% of
its total assets in warrants, rights and options. A warrant, right or call
option entitles the holder to purchase a given security within a specified
period for a specified price and does not represent an ownership interest. A put
option gives the holder the right to sell a particular security at a specified
price during the term of the option. These securities have no voting rights, pay
no dividends and have no liquidation rights. In addition, their market prices do
not necessarily move parallel to the market prices of the underlying securities.
The sale of warrants, right or options held for more than one year
generally results in a long-term capital gain or loss to the Fund, and the sale
of warrants, rights or options held for one year or less generally results in a
short term capital gain or loss. The holding period for securities acquired upon
exercise of a warrant, right or call option, however, generally begins on the
day after the date of exercise, regardless of how long the warrant, right or
option was held. The securities underlying warrants, rights and options could
include shares of common stock of a single company or securities market indices
representing shares of the common stocks of a group of companies, such as the
S&P 600.
Investing in warrants, rights and call options on a given security
allows the Fund to hold an interest in that security without having to commit
assets equal to the market price of the underlying security and, in the case of
securities market indices, to participate in a market without having to purchase
all of the securities comprising the index. Put options, whether on shares of
common stock of a single company or on a securities market index, would permit
the Fund to protect the value of a portfolio security against a decline in its
market price and/or to benefit from an anticipated decline in the market price
of a given security or of a market. Thus, investing in warrants, rights and
options permits the Fund to incur additional risk and/or to hedge against risk.
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PORTFOLIO TURNOVER
For the year ended December 31, 1995 and the period from December 15,
1994 (commencement of operations) through December 31, 1994, Royce Global
Services Fund's portfolio turnover rates were 106% and 0%, respectively. The
Fund's portfolio turnover rate for its two-week start-up period in 1994 was zero
because the Fund was then investing its initial cash and did not sell any
portfolio securities during this period.
* * *
Quest believes that Pennsylvania Mutual, Low-Priced Stock, Royce Value,
Micro-Cap, GiftShares and Global Services Funds are suitable for investment only
by persons who can invest without concern for current income, and that such
Funds and Royce Premier Fund are suitable only for those who are in a financial
position to assume above-average investment risks in search for long-term
capital appreciation.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to each Trustee
and officer of the Trust:
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- ------------------------------------------
<S> <C> <C>
Charles M. Royce* (56) Trustee, President, Secretary, Treasurer, sole director and
1414 Avenue of the President and sole voting shareholder of Quest Advisory
Americas Treasurer Corp. ("Quest"), the Trust's and its predecessor's
New York, NY 10019 principal investment adviser; Trustee, President
and Treasurer of Pennsylvania Mutual Fund ("PMF"), an
open-end diversified management investment company merged
into a counterpart series of the Trust in June 1996;
Director, President and Treasurer of Royce Value Trust, Inc.
("RVT") and, since September 1993, Royce Micro-Cap Trust,
Inc. ("OTCM"), closed-end diversified management investment
companies of which Quest is the investment adviser;
Secretary and sole director and shareholder of Quest
Distributors, Inc. ("QDI"), the distributor of the Trust's
shares; and managing general partner of Quest Management
Company ("QMC"), a registered investment adviser, and its
predecessor.
</TABLE>
10
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<PAGE>
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
Thomas R. Ebright* (52) Trustee and Vice Vice President of Quest; Trustee of PMF until June 1996;
50 Portland Pier, President Director of RVT and, since September 1993, OTCM; Vice
Portland, ME 14101 President since November 1995 (President until October 1995)
and Treasurer of QDI; general partner of QMC and its
predecessor until June 1994; President, Treasurer and a
director and principal shareholder of Royce, Ebright &
Associates, Inc., the investment adviser for Revest Growth &
Income Fund, since June 1994; director of Atlantic Pro
Sports, Inc. and of the Strasburg Rail Road Co. since March
1993; and President and principal owner of Baltimore
Professional Hockey, Inc. until May 1993.
Hubert L. Cafritz (72) Trustee Financial consultant.
9421 Crosby Road
Silver Spring, MD 20910
Richard M. Galkin (58) Trustee Private investor and President of Richard M. Galkin
5284 Boca Marina Associates, Inc., tele-communications consultants.
Boca Raton, FL 33487
Stephen L. Isaacs (56) Trustee Director of Columbia University Development Law and
60 Haven Street, Fl. B-2 Policy Program; Professor at Columbia University; and
New York, NY 10032 President of Stephen L. Isaacs Associates, Consultants.
William L. Koke (61) Trustee Registered investment adviser and financial planner
73 Pointina Road with Shoreline Financial Consultants.
Westbrook, CT 06498
David L. Meister (56) Trustee Consultant to the communications industry since January
111 Marquez Place 1993; and Executive officer of Digital Planet Inc. from
Pacific Palisades, CA April 1991 to December 1992.
90272
Jack E. Fockler, Jr.* (37) Vice President Vice President (since August 1993) and senior associate
1414 Avenue of the of Quest, having been employed by Quest since October
Americas 1989; Vice President of the Trust or its predecessor, PMF
New York, NY 10019 (until June 1996), RVT and OTCM since April 1995; Vice
President of QDI since November 1995; and general partner
of QMC since July 1993.
</TABLE>
11
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<PAGE>
<TABLE>
<CAPTION>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
W. Whitney George* (37) Vice President Vice President (since August 1993) and senior analyst of
1414 Avenue of the Quest, having been employed by Quest since October 1991;
Americas Vice President of the Trust or its predecessor, PMF
New York, NY 10019 (until June 1996), RVT and OTCM since April 1995; and
general partner of QMC and its predecessor since January
1992.
Daniel A. O'Byrne* (34) Vice President Vice President of Quest since May 1994, having been
1414 Avenue of the and Assistant employed by Quest since October 1986; and Vice President
Americas Secretary of the Trust or its predecessor, PMF (until June 1996),
New York, NY 10019 RVT and OTCM since July 1994.
John E. Denneen* (29) Secretary Associate General Counsel and Chief Compliance Officer of
1414 Avenue of the Quest since May 1996; Secretary of the Trust, RVT and OTCM
Americas since June 1996; and Associate of Seward & Kissel from
New York, NY 10019 September 1992 to May 1996.
</TABLE>
- -------------------------------------------------------------------------------
*An "interested person" of the Trust and/or Quest under Section
2(a)(19) of the 1940 Act.
All of the Trust's trustees, other than Messr. Cafritz and Koke, are
also directors of RVT and OTCM.
The Board of Trustees has an Audit Committee, comprised of Hubert L.
Cafritz, Richard M. Galkin, Stephen L. Isaacs, William L. Koke and David L.
Meister. The Audit Committee is responsible for recommending the selection and
nomination of independent auditors of the Funds and for conducting post-audit
reviews of their financial conditions with such auditors.
For the year ended December 31, 1995, the following trustees received
compensation from the Trust's predecessor and/or the other funds in the group
of registered investment companies comprising The Royce Funds:
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Compensation Pension or Retirement Total Compensation
From Trust's Benefits Accrued As from The Royce Funds
Name Predecessor Part of Trust Expenses paid to Trustee/Directors
- ---- ------------ ---------------------- -------------------------
<S> <C> <C> <C>
Hubert L. Cafritz $ -0- N/A $17,500
Trustee
Richard M. Galkin, 17,500 N/A 60,000
Trustee
Stephen L. Isaacs, 17,500 N/A 60,000
Trustee
William L. Koke, -0- N/A 17,500
Trustee
David L. Meister, 17,500 N/A 60,000
Trustee
</TABLE>
PRINCIPAL HOLDERS OF SHARES
As of June 14, 1996, the following persons were known to the Trust to
be the record or beneficial owners of 5% or more of the outstanding shares of
certain of its Funds:
<TABLE>
<CAPTION>
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
- ---- --------- --------- ------------------
<S> <C> <C> <C>
Pennsylvania Mutual Fund
Laird Lorton Trust Company C/F 3,451,638 Record 5.0%
Administrative Systems Inc.
Norton Building, 16th Floor
801 Second Avenue
Seattle, WA 98104-1509
Charles Schwab & Co., Inc. 10,205,730 Record 15.0%
101 Montgomery Street
San Francisco, CA 94104
Royce Premier Fund
Charles Schwab & Co., Inc. 14,625,582 Record 39.1%
101 Montgomery Street
San Francisco, CA 94104
</TABLE>
13
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
- ---- --------- --------- ------------------
<S> <C> <C> <C>
Royce Micro-Cap Fund
National Financial 1,194,111 Record 7.5%
Services Corp.
8 Washington Street
Beverly, MA 01915
Donaldson Lufkin Jenrette 1,532,239 Record 9.6%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Charles Schwab & Co., Inc. 3,972,174 Record 24.9%
101 Montgomery Street
San Francisco, CA 94104
Royce Equity Income Fund
Charles Schwab & Co., Inc. 2,203,867 Record 35.7%
101 Montgomery Street
San Francisco, CA 94104
Royce Low-Priced Stock Fund
Andrew & Company 119,044 Record 6.3%
C/O Chase Manhattan Bank NA
1211 Avenue of the Americas
New York, NY 10036
Charles Schwab & Co., Inc. 468,288 Record 24.8%
101 Montgomery Street
San Francisco, CA 94104
Quest Management Company 236,720 Beneficial 12.5%
8 Soundshore Drive
Greenwich, CT 06830
Fleet National Bank, 191,615 Record 10.1%
Custodian
FBO Brown University
One East Avenue
Rochester, NY 14638
</TABLE>
14
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
- ---- --------- --------- ------------------
<S> <C> <C> <C>
National Financial 211,530 Record 11.2%
Services Corp.
One World Financial Center
200 Liberty Street
New York, NY 10281
Daniel A. O'Byrne, Trustee 129,435 Beneficial 6.8%
Quest Advisory Corp. (Voting Power)
Money Purchase Pension Plan
1414 Avenue of the Americas
New York, NY 1001
Royce GiftShares Fund
W Whitney George Trustee 100,200 Record 95.8%
The Royce 1992 GST Trust
1414 Avenue of the Americas
New York, NY 10019
Royce Total Return Fund
Fleet National Bank, 63,980 Record 11.5%
Custodian
FBO Brown University
One East Avenue
Rochester, NY 14638
James M. Novak 83,827 Record 15.1%
Mark Stadler Trustees
Cindrich & Titus Profit
Sharing Plan
200 Gateway Center
Pittsburgh, PA 15222
State Street Bank & Trust Co. 80,798 Record 14.5%
Custodian for IRA of
Becky L. O'Connor
10 St. James Place
Pittsburgh, PA 15215
Charles M. Royce, Trustee 49,324 Record 8.9%
N. Holmes Clare Trust
FBO Barbara K. Clare
1414 Avenue of the Americas
New York, NY 10019
</TABLE>
15
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
National City Bank 118,649 Record 21.4%
FBO Scott F. Zimmerman
P.O. Box 94777
Cleveland, OH 44101
Harold Reed, Trustee 35,320 Record 6.3%
Reed, Luce, Tosh & McGregor
Salary Red. Profit Sharing Plan
804 Turnpike Street
Beaver, PA 15009
State Street Bank & Trust Co 27,995 Record 5.0%
Custodian for IRA of
David Reese
528 N. Maple Ave.
Greensburg, PA 15601
Royce Global Services Fund
Charles M. Royce 80,414 Beneficial 24.8%
Quest Advisory Corp. Money (Voting Power)
Purchase Pension Plan
1414 Avenue of the Americas
New York, NY 10019
Charles M. Royce 108,208 Beneficial 33.4%
1414 Avenue of the Americas
New York, NY 10019
Integra Trust Company 47,391 Beneficial 14.6%
National Assn.
300 Fourth Avenue
Pittsburgh, PA 15278
Bruce Museum Inc. 43,213 Beneficial 13.3%
Museum Drive
Greenwich, CT 06830
</TABLE>
As of June 14, 1996, all of the trustees and officers of the Trust as a
group beneficially owned less than 1% of the outstanding shares of each of
Pennsylvania Mutual, Royce Premier, Royce Micro-Cap, Royce Equity Income and
Royce Value Funds, approximately 28.6% of the outstanding shares of Royce
Low-Priced Stock Fund, approximately 95.8% of the outstanding shares of Royce
GiftShares Fund, approximately 2.0% of the outstanding shares of Royce Total
Return Fund, and approximately 57.8% of the outstanding shares of Royce Global
Services Fund.
16
<PAGE>
<PAGE>
INVESTMENT ADVISORY SERVICES
SERVICES PROVIDED BY QUEST
As compensation for its services under the Investment Advisory
Agreements with the Funds, Quest is entitled to receive the following fees:
<TABLE>
<CAPTION>
Percentage Per Annum
Fund of Fund's Average Net Assets
---- ----------------------------
<S> <C>
Pennsylvania Mutual Fund 1.00% of first $50,000,000,
.875% of next $50,000,000 and
.75% of any additional average net assets
Royce Premier Fund 1.00%
Royce Micro-Cap Fund 1.50%
Royce Equity Income Fund 1.00%
Royce Low-Priced Stock Fund 1.50%
Royce GiftShares Fund 1.25%
Royce Value Fund 1.00% of first $50,000,000,
.875% of next $50,000,000 and
.75% of any additional average net assets
Royce Total Return Fund 1.00%
Royce Global Services Fund 1.50%
</TABLE>
Such fees, which are payable monthly from the assets of the Fund involved, are
higher (substantially higher, in the case of Royce Micro-Cap, Low-Priced Stock,
GiftShares and Global Services Funds) than those paid by most other mutual funds
with similar investment objectives.
Under the Investment Advisory Agreements, Quest (i) determines the
composition of each Fund's portfolio, the nature and timing of the changes in it
and the manner of implementing such changes, subject to any directions it may
receive from the Trust's Board of Trustees; (ii) provides each Fund with
investment advisory, research and related services for the investment of its
funds; (iii) furnishes, without expense to the Trust, the services of certain of
its executive officers and full-time employees; and (iv) pays such persons'
salaries and executive expenses and all expenses incurred in performing its
investment advisory duties under the Investment Advisory Agreements.
The Trust pays all administrative and other costs and expenses
attributable to its operations and transactions, including, without limitation,
transfer agent and custodian fees; legal, administrative and clerical services;
rent for its office space and facilities; auditing; preparation, printing and
distribution of its prospectuses, proxy statements, shareholders reports and
notices; supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non-affiliated trustees' fees; and brokerage commissions.
17
<PAGE>
<PAGE>
For each of the three years ended December 31, 1993, 1994 and 1995, as
applicable, Quest received advisory fees from the Funds (net of any amounts
waived by Quest) and waived advisory fees payable to it, as follows:
<TABLE>
<CAPTION>
Net Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
Pennsylvania Mutual Fund
<S> <C> <C>
1993 $ 8,172,494 -
1994 6,831,793 -
1995 5,361,35 $88,173
Royce Premier Fund
1993 $124,020 $8,461
1994 1,400,394 -
1995 2,603,445 6,279
Royce Micro-Cap Fund
1993 $83,095 $19,063
1994 295,148 20,330
1995 804,905 14,047
Royce Equity Income Fund
1993 $488,816 $229,166
1994 820,662 53,626
1995 598,783 57,030
Royce Low-Priced Stock Fund
1993* $0 $294
1994 0 15,727
1995 6,174 31,425
Royce GiftShares Fund
1995** $0 $86
Royce Value Fund
1993 $1,568,398 -
1994 1,503,696 -
1995 1,424,451 16,222
</TABLE>
- ------
* December 15, 1993 (commencement of operations) to December 31, 1993
** December 27, 1995 (commencement of operations) to December 31, 1995
*** December 15, 1994 (commencement of operations) to December 31, 1994
18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Net Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
Royce Total Return Fund
<S> <C> <C>
1993* $0 $294
1994 0 10,506
1995 12,027 9,947
Royce Global Services Fund
1994*** $0 $367
1995 0 20,261
</TABLE>
- -------
* December 15, 1993 (commencement of operations) to December 31, 1993
*** December 15, 1994 (commencement of operations) to December 31, 1994
PORTFOLIO MANAGEMENT
The Funds' portfolios and the portfolios of Quest's other accounts are
managed by Quest's senior investment staff, including Charles M. Royce, Quest's
Chief Investment Officer, who is primarily responsible for supervising its
investment management activities. Mr. Royce is assisted by Jack E. Fockler, Jr.
and W. Whitney George, Vice Presidents of Quest, both of whom participate in
such activities, with their specific responsibilities varying from time to time.
In the event of any significant change in Quest's senior investment staff, the
members of the Trust's Board of Trustees who are not interested persons of the
Trust will consider what action, if any, should be taken in connection with the
Funds' management arrangements.
Certain information concerning Messrs. Royce, Fockler and George is set
forth above under "MANAGEMENT OF THE TRUST".
LIMITATION ON FUND EXPENSES
Quest has agreed, in connection with the Trust's qualification of
shares of each Fund for sale in California, to reduce its investment advisory
fee for each Fund monthly to the extent that such Fund's "aggregate annual
expenses" (as defined) exceed 2 1/2% of the first $30 million, 2% of the next
$70 million and 1 1/2% of any remaining average net assets of such Fund for any
fiscal year. All or a portion of the distribution fee payable to QDI may be
excludable from such "aggregate annual expenses".
19
<PAGE>
<PAGE>
DISTRIBUTOR
QDI, the distributor of the shares of each Fund, has its principal
office at 1414 Avenue of the Americas, New York, New York 10019. It was
organized in November 1982 and is a member of the National Association of
Securities Dealers, Inc. ("NASD").
As compensation for its services and for the expenses payable by it
under the Distribution Agreement with the Trust, QDI is entitled to receive, for
and from the assets of the Fund involved, a monthly fee equal to 1% per annum
(consisting of an asset-based sales charge of .75% and a personal service and/or
account maintenance fee of .25%) of Royce Value Fund's average net assets and
.25% per annum (consisting of an asset-based sales charge) of Royce Low-Priced
Stock, Total Return and Global Services Funds' respective average net assets.
Except to the extent that they may be waived by QDI, these fees are not subject
to any required reductions and, in the case of Royce Value Fund, are higher than
the fees paid by most other mutual funds which use their own assets to promote
the sale of their shares. QDI is also entitled to receive the proceeds of any
front-end sales loads that may be imposed on purchases of shares of Royce Value
Fund and of any contingent deferred sales charges that may be imposed on
redemptions of such Fund's shares. The Distribution Agreement does not cover
Pennsylvania Mutual, Royce Premier, Micro-Cap, Equity Income and GiftShares
Funds.
Under the Distribution Agreement, QDI (i) seeks to promote the sale
and/or continued holding of shares of such Funds through a variety of
activities, including advertising, direct marketing and servicing investors and
introducing parties on an on-going basis; (ii) pays sales commissions and other
fees to those broker-dealers, investment advisers and others (excluding banks)
who have introduced investors to such Funds (which commissions and other fees
may or may not be the same amount as or otherwise comparable to the distribution
fees payable to QDI); (iii) pays the cost of preparing, printing and
distributing any advertising or sales literature and the cost of printing and
mailing the Funds' prospectuses to persons other than shareholders of the Funds;
and (iv) pays all other expenses incurred by it in promoting the sale and/or
continued holding of the shares of such Funds and in rendering such services
under the Distribution Agreement. The Trust bears the expense of registering its
shares with the Securities and Exchange Commission and the cost of qualifying
and maintaining the qualification of its shares for sale under the securities
laws of the various states.
The Trust entered into the Distribution Agreement with QDI pursuant to
a Distribution Plan which, among other things, permits each Fund that remains
covered by the Plan to pay the monthly distribution fee out of its net assets.
As required by Rule 12b-1 under the 1940 Act, the Plan has been approved by the
shareholders of each Fund that remains covered by the Plan and by the Trust's
Board of Trustees (which also approved the Distribution Agreement pursuant to
which the distribution fees are paid), including a majority of the Trustees who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or the Distribution Agreement.
In approving the Plan, the Trustees, in accordance with the
requirements of Rule 12b-1, considered various factors (including the amount of
the distribution fees) and determined that there is a reasonable likelihood that
the Plan will benefit each Fund and its shareholders.
The Plan may be terminated as to any Fund by vote of a majority of the
non-interested Trustees who have no direct or indirect financial interest in the
Plan or in the Distribution Agreement or by vote
20
<PAGE>
<PAGE>
of a majority of the outstanding voting securities of such Fund. Any change in
the Plan that would materially increase the distribution cost to a Fund requires
approval by the shareholders of such Fund; otherwise, the Plan may be amended by
the Trustees, including a majority of the non-interested Trustees, as described
above.
The Distribution Agreement may be terminated as to any Fund at any time
on 60 days' written notice and without payment of any penalty, by QDI, by the
vote of a majority of the outstanding voting securities of such Fund or by the
vote of a majority of the Trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto.
The Distribution Agreement and the Plan, if not sooner terminated in
accordance with their terms, will continue in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by the
vote of a majority of the Trustees who are not parties to the Agreement or
interested persons of any such party and who have no direct or indirect
financial interest in the Plan or the Agreement and (ii) either by the vote of a
majority of the outstanding voting securities of the Fund involved or by the
vote of a majority of the entire Board of Trustees.
While the Plan is in effect, the selection and nomination of those
Trustees who are not interested persons of the Trust will be committed to the
discretion of the Trustees who are not interested persons.
The Board of Trustees has adopted resolutions pursuant to which the
proceeds of all contingent deferred sales charges for redeemed shares of Royce
Value Fund received from January 1, 1990 through April 7, 1994 (when the
contingent deferred sales charge was terminated) will be held in separate
reserve accounts for the year involved, to be spent by QDI only upon the
approval of the Board of Trustees for the specific purposes set forth in the
Plan. If the proceeds received in a particular year have not been spent within
the four year period following the close of the year in which they were
received, the proceeds are to be paid by QDI to Royce Value Fund, the
shareholders of which bore such contingent deferred sales charges. See Note 2 of
Notes to Financial Statements of Royce Value Fund contained in such Fund's
Annual Report to Shareholders for the year ended December 31, 1995.
21
<PAGE>
<PAGE>
For the year ended December 31, 1995, Royce Value Fund paid
distribution fees to QDI of $1,052,321 (net of $619,074 waived by QDI -- 1% of
its average net assets during such year before giving effect to such waiver and
0.63% of its average net assets after giving effect to such waiver). QDI spent
the distribution fees paid to it by and the proceeds of contingent deferred
sales charges released to it for Royce Value Fund during 1995 in the following
manner:
<TABLE>
<S> <C>
(I) Promotion, literature and advertising $ 23,319
(ii) Printing and mailing of prospectuses 3,593
to other than current shareholders
(iii) Compensation paid or to be paid to introducing 1,085,257
brokers, investment advisers and others
(iv) Registration fees, accounting and legal 11,560
(v) Administration and other 34,709
----------
Total $1,158,438
----------
</TABLE>
As of January 1, 1995, $186,732 was held by QDI in such separate
reserve accounts for Royce Value Fund, and $101,437 was released to QDI from
such reserve accounts for Royce Value Fund during the year ended December 31,
1995. Thus, as of January 1, 1996, $85,295 was held by QDI in such reserve
accounts for Royce Value Fund.
QDI has temporarily waived the distribution fees payable to it by Royce
Low-Priced Stock, Total Return and Global Services Funds.
No trustee of the Trust who was not an interested person of the Trust
had any direct or indirect financial interest in the operation of the Plan or
the Distribution Agreement. Charles M. Royce, an interested person of the Trust,
Quest and QDI, had such an interest.
The benefits to Royce Value Fund included the receipt of net proceeds
of $5,233,818 from sales of its shares during the fiscal year ended December 31,
1995. The value of shares redeemed by such Fund during such year aggregated
$33,282,011.
Under the Rules of Fair Practice of the NASD, the front-end sales
loads, asset-based sales charges and contingent deferred sales charges payable
by any Fund and/or the shareholders thereof to QDI are limited to (i) 6.25% of
total new gross sales occurring after July 7, 1993 plus interest charges on such
amount at the prime rate plus 1% per annum, increased by (ii) 6.25% of total new
gross sales occurring after such Fund first adopted the Plan until July 7, 1993
plus interest charges on such amount at the prime rate plus 1% per annum less
any front-end, asset-based or deferred sales charges on such sales or net assets
resulting from such sales.
22
<PAGE>
<PAGE>
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the custodian
for the securities, cash and other assets of each Fund and the transfer agent
and dividend disbursing agent for the shares of each Fund, but it does not
participate in any Fund's investment decisions. The Trust has authorized State
Street to deposit certain domestic and foreign portfolio securities in several
central depository systems and to use foreign sub-custodians for certain foreign
portfolio securities, as allowed by Federal law. State Street's main office is
at 225 Franklin Street, Boston, Massachusetts 02107. All mutual fund transfer,
dividend disbursing and shareholder service activities are performed by State
Street's agent, National Financial Data Services, at 1004 Baltimore, Kansas
City, Missouri 64105.
State Street is responsible for the calculation of each Fund's daily
net asset value per share and for the maintenance of its portfolio and general
accounting records and also provides certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post Office Square,
Boston, Massachusetts 02109, are the independent accountants of the Trust.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect the purchases
and sales of each Fund's portfolio securities. No broker is selected to effect a
securities transaction for a Fund unless such broker is believed by Quest to be
capable of obtaining the best price and execution for the security involved in
the transaction. In addition to considering a broker's execution capability,
Quest generally considers the brokerage and research services which the broker
has provided to it, including any research relating to the security involved in
the transaction and/or to other securities. Such services may include general
economic research, market and statistical information, industry and technical
research, strategy and company research, and may be written or oral. Quest
determines the overall reasonableness of brokerage commissions paid, after
considering the amount another broker might have charged for effecting the
transaction and the value placed by Quest upon the brokerage and/or research
services provided by such broker, viewed in terms of either that particular
transaction or Quest's overall responsibilities with respect to its accounts.
Quest is authorized, under Section 28(e) of the Securities Exchange Act
of 1934 and under its Investment Advisory Agreements with the Trust, to pay a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction, in recognition of the value of brokerage and
research services provided by the broker.
Brokerage and research services furnished by brokers through whom a
Fund effects securities transactions may be used by Quest in servicing all of
its accounts and those of QMC, and not all of such services may be used by Quest
in connection with the Trust or any one of its Funds.
23
<PAGE>
<PAGE>
Quest may also place a Fund's brokerage business with firms which
promote the sale of the Funds' shares, consistent with achieving the best price
and execution. In no event will a Fund's brokerage business be placed with QDI.
Even though investment decisions for each Fund are made independently
from those for the other Funds and the other accounts managed by Quest and QMC,
securities of the same issuer are frequently purchased, held or sold by more
than one Quest/QMC account because the same security may be suitable for all of
them. When the same security is being purchased or sold for more than one
Quest/QMC account on the same trading day, Quest seeks to average the
transactions as to price and allocate them as to amount in a manner believed to
be equitable to each. Such purchases and sales of the same security are
generally effected pursuant to Quest/QMC's Trade Allocation Guidelines and
Procedures. Under such Guidelines and Procedures, unallocated orders are placed
with and executed by broker-dealers during the trading day. The securities
purchased or sold in such transactions are then allocated to one or more of
Quest's and QMC's accounts at or shortly following the close of trading, using
the average net price obtained. Such allocations are done based on a number of
judgmental factors that Quest and QMC believe should result in fair and
equitable treatment to those of their accounts for which the securities may be
deemed suitable. In some cases, this procedure may adversely affect the price
paid or received by a Fund or the size of the position obtained for a Fund.
During each of the three years ended December 31, 1993, 1994 and 1995,
the Funds paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Pennsylvania Mutual Fund $594,831 $797,686 $683,334
Royce Premier Fund 87,723 465,986 419,040
Royce Micro-Cap Fund 39,013 41,497 117,909
Royce Equity Income Fund 283,374 218,843 119,097
Royce Low-Priced Stock Fund 632* 12,946 22,645
Royce GiftShares Fund - - 760**
Royce Value Fund $123,987 $138,437 $114,296
Royce Total Return Fund 0* 6,231 6,117
Royce Global Services Fund - 382*** 6,199
</TABLE>
- -----------------
* For the period from December 15, 1993 (commencement of operations) to
December 31, 1993.
** For the period from December 27, 1995 (commencement of operations) to
December 31, 1995.
***For the period from December 15, 1994 (commencement of operations) to
December 31, 1994.
For the year ended December 31, 1995, the aggregate amount of brokerage
transactions of each Fund having a research component and the amount of
commissions paid by each Fund for
24
<PAGE>
<PAGE>
such transactions were as follows:
<TABLE>
<CAPTION>
Aggregate Amount of
Brokerage Transactions Commissions Paid
Fund Having a Research Component For Such Transactions
- ---- --------------------------- ---------------------
<S> <C> <C>
Pennsylvania Mutual Fund $160,117,031 $531,498
Royce Premier Fund 109,101,274 315,291
Royce Micro-Cap Fund 9,698,494 45,514
Royce Equity Income Fund 23,176,764 83,276
Royce Low-Priced Stock Fund 1,558,238 12,149
Royce GiftShares Fund* 61,901 294
Royce Value Fund 30,609,149 91,719
Royce Total Return Fund 49,918 4,102
Royce Global Services Fund 1,314,585 4,123
</TABLE>
- -----------------
* For the period from December 27, 1995 (commencement of operations) to December
31, 1995.
During the year ended December 31, 1995, Royce Global Services Fund
purchased and sold securities of Merrill Lynch & Co., Inc., the parent of one of
its "regular brokers" (as such term is defined in Rule 10b-1 under the 1940
Act).
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI, QMC and The Royce Funds have adopted a Code of Ethics
under which directors, officers, employees and partners of Quest, QDI and QMC
("Quest-related persons") and interested trustees/directors, officers and
employees of The Royce Funds are prohibited from personal trading in any
security which is then being purchased or sold or considered for purchase or
sale by a Royce Fund or any other Quest or QMC account. Such persons are
permitted to engage in other personal securities transactions if (i) the
securities involved are United States Government debt securities, municipal debt
securities, money market instruments, shares of affiliated or non-affiliated
registered open-end investment companies or shares acquired from an issuer in a
rights offering or under an automatic dividend reinvestment or
employer-sponsored automatic payroll-reduction cash purchase plan or (ii) they
first obtain permission to trade from Quest's Compliance Officer and an
executive officer of Quest. The Code contains standards for the granting of
such permission, and it is expected that permission to trade will be granted
only in a limited number of instances.
Quest's and QMC's clients include several private investment companies
in which Quest or QMC has (and, therefore, Charles M. Royce, Jack E. Fockler,
Jr. and/or W. Whitney George may be deemed to beneficially own) a share of up to
15% of the company's realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests. The Code of
Ethics does not restrict transactions effected by Quest or QMC for such private
investment company accounts. Transactions for such private investment company
accounts are subject to Quest's and QMC's allocation policies and procedures.
See "Portfolio Transactions".
25
<PAGE>
<PAGE>
As of December 31, 1995, Quest-related persons, interested
trustees/directors, officers and employees of The Royce Funds and members of
their immediate families beneficially owned shares of The Royce Funds having a
total value of approximately $16.3 million, and Quest's and QMC's equity
interests in such private investment companies totalled approximately $4.7
million.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of each Fund's shares is based on the
Fund's current net asset value per share. See "Net Asset Value Per Share" in the
Funds' Prospectuses.
As set forth under "Net Asset Value Per Share", the Funds' custodian
determines the net asset value per share of each Fund at the close of regular
trading on the New York Stock Exchange on each day that the Exchange is open.
The Exchange is open on all weekdays which are not holidays. Thus, it is closed
on Saturdays and Sundays and on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which would, in
the judgment of the Board of Trustees or management, make it undesirable for a
Fund to pay for all redemptions in cash. In such cases, payment may be made in
portfolio securities or other property of the Fund. However, the Trust has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Trust's net
assets if that is less) in any 90-day period. Securities delivered in payment of
redemptions would be selected by Quest and valued at the same value assigned to
them in computing the net asset value per share for purposes of such redemption.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
TAXATION
Each Fund (except Royce GiftShares) has qualified and intends to remain
qualified, and Royce GiftShares Fund intends to qualify and to remain qualified,
each year for the tax treatment applicable to a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To so qualify, a Fund must comply with certain requirements of the Code
relating to, among other things, the source of its income and the
diversification of its assets.
By so qualifying, a Fund will not be subject to Federal income taxes to
the extent that its net investment income and capital gain net income are
distributed, so long as the Fund distributes, as ordinary income dividends, at
least 90% of its investment company taxable income.
A non-deductible 4% excise tax will be imposed on a Fund to the extent
that the Fund does not distribute (including by declaration of certain
dividends), during each calendar year, (i) 98% of its ordinary income for such
calendar year, (ii) 98% of its capital gain net income for the one-year period
ending October 31 of such calendar year and (iii) certain other amounts not
distributed in previous years. To avoid the application of this tax, each Fund
intends to distribute substantially all of its net investment income and capital
gain net income at least annually to its shareholders.
26
<PAGE>
<PAGE>
Each Fund will maintain accounts and calculate income by reference to
the U.S. dollar for U.S. Federal income tax purposes. Investments calculated by
reference to foreign currencies will not necessarily correspond to a Fund's
distributable income and capital gains for U.S. Federal income tax purposes as a
result of fluctuations in foreign currency exchange rates. Furthermore, if any
exchange control regulations were to apply to a Fund's investments in foreign
securities, such regulations could restrict that Fund's ability to repatriate
investment income or the proceeds of sales of securities, which may limit the
Fund's ability to make sufficient distributions to satisfy the 90% distribution
requirement and avoid the 4% excise tax.
Income earned or received by a Fund from investments in foreign
securities may be subject to foreign withholding taxes unless a withholding
exemption is provided under an applicable treaty. Any such taxes would reduce
that Fund's cash available for distribution to shareholders. It is currently
anticipated that none of the Funds will be eligible to elect to "pass through"
such taxes to their shareholders for purposes of enabling them to claim foreign
tax credits or other U.S. income tax benefits with respect to such taxes.
If a Fund invests in stock of a so-called passive foreign investment
company ("PFIC"), such Fund may be subject to Federal income tax on a portion of
any "excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The amount so
allocated to any taxable year of the Fund prior to the taxable year in which the
excess distribution or disposition occurs would be taxed to the Fund at the
highest marginal income tax rate in effect for such years, and the tax would be
further increased by an interest charge. The amount allocated to the taxable
year of the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be taxable to the
Fund to the extent distributed by the Fund as a dividend to shareholders. In
lieu of being taxable in the manner described above, such Fund may be able to
elect to include annually in income its pro rata share of the ordinary earnings
and net capital gain (whether or not distributed) of the PFIC. In order to make
this election, the Fund would be required to obtain annual information from the
PFICs in which it invests, which in many cases may be difficult to obtain.
Alternatively, if eligible, the Fund may be able to elect to mark to market its
PFIC stock, resulting in the stock being treated as sold at fair market value on
the last business day of each taxable year. Any resulting gain would be reported
as ordinary income, and any resulting loss would not be recognized.
Investments of a Fund in securities issued at a discount or providing
for deferred interest payments or payments of interest in kind (which investment
are subject to special tax rules under the Code) will affect the amount, timing
and character of distributions to shareholders. For example, a Fund which
acquires securities issued at a discount will be required to accrue as ordinary
income each year a portion of the discount (even though the Fund may not have
received cash interest payments equal to the amount included in income) and to
distribute such income each year in order to maintain its qualification as a
regulated investment company and to avoid income and excise taxes. In order to
generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
27
<PAGE>
<PAGE>
DISTRIBUTIONS
For Federal income tax purposes, distributions by each Fund from net
investment income and from any net realized short-term capital gain are taxable
to shareholders as ordinary income, whether received in cash or reinvested in
additional shares. Ordinary income generally cannot be offset by capital losses.
For corporate shareholders, distributions of net investment income (but not
distributions of short-term capital gains) may qualify in part for the 70%
dividends received deduction for purposes of determining their regular taxable
income. (However, the 70% dividends received deduction is not allowable in
determining a corporate shareholder's alternative minimum taxable income.) The
amount qualifying for the dividends received deduction generally will be limited
to the aggregate dividends received by the Fund from domestic corporations. The
dividends received deduction for corporate shareholders may be further reduced
or eliminated if the shares with respect to which dividends are received by the
Fund are treated as debt-financed or are deemed to have been held for fewer than
46 days, or under other generally applicable statutory limitations.
So long as a Fund qualifies as a regulated investment company and
satisfies the 90% distribution requirement, distributions by such Fund from net
capital gains will be taxable as long-term capital gains, whether received in
cash or reinvested in shares and regardless of how long a shareholder has held
his or its Fund shares. Such distributions are not eligible for the dividends
received deduction. Long-term capital gains of non-corporate shareholders,
although fully includable in income, currently are taxed at a lower maximum
marginal Federal income tax rate than ordinary income.
Distributions by a Fund in excess of its current and accumulated
earnings and profits will reduce a shareholder's basis in Fund shares (but, to
that extent, will not be taxable) and, to the extent such distributions exceed
the shareholder's basis, will be taxable as capital gain assuming the
shareholder holds Fund shares as capital assets.
A distribution will be treated as paid during a calendar year if it is
declared in October, November or December of the year to shareholders of record
in such month and paid by January 31 of the following year. Such distributions
will be taxable to such shareholders as if received by them on December 31, even
if not paid to them until January. In addition, certain other distributions made
after the close of a taxable year of a Fund may be "spilled back" and treated as
paid by the Fund (other than for purposes of avoiding the 4% excise tax) during
such year. Such dividends would be taxable to the shareholders in the taxable
year in which the distribution was actually made by the Fund.
The Trust will send written notices to shareholders regarding the
amount and Federal income tax status as ordinary income or capital gain of all
distributions made during each calendar year.
BACK-UP WITHHOLDING/WITHHOLDING TAX
Under the Code, certain non-corporate shareholders may be subject to
31% withholding on reportable dividends, capital gains distributions and
redemption payments ("back-up withholding"). Generally, shareholders subject to
back-up withholding will be those for whom a taxpayer identification number and
certain required certifications are not on file with the Trust or who, to the
Trust's knowledge, have furnished an incorrect number. In addition, the Trust is
required to withhold from
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distributions to any shareholder who does not certify to the Trust that such
shareholder is not subject to back-up withholding due to notification by the
Internal Revenue Service that such shareholder has under-reported interest or
dividend income. When establishing an account, an investor must certify under
penalties of perjury that such investor's taxpayer identification number is
correct and that such investor is not subject to or is exempt from back-up
withholding.
Ordinary income distributions paid to shareholders who are non-resident
aliens or which are foreign entities will be subject to 30% United States
withholding tax unless a reduced rate of withholding or a withholding exemption
is provided under an applicable treaty. Non-U.S. shareholders are urged to
consult their own tax advisers concerning the United States tax consequences to
them of investing in a Fund.
TIMING OF PURCHASES AND DISTRIBUTIONS
At the time of an investor's purchase, a Fund's net asset value may
reflect undistributed income or capital gains or net unrealized appreciation of
securities held by the Fund. A subsequent distribution to the investor of such
amounts, although it may in effect constitute a return of his or its investment
in an economic sense, would be taxable to the shareholder as ordinary income or
capital gain as described above. Investors should carefully consider the tax
consequences of purchasing Fund shares just prior to a distribution as they will
receive a distribution that is taxable to them.
SALES OR REDEMPTIONS OF SHARES
Gain or loss recognized by a shareholder upon the sale, redemption or
other taxable disposition of Fund shares (provided that such shares are held by
the shareholder as a capital asset) will be treated as capital gain or loss,
measured by the difference between the adjusted basis of the shares and the
amount realized on the sale or exchange. Such gain or loss will be long-term
capital gain or loss if the shares disposed of were held for more than one year.
A loss will be disallowed to the extent that the shares disposed of are replaced
(including by receiving shares upon the reinvestment of distributions) within a
period of 61 days, beginning 30 days before and ending 30 days after the sale of
the shares. In such a case, the basis of the shares acquired will be increased
to reflect the disallowed loss. A loss recognized upon the sale, redemption or
other taxable disposition of shares held for 6 months or less will be treated as
a long-term capital loss to the extent of any long-term capital gain
distributions received with respect to such shares.
* * *
The foregoing relates to Federal income taxation. Distributions, as
well as any gains from a sale, redemption or other taxable disposition of Fund
shares, also may be subject to state and local taxes. Under current law, so long
as each Fund qualifies for the Federal income tax treatment described above, it
is believed that neither the Trust nor any Fund will be liable for any income or
franchise tax imposed by Delaware.
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Investors are urged to consult their own tax advisers regarding the
application to them of Federal, state and local tax laws.
ROYCE GIFTSHARES FUND
GIFT TAXES
An investment in Royce GiftShares Fund may be a taxable gift for
Federal tax purposes, depending upon the options selected and other gifts that
the Donor and his or her spouse may make during the year.
If the Donor selects the Withdrawal Option, the entire amount of the
gift will be a "present interest" that qualifies for the Federal annual gift tax
exclusion. In that case, the Donor will be required to file a Federal gift tax
return for the year of the gift only if he or she makes gifts (including the
gift of Fund shares and any gifts by his or her spouse treated as made by him or
her) totaling more than $10,000 to the same individual during that year or if he
or she makes any gift of a future interest during that year. The Trustee will
notify the Beneficiary of his or her right of withdrawal promptly following any
investment in the Fund under the Withdrawal Option.
If the Donor selects the Accumulation Option, the entire amount of the
gift will be a "future interest" for Federal gift tax purposes, so that none of
the gift will qualify for the Federal annual gift tax exclusion (currently,
$10,000). Consequently, the Donor will have to file a Federal gift tax return
IRS (Form 709) reporting the entire amount of the gift, even if the gift is less
than $10,000.
If the Donor selects the Split Option, the portion of the gift
representing the Beneficiary's income interest will be a "present interest" that
will qualify for the Federal annual gift tax exclusion, and the balance will be
a "future interest" that will not so qualify. The value of the income interest
is the present value of the Beneficiary's right to receive the Trust income for
the 40 year term of this Trust (without regard to the possibility that the Trust
may be terminated sooner) or until the Beneficiary's earlier death, using
actuarial tables and interest rate assumptions prescribed by the Internal
Revenue Service in effect on the date of the gift. Using the assumptions
currently in effect, the income interest portion of Royce GiftShares Fund Trusts
using the Split Option and created for Beneficiaries aged 15, 20, 25, 30 and 35
would be 92.8%, 92.4%, 91.9%, 91.0% and 89.5%, respectively. Nevertheless, the
Donor will have to file a Federal gift tax return reporting the gift and
identifying the portion that does not represent a present interest, no matter
how small. The Donor should consult with his or her tax adviser to determine the
manner in which the gift must be reported for Federal gift tax purposes.
No Federal gift tax will be payable by the Donor until his or her
cumulative taxable gifts (i.e., gifts other than those qualifying for the annual
exclusion or other exclusions) exceed the Federal gift and estate tax exclusion
equivalent amount (currently, $600,000). Any gift of Fund shares that does not
qualify as a present interest will reduce the amount of the Federal gift and
estate tax exemption that would otherwise be available for future gifts or to
the Donor's estate. All gifts of Fund shares qualify for "gift splitting" with
the Donor's spouse, meaning that the Donor and his or her spouse may elect to
treat the gift as having been made one-half by each of them.
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The Donor's gift of Fund shares may also have to be reported for state
gift tax purposes, if the state in which the Donor resides imposes a gift tax.
Many states do not impose such a tax. Some do follow the Federal rules
concerning the types of transfers subject to tax and the availability of the
annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the Beneficiary of a gift of Royce GiftShares Fund shares is a
grandchild or more remote descendant of the Donor or is assigned, under Federal
tax law, to the generation level of the Donor's grandchildren or more remote
descendants, any part of the gift that does not qualify for the Federal annual
gift tax exclusion will be a taxable transfer for purposes of the Federal
generation-skipping transfer tax ("GST tax"). The Donor may protect these gifts
from the GST tax by allocating his or her GST exemption until his or her
cumulative gifts (other than certain gifts qualifying for the annual exclusion
or other exclusions) to individuals assigned, under Federal tax law, to the
generation level of the Donor's grandchildren or more remote descendants exceed
the GST tax exemption (currently, $1,000,000). The tax rate on transfers subject
to GST tax is the maximum Federal estate tax rate (currently, 55%). Gifts
subject to GST tax, whether or not covered by the GST tax exemption, must be
reported on the Donor's Federal gift tax return. Whether, and the extent to
which, an investment in Royce GiftShares Fund will qualify for the Federal
annual gift tax exclusion will depend upon the options selected and other gifts
that the Donor and his or her spouse may have made during the year. See "Gift
Taxes" above.
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INCOME TAXES
The Internal Revenue Service has taken the position in recent rulings
that a trust beneficiary who is given a power of withdrawal over contributions
to the trust should be treated as the "owner" of the portion of the trust that
was subject to the power for Federal income tax purposes. Accordingly, if the
Donor selects the Withdrawal Option, the Beneficiary may be treated as the
"owner" of all of the Fund shares in the account for Federal income tax
purposes, and will be required to report all of the income and capital gains
earned in the Trust on his or her personal Federal income tax return. The Trust
will not pay Federal income taxes on any of the Trust's income or capital gains,
and the "throwback rules" of the Code will not apply when the Trust terminates.
The Trustee will prepare and file the Federal income tax information returns
that are required each year (and any state income tax returns that may be
required), and will send the Beneficiary a statement following each year showing
the amounts (if any) that the Beneficiary must report on his or her income tax
returns for that year. If the Beneficiary is under fourteen years of age, these
amounts may be subject to Federal income taxation at the marginal rate
applicable to the Beneficiary's parents. The Beneficiary will have the option to
require the Trustee to pay him or her a portion of the Trust's income and
capital gains annually to provide funds with which to pay any resulting income
taxes, which the Trustee will do by redeeming Fund shares. The amount
distributed will be a fraction of the Trust's ordinary income and short-term
capital gains and the Trust's long-term capital gains equal to the highest
marginal Federal income tax rate imposed on each type of income (currently,
39.6% and 28%, respectively). If the Beneficiary selects this option, he or she
will receive those fractions of his or her Trust's income and capital gains
annually for the duration of the Trust.
Under the Withdrawal Option, the Beneficiary will also be able to
require the Trustee to pay his or her tuition, room and board and other expenses
of his or her college or post-graduate education, and the Trustee will raise the
cash necessary to fund these distributions by redeeming Fund shares. Any such
redemption will result in the realization of capital gain or loss on the shares
redeemed, which will be reportable by the Beneficiary on his or her income tax
returns for the year in which the shares are redeemed, as described above.
If the Donor selects the Accumulation Option, the Trust that he or she
creates will be subject to Federal income tax on all income and capital gains
earned by the Trust, less a $100 annual exemption (in lieu of the personal
exemption allowed to individuals). The amount of the tax will be determined
under the tax rate schedule applicable to estates and trusts, which is more
sharply graduated than the rate schedule for individuals, reaching the same
maximum marginal rate for ordinary income (currently, 39.6%), but at a much
lower taxable income level (for 1996, $7,900) than would apply to an individual.
It is anticipated, however, that most of the income generated by Fund shares
will be long-term capital gains, on which the Federal income tax rate is
currently limited to 28 %. The Trustee will raise the cash necessary to pay any
Federal or state income taxes by redeeming Fund shares. The Beneficiary will not
pay Federal income taxes on any of the Trust's income or capital gains, except
those earned in the year when the Trust terminates. If the Trust terminates
after the Beneficiary reaches age 21, the distribution of the balance of the
trust fund may be treated as an "accumulation distribution" under the so-called
"throwback rules" of the Code, which could result in the imposition of
additional income tax on the Beneficiary. The Trustee will prepare and file all
Federal and state income tax returns that are required each year, and will send
the Beneficiary an information statement for the year in which the Trust
terminates showing the amounts (if any) that the Beneficiary
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must report on his or her Federal and state income tax returns for that year and
the amount (if any) of any accumulation distribution subject to the "throwback
rules" of the Code.
If the Donor selects the Split Option, the Trust will be subject to
Federal income tax only on capital gains earned by the Trust (which would
include all capital gains distributions on the shares of the Fund held in the
Trust), less a $300 exemption (in lieu of the personal exemption allowed to
individuals). The amount of the tax will be determined under the tax rate
schedule applicable to estates and trusts, which is more sharply graduated than
the rate schedule used for individuals, reaching the same maximum marginal rate
for ordinary income (currently, 39.6%) but at a much lower taxable income level
(for 1996, $7,900) than would apply to an individual. It is anticipated,
however, that most of the income generated by Fund shares will be long-term
capital gains, on which the Federal tax rate is currently limited to 28%. The
Trustee will raise the cash necessary to pay any Federal or state income tax by
redeeming Fund shares. The Trust will receive any net investment income
dividends paid by the Fund in cash, the Trustee will distribute all of the
Trust's net income to the Beneficiary and the Beneficiary will be subject to
Federal income tax on all ordinary income received from the Trust each year. The
Beneficiary will not pay Federal income taxes on any of the Trust's capital
gains, except those earned in the year of the Trust's termination, and the
"throwback rules" of the Code will not apply when the Trust terminates. The
Trustee will prepare and file all Federal and state income tax returns that are
required each year, and will send the Beneficiary an information statement each
year showing the amounts (if any) that the Beneficiary must report on his or her
Federal and state income tax returns for that year.
When the Trust terminates, the distribution of the remaining Fund
shares held in the Trust to the Beneficiary will not be treated as a taxable
disposition, and no capital gain or loss will be realized by the Beneficiary
(or, if he or she has died, by his or her estate) at that time. Any Fund shares
received by the Beneficiary will have the same cost basis as they had in the
Trust at the time of termination. Any Fund shares received by the Beneficiary's
estate will have a basis equal to the value of the shares at the Beneficiary's
death (or the alternative valuation date for Federal estate tax purposes, if
elected).
CONSULTATION WITH QUALIFIED TAX ADVISER
Due to the complexity of Federal and state gift, GST and income tax
laws pertaining to all gifts in trust, prospective Donors should consider
consulting with an attorney or other qualified tax adviser before investing in
Royce GiftShares Fund.
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DESCRIPTION OF THE TRUST
TRUST ORGANIZATION
The Trust was organized in April 1996 as a Delaware business trust by a
Certificate of Trust. It is the successor by mergers to The Royce Fund, a
Massachusetts business trust (the "Predecessor"), and Pennsylvania Mutual Fund,
a Delaware business trust. The mergers were effected on June 28, 1996, under an
Agreement and Plan of Merger pursuant to which the Predecessor and Pennsylvania
Mutual Fund merged into the Trust, with each Fund of the Predecessor and
Pennsylvania Mutual Fund becoming an identical counterpart series of the Trust,
Quest and RE&A continuing as the Funds' investment advisers under their
pre-merger Investment Advisory Agreements and QDI continuing as the Trust's
distributor. A copy of the Certificate of Trust is on file with the Secretary of
State of Delaware, and a copy of the Trust Instrument of the Trust, its
principal governing document, is available for inspection by shareholders at the
Trust's office in New York.
The Trust has an unlimited authorized number of shares of beneficial
interest, which may be divided into an unlimited number of series and/or classes
without shareholder approval. (Each Fund presently has only one class of
shares.) These shares are entitled to one vote per share (with proportional
voting for fractional shares). Shares vote by individual series except as
otherwise required by the 1940 Act or when the Trustees determine that the
matter affects shareholders of more than one series.
Each of the Trustees currently in office were elected by the Trust's
predecessor's shareholders. There will normally be no meeting of shareholders
for the election of Trustees until less than a majority of such Trustees remain
in office, at which time the Trustees will call a shareholders' meeting for the
election of Trustees. In addition, Trustees may be removed from office by
written consents signed by the holders of a majority of the outstanding shares
of the Trust and filed with the Trust's custodian or by a vote of the holders of
a majority of the outstanding shares of the Trust at a meeting duly called for
this purpose upon the written request of holders of at least 10% of the Trust's
outstanding shares. Upon the written request of 10 or more shareholders of the
Trust, who have been shareholders for at least 6 months and who hold shares
constituting at least 1% of the Trust's outstanding shares, stating that such
shareholders wish to communicate with the Trust's other shareholders for the
purpose of obtaining the necessary signatures to demand a meeting to consider
the removal of a Trustee, the Trust is required (at the expense of the
requesting shareholders) to provide a list of its shareholders or to distribute
appropriate materials. Except as provided above, the Trustees may continue to
hold office and appoint their successors.
The trustee of the Royce GiftShares Fund trusts will send notices of
meetings of Royce GiftShares Fund shareholders, proxy statements and proxies for
such meetings to the trusts' beneficiaries to enable them to attend the meetings
in person or vote by proxies. It will vote all GiftShares Fund shares held by it
which are not present at the meetings and for which no proxies are returned in
the same proportions as GiftShares Fund shares for which proxies are returned.
Shares are freely transferable, are entitled to distributions as
declared by the Trustees and, in liquidation of the Trust, are entitled to
receive net assets of their series. Shareholders have no preemptive rights. The
Trust's fiscal year ends on December 31.
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SHAREHOLDER LIABILITY
Generally, shareholders will not be personally liable for the
obligations of their Fund or of the Trust under Delaware law. The Delaware
Business Trust Act provides that a shareholder of a Delaware business trust is
entitled to the same limited liability extended to stockholders of private
corporations for profit organized under the Delaware General Corporation Law no
similar statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the extent that the Trust
or a shareholder of the Trust is subject to the jurisdiction of courts in those
states, the courts may not apply Delaware law and may thereby subject Trust
shareholders to liability. To guard against this possibility, the Trust
Instrument (i) requires that every written obligation of the Trust contain a
statement that such obligation may be enforced only against of the Trust's
assets (however, the omission of this disclaimer will not operate to create
personal liability for any shareholder); and (ii) provides for indemnification
out of Trust property of any Trust shareholder held personally liable for the
Trust's obligations. Thus, the risk of a Trust shareholder incurring financial
loss beyond his investment because of shareholder liability is limited to
circumstances in which: (i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself
would be unable to meet its obligations. In light of Delaware law, the nature of
the Trust's business and the nature of its assets, management believes that the
risk of personal liability to a Trust shareholder is extremely remote.
PERFORMANCE DATA
The Funds' performances may be quoted in various ways. All performance
information supplied for the Funds is historical and is not intended to indicate
future returns. Each Fund's share price and total returns fluctuate in response
to market conditions and other factors, and the value of a Fund's shares when
redeemed may be more or less than their original cost.
TOTAL RETURN CALCULATIONS
Total returns quoted reflect all aspects of a Fund's return, including
the effect of reinvesting dividends and capital gain distributions and any
change in the Fund's net asset value per share (NAV) over the period. Average
annual total returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that a Fund's performance is
not constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
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In addition to average annual total returns, a Fund's unaveraged or
cumulative total returns, reflecting the simple change in value of an investment
over a stated period, may be quoted. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph or similar illustration.
HISTORICAL FUND RESULTS
The following table shows certain of the Funds' total returns for the
periods indicated. Such total returns reflect all income earned by each Fund,
any appreciation or depreciation of the assets of such Fund and all expenses
incurred by such Fund for the stated periods. The table compares the Funds'
total returns to the records of the Russell 2000 Index (Russell 2000) and
Standard & Poor's 500 Composite Stock Price Index (S&P 500) over the same
periods. The comparison to the Russell 2000 shows how the Funds' total returns
compared to the record of a broad index of small capitalization stocks. The S&P
500 comparison is provided to show how the Funds' total returns compared to the
record of a broad average of common stock prices over the same period. The Funds
have the ability to invest in securities not included in the indices, and their
investment portfolios may or may not be similar in composition to the indices.
Figures for the indices are based on the prices of unmanaged groups of stocks,
and, unlike the Funds, their returns do not include the effect of paying
brokerage commissions and other costs and expenses of investing in a mutual
fund.
<TABLE>
<CAPTION>
Period Ended
Fund December 31, 1995 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
<S> <C> <C> <C>
Pennsylvania Mutual Fund
- ------------------------
1 Year Total Return 18.7% 28.4% 37.5%
5 Year Average Annual Total Return 15.0 21.1 16.6
10 year Average Annual Total Return 11.3 11.3 14.8
Royce Premier Fund
1 Year Total Return 17.8% 28.4% 37.5%
Average Annual Total Return since 12-31-91 13.8 15.4 13.3
(commencement of operations)
Royce Micro-Cap Fund
1 Year Total Return 19.1% 28.4% 37.5%
Average Annual Total Return since 12-31-91 18.5 15.4 13.3
(commencement of operations)
</TABLE>
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<TABLE>
<CAPTION>
Period Ended
Fund December 31, 1995 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
<S> <C> <C> <C>
Royce Equity Income Fund
1 Year Total Return 16.4% 28.4% 37.5%
5 Year Average Annual Total Return 14.6 21.0 16.6
Average Annual Total Return since 1-2-90 9.0 12.9 12.7
(commencement of operations)
Royce Low-Priced Stock Fund
1 Year Total Return 22.5% 28.4% 37.5%
Average Annual Total Return since 12-15-93 12.2 13.9 18.2
(commencement of
operations)
Royce Value Fund
1 Year Total Return 18.7% 28.4% 37.5%
5 Year Average Annual Total Return 14.4 21.1 16.6
10 Year Average Annual Total Return 10.0 11.3 14.8
Royce Total Return Fund
1 Year Total Return 26.9% 28.4% 37.5%
Average Annual Total Return since 12-15-93 15.1 13.9 18.2
(commencement of operations)
Royce Global Services Fund
1 Year Total Return 21.2% 28.4% 37.5%
Average Annual Total Return since 12-15-94 21.7 31.7 36.8
(commencement of operations)
</TABLE>
During the applicable period ended December 31, 1995, a hypothetical
$10,000 investment in certain of the Funds would have grown as indicated below,
assuming all distributions were reinvested:
<TABLE>
<CAPTION>
Fund/Period Commencement Date Hypothetical Investment at December 31, 1995
- ----------------------------- --------------------------------------------
<S> <C>
Pennsylvania Mutual Fund (12-31-75) $262,700
Royce Premier Fund (12-31-91) 16,774
Royce Micro-Cap Fund (12-31-91) 19,731
Royce Equity Income Fund (1-2-90) 16,760
Royce Low-Priced Stock Fund (12-15-93) 12,642
Royce Value Fund (12-31-82) 47,325
Royce Total Return Fund (12-15-93) 13,339
Royce Global Services Fund (12-15-94) 12,269
</TABLE>
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The Funds' performances may be compared in advertisements to the
performance of other mutual funds in general or to the performance of particular
types of mutual funds, especially those with similar investment objectives. Such
comparisons may be expressed as mutual fund rankings prepared by Lipper
Analytical Services, Inc. ("Lipper"), an independent service that monitors the
performance of registered investment companies. The Funds' rankings by Lipper
for the one year period ended December 31, 1995 were:
<TABLE>
<CAPTION>
Fund Lipper Ranking
---- --------------
<S> <C>
Pennsylvania Mutual Fund 264 out of 304 small company growth Funds
Royce Premier Fund 273 out of 304 small company growth funds
Royce Micro-Cap Fund 263 out of 304 small company growth funds
Royce Equity Income Fund 114 out of 129 equity income funds
Royce Low-Priced Stock Fund 226 out of 304 small company growth funds
Royce Value Fund 265 out of 304 small company growth funds
Royce Total Return Fund 358 out of 439 growth and income funds
Royce Global Services Fund 23 out of 127 global funds
</TABLE>
Money market funds and municipal funds are not included in the Lipper survey.
The Lipper performance analysis ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees payable by shareholders into consideration and is prepared
without regard to tax consequences.
The Lipper General Equity Funds Average can be used to show how the
Funds' performances compare to a broad-based set of equity funds. The Lipper
General Equity Funds Average is an average of the total returns of all equity
funds (excluding international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper. As of December 31, 1995,
the average included 181 capital appreciation funds, 654 growth funds, 355 small
company growth funds, 495 growth and income funds, 146 equity income funds, 125
mid-cap funds and 48 S&P Index objective funds. Capital appreciation, growth and
small company growth funds usually invest principally in common stocks, with
long-term growth as a primary goal. Growth and income and equity income funds
tend to be more conservative in nature and usually invest in a combination of
common stocks, bonds, preferred stocks and other income-producing securities.
Growth and income and equity income funds generally seek to provide their
shareholders with current income as well as growth of capital, unlike growth
funds which may not produce income.
The Lipper Growth & Income Fund Index can be used to show how the Total
Return Fund's performance compares to a set of growth and income funds. The
Lipper Growth & Income Fund Index is an equally-weighted performance index,
adjusted for capital gains distributions and income dividends, of the 30 largest
qualifying funds within Lipper's growth and income investment objective
category.
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The Lipper Global Fund Index can be used to show how the Global
Services Fund's performance compares to a set of global funds. The Lipper Global
Fund Index is an equally-weighted performance index, adjusted for capital gains
distributions and income dividends, of the 30 largest qualifying funds in
Lipper's global investment objective category.
Ibbotson Associates (Ibbotson) provides historical returns of the
capital markets in the United States. The Funds' performance may be compared to
the long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or U.S. Treasury securities. Ibbotson calculates total
returns in the same manner as the Funds.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, U.S. Treasury bills and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P 500 is used. For small capitalization
stocks, return is based on the return achieved by Dimensional Fund Advisors
(DFA) U.S. Growth and Income Small Company Fund. This fund is a
market-value-weighted index of the ninth and tenth deciles of the New York Stock
Exchange (NYSE), plus stocks listed on the American Stock Exchange (AMEX) and
over-the-counter (OTC) with the same or less capitalization as the upper bound
of the NYSE ninth decile. As of December 31, 1995, DFA contained approximately
2,700 stocks, with a median market capitalization of about $102 million.
The S&P 500 Composite Stock Price Index is an unmanaged index of common
stocks frequently used as a general measure of stock market performance. The
Index's performance figures reflect changes of market prices and quarterly
reinvestment of all distributions.
The S&P SmallCap 600 Index is an unmanaged market-weighted index
consisting of 600 domestic stocks chosen for market size, liquidity and industry
group representation. As of December 31, 1995, the weighted mean market value of
a company in this Index was approximately $640 million.
The Russell 2000, prepared by the Frank Russell Company, tracks the
return of the common stocks of the 2,000 smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market capitalization. The Russell
2000 tracks the return on these stocks based on price appreciation or
depreciation and includes dividends.
U.S. Treasury bonds are securities backed by the credit and taxing
power of the U.S. government and, therefore, present virtually no risk of
default. Although such government securities fluctuate in price, they are highly
liquid and may be purchased and sold with relatively small transaction costs
(direct purchase of U.S. Treasury securities can be made with no transaction
costs). Returns on intermediate-term government bonds are based on a one-bond
portfolio constructed each year, containing a bond that is the shortest
non-callable bond available with a maturity of not less than five years. This
bond is held for the calendar year and returns are recorded. Returns on
long-term government bonds are based on a one-bond portfolio constructed each
year, containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury bills are based on a one-bill portfolio
39
<PAGE>
<PAGE>
constructed each month, containing the shortest term bill having not less than
one month to maturity. The total return on the bill is the month-end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; The Wall Street Journal is the source thereafter. Inflation
rates are based on the Consumer Price Index.
Quest may, from time to time, compare the performance of common stocks,
especially small capitalization stocks, to the performance of other forms of
investment over periods of time.
From time to time, in reports and promotional literature, the Funds'
performances also may be compared to other mutual funds tracked by financial or
business publications and periodicals, such as KIPLINGER's, INDIVIDUAL INVESTOR,
MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL TIMES, FORTUNE, MUTUAL FUNDS
MAGAZINE and THE WALL STREET JOURNAL. In addition, financial or business
publications and periodicals, as they relate to fund management, investment
philosophy and investment techniques, may be quoted.
Morningstar, Inc.'s proprietary risk ratings may be quoted in
advertising materials. For the three years ended December 31, 1995, the average
risk score for the 1,394 equity funds rated by Morningstar with a three-year
history was 1.00; the average risk score for the 171 small company funds rated
by Morningstar with a three-year history was 1.04; and the average risk score
for the 67 equity income funds rated by Morningstar with a three-year history
was 0.62. For the three years ended December 31, 1995, the risk scores for the
Funds with a three-year history, and their ranks within Morningstar's equity
funds category and either its small company or equity income funds categories,
as applicable, were as follows:
<TABLE>
<CAPTION>
Rating within Morningstar Category of
Morningstar -------------------------------------
Fund Risk Score Equity Funds Small Company Funds Equity Income Funds
- ---- ---------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Pennsylvania 0.62 Within lowest 10% Within lowest 10% -
Mutual
Premier 0.36 Within lowest 5% Lowest risk score -
Micro-Cap 0.56 Within lowest 10% Within lowest 5% -
Equity 0.51 Within lowest 15% - Within lowest 15%
Income
Value 0.62 Within lowest 10% Within lowest 10% -
</TABLE>
40
<PAGE>
<PAGE>
The Funds' performances may also be compared to those of other
compilations or indices.
Advertising for the Funds may contain examples of the effects of
periodic investment plans, including the principle of dollar cost averaging. In
such a program, an investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more shares
when prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share can be
lower than if fixed numbers of shares are purchased at the same intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
The Funds may be available for purchase through retirement plans or
other programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $2,000 annual
investment earning a taxable return of 8% annually would have an after-tax value
of $177,887 after thirty years, assuming tax was deducted from the return each
year at a 28% rate. An equivalent tax-deferred investment would have a value of
$244,692 after thirty years.
RISK MEASUREMENTS
Quantitative measures of "total risk," which quantify the total
variability of a portfolio's returns around or below its average return, may be
used in advertisements and in communications with current and prospective
shareholders. These measures include standard deviation of total return and the
Morningstar risk statistic. Such communications may also include market risk
measures, such as beta, and risk-adjusted measures of performance such as the
Sharpe Ratio, Treynor Ratio, Jensen's Alpha and Morningstar's star rating
system.
Standard Deviation. The risk associated with a fund or portfolio can be
viewed as the volatility of its returns, measured by the standard deviation of
those returns. For example, a fund's historical risk could be measured by
computing the standard deviation of its monthly total returns over some prior
period, such as three years. The larger the standard deviation of monthly
returns, the more volatile - i.e., spread out around the fund's average monthly
total return, the fund's monthly total returns have been over the prior period.
Standard deviation of total return can be calculated for funds having different
objectives, ranging from equity funds to fixed income funds, and can be measured
over different time frames. The standard deviation figures presented are
annualized statistics based on the trailing 36 monthly returns. Approximately
68% of the time, the annual total return of a fund will differ from its mean
annual total return by no more than plus or minus the standard deviation figure.
95% of the time, a fund's annual total return will be within a range of plus or
minus 2x the standard deviation from its mean annual total return.
Beta. Beta measures the sensitivity of a security's or portfolio's
returns to the market's returns. It measures the relationship between a fund's
excess return (over 3-month T-bills) and the excess return of the benchmark
index (S&P 500 for domestic equity funds). The market's beta is by definition
equal to 1. Portfolios with betas greater than 1 are more volatile than the
market, and portfolios with betas less than 1 are less volatile than the market.
For example, if a portfolio has a beta of 2, a 10% market excess return would be
expected to result in a 20% portfolio excess return, and a 10% market loss would
be expected to result in a 20% portfolio loss (excluding the effects of any
firm-specific risk that has not been eliminated through diversification).
41
<PAGE>
<PAGE>
Morningstar Risk. The Morningstar proprietary risk statistic evaluates
a fund's downside volatility relative to that of other funds in its class based
on the underperformances of the fund relative to the riskless T-bill return. It
then compares this statistic to those of other funds in the same broad
investment class.
Sharpe Ratio. Also known as the Reward-to-Variability Ratio, this is
the ratio of a fund's average return in excess of the risk-free rate of return
("average excess return") to the standard deviation of the fund's excess
returns. It measures the returns earned in excess of those that could have been
earned on a riskless investment per unit of total risk assumed.
Treynor Ratio. Also known as the Reward-to-Volatility Ratio, this is
the ratio of a fund's average excess return to the fund's beta. It measures the
returns earned in excess of those that could have been earned on a riskless
investment per unit of market risk assumed. Unlike the Sharpe Ratio, the Treynor
Ratio uses market risk (beta), rather than total risk (standard deviation), as
the measure of risk.
Jensen's Alpha. This is the difference between a fund's actual returns
and those that could have been earned on a benchmark portfolio with the same
amount of risk - i.e., the same beta, as the portfolio. Jensen's Alpha measures
the ability of active management to increase returns above those that are purely
a reward for bearing market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted performance.
Ratings may change monthly. Funds with at least three years of performance
history are assigned ratings from one star (lowest) to five stars (highest).
Morningstar ratings are calculated from the funds' three-, five- and ten-year
average annual returns (when available). Funds' returns are adjusted for fees
and sales loads. Ten percent of the funds in an investment category receive five
stars, 22.5% receive four stars, 35% receive three stars, 22.5% receive two
stars and the bottom 10% receive one star.
None of the quantitative risk measures taken alone can be used for a
complete analysis and, when taken individually, can be misleading at times.
However, when considered in some combination and with the total returns of a
fund, they can provide the investor with additional information regarding the
volatility of a fund's performance. Such risk measures will change over time and
are not necessarily predictive of future performance or risk.
<PAGE>
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements Included in Prospectuses (Part A):
Financial Highlights or Selected Per Share Data and
Ratios of Pennsylvania Mutual Fund for the ten years
ended December 31, 1995 (audited), of Royce Premier
Fund for the four years ended December 31, 1995
(audited), of Royce Micro-Cap Fund for the four years
ended December 31, 1995 (audited), of Royce Equity
Income Fund for the six years ended December 31, 1995
(audited), of Royce Low-Priced Stock Fund and Royce
Total Return Fund for the period from December 15,
1993 through December 31, 1993 (audited) and for the
two years ended December 31, 1995 (audited), of Royce
GiftShares Fund for the period from December 27, 1995
through December 31, 1995 (audited) and for the six
months ended June 30, 1996 (unaudited), of Royce
Value Fund and Royce Value Fund, Inc., its
predecessor, for the ten years ended December 31,
1995 (audited), and of Royce Global Services Fund for
the period from December 15, 1994 through December
31, 1994 (audited) and for the year ended December
31, 1995 (audited).
The following audited and unaudited financial statements of the
Registrant are included in the Registrant's Annual Reports to Shareholders for
the fiscal year or period ended December 31, 1995 and, in the case of Royce
GiftShares Fund, in its Semi-Annual Report to Shareholders for the six months
ended June 30, 1996, filed with the Securities and Exchange Commission under
Section 30(b)(1) of the Investment Company Act of 1940, and have been
incorporated in Part B hereof by reference:
Pennsylvania Mutual Fund -- Schedule of Investments
at December 31, 1995;
Pennsylvania Mutual Fund -- Statement of Assets and
Liabilities at December 31, 1995; Pennsylvania Mutual
Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994; Pennsylvania
Mutual Fund -- Statement of Operations for the year
ended December 31, 1995; Pennsylvania Mutual Fund --
Financial Highlights for the years ended December 31,
1995, 1994, 1993, 1992 and 1991; Pennsylvania Mutual
Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Premier Fund -- Schedule of Investments at
December 31, 1995;
Royce Premier Fund -- Statement of Assets and
Liabilities at December 31, 1995;
Royce Premier Fund -- Statement of Changes in Net
Assets for the years ended December 31, 1995 and
1994;
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Premier Fund -- Statement of Operations for the
year ended December 31, 1995; Royce Premier Fund --
Financial Highlights for the years ended December 31,
1995, 1994 and 1993; Royce Premier Fund -- Notes to
Financial Statements -- Report of Independent
Accountants dated February 7, 1996;
Royce Micro-Cap Fund -- Schedule of Investments at
December 31, 1995;
Royce Micro-Cap Fund -- Statement of Assets and
Liabilities at December 31, 1995;
Royce Micro-Cap Fund -- Statement of Changes in Net
Assets for the years ended December 31, 1995 and
1994; Royce Micro-Cap Fund -- Statement of Operations
for the year ended December 31, 1995; Royce Micro-Cap
Fund -- Financial Highlights for the years ended
December 31, 1995, 1994 and 1993; Royce Micro-Cap
Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Equity Income Fund -- Schedule of Investments
at December 31, 1995;
Royce Equity Income Fund -- Statement of Assets and
Liabilities at December 31, 1995;
Royce Equity Income Fund -- Statement of Changes in
Net Assets for the years ended December 31, 1995 and
1994; Royce Equity Income Fund -- Statement of
Operations for the year ended December 31, 1995;
Royce Equity Income Fund -- Financial Highlights for
the years ended December 31, 1995, 1994, 1993, 1992
and 1991; Royce Equity Income Fund -- Notes to
Financial Statements -- Report of Independent
Accountants dated February 7, 1996;
Royce Low-Priced Stock Fund -- Schedule of
Investments at December 31, 1995;
Royce Low-Priced Stock Fund -- Statement of Assets
and Liabilities at December 31, 1995;
Royce Low-Priced Stock Fund -- Statement of Changes
in Net Assets for the years ended December 31, 1995
and 1994; Royce Low-Priced Stock Fund -- Statement of
Operations for the year ended December 31, 1995;
Royce Low-Priced Stock Fund -- Financial Highlights
for the years ended December 31, 1995 and 1994 and
the period from December 15, 1993 through December
31, 1993; Royce Low-Priced Stock Fund -- Notes to
Financial Statements -- Report
2
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
of Independent Accountants dated February 7, 1996;
Royce Total Return Fund -- Schedule of Investments at
December 31, 1995;
Royce Total Return Fund -- Statement of Assets and
Liabilities at December 31, 1995;
Royce Total Return Fund -- Statement of Changes in
Net Assets for the year ended December 31, 1995 and
1994; Royce Total Return Fund -- Statement of
Operations for the year ended December 31, 1995;
Royce Total Return Fund -- Financial Highlights for
the years ended December 31, 1995 and 1994 and the
period from December 15, 1993 through December 31,
1993; Royce Total Return Fund -- Notes to Financial
Statements -- Report of Independent Accountants dated
February 7, 1996;
Royce GiftShares Fund -- Schedule of Investments at
December 31, 1995; Royce GiftShares Fund -- Statement
of Assets and Liabilities at December 31, 1995;
Royce GiftShares Fund -- Statement of Changes in Net
Assets for the period from December 27, 1995 through
December 31, 1995;
Royce GiftShares Fund -- Statement of Operations for
the period from December 27, 1995 through December
31, 1995;
Royce GiftShares Fund -- Financial Highlights for the
period from December 27, 1995 through December 31,
1995;
Royce GiftShares Fund -- Notes to Financial
Statements -- Report of Independent Accountants dated
February 7, 1996.
Royce GiftShares Fund -- Schedule of Investments at
June 30, 1996 (unaudited);
Royce GiftShares Fund -- Statement of Assets and
Liabilities at June 30, 1996 (unaudited);
Royce GiftShares Fund -- Statement of Changes in Net
Assets for the six months ended June 30, 1996
(unaudited);
Royce GiftShares Fund -- Statement of Operations for
the six months ended June 30, 1996 (unaudited);
Royce GiftShares Fund -- Financial Highlights for the
six months ended June 30, 1996 (unaudited);
Royce GiftShares Fund -- Notes to Financial
Statements (unaudited);
Royce Value Fund -- Schedule of Investments at
December 31, 1995;
Royce Value Fund -- Statement of Assets and
Liabilities at December 31, 1995;
Royce Value Fund -- Statement of Changes in Net
Assets for the years ended December 31, 1995 and
1994;
3
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Value Fund -- Statement of Operations for the
year ended December 31, 1995;
Royce Value Fund -- Financial Highlights for the
years ended December 31, 1995, 1994, 1993, 1992 and
1991;
Royce Value Fund -- Notes to Financial Statements --
Report of Independent Accountants dated February 7,
1996;
Royce Global Services Fund -- Schedule of Investments
at December 31, 1995;
Royce Global Services Fund -- Statement of Assets and
Liabilities at December 31, 1995;
Royce Global Services Fund -- Statement of Changes in
Net Assets for the year ended December 31, 1995 and
the period from December 15, 1994 through December
31, 1994;
Royce Global Services Fund -- Statement of Operations
for the year ended December 31, 1995;
Royce Global Services Fund -- Financial Highlights
for the year ended December 31, 1995 and the period
from December 15, 1994 through December 31, 1994;
Royce Global Services Fund -- Notes to Financial
Statements -- Report of Independent Accountants dated
February 7, 1996;
Financial statements, schedules and historical information
other than those listed above have been omitted since they are
either inapplicable or are not required.
b. Exhibits:
The exhibits required by Items (1) through (3), (6), (7), (9)
through (12) and (14) through (16), to the extent applicable
to the Registrant, have been filed with Registrant's initial
Registration Statement (No. 2-80348) and Post-Effective
Amendment Nos. 4, 5, 6, 8, 9, 11, 14, 15, 16, 17, 18, 19, 20,
21, 22, 23, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34 and 35
thereto and, with respect to Pennsylvania Mutal Fund, its
initial Registration Statement (No. 2-19995) and
Post-Effective Amendment Nos. 43, 45, 46, 47, 48, 49, 51, 52,
53, 56, and 58, and are incorporated by reference herein.
(11) Consent of Coopers & Lybrand L.L.P. relating to all Funds
except The REvest Growth & Income Fund.
(16) Schedule For Computation Of Performance Quotations Provided in
Item 22.
4
<PAGE>
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
(17) Financial Data Schedule.
Item 25. Persons Controlled by or Under Common Control With Registrant
There are no persons directly or indirectly controlled by or
under common control with the Registrant.
Item 26. Number of Holders of Securities
As of June 14, 1996, the number of record holders of shares of
each Fund of the Registrant was as follows:
<TABLE>
<CAPTION>
Title of Fund Number of Record Holders
------------- ------------------------
<S> <C>
Pennsylvania Mutual Fund 21,489
Royce Value Fund 7,400
Royce Premier Fund 11,506
Royce Equity Income Fund 1,771
Royce Micro-Cap Fund 7,425
Royce Low-Priced Stock Fund 960
Royce Total Return Fund 36
Royce Global Services Fund 48
The REvest Growth and Income Fund 497
Royce GiftShares Fund 9
</TABLE>
Item 27. Indemnification
(a) Article XI of the Declaration of Trust of the Registrant provides
as follows:
"ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Section l. Provided they have exercised reasonable
care and have acted under the belief that their actions are in the best
interest of the Trust, the Trustees shall not be responsible for or
liable in any event for neglect or wrongdoing of any other Trustee or
any officer, employee, agent or Investment Adviser, Principal
Underwriter, transfer agent, custodian or other independent contractor
of the Trust, but nothing contained herein shall protect any Trustee
5
<PAGE>
<PAGE>
against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence in the performance
of his duties or reckless disregard of the obligations and duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate
or undertaking and every other act or thing whatsoever executed or done
by or on behalf of the Trust or the Trustees or any of them in
connection with the Trust shall be conclusively deemed to have been
executed or done only in or with respect to their or his capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
INDEMNIFICATION
Section 2.
(a) Subject to the exceptions and limitations
contained in Section 2(b) below:
(i) Every person who is, or has been, a Trustee
or officer of the Trust (including persons who serve at the Trust's
request as directors, officers or trustees of another entity in which
the Trust has any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") shall be indemnified by
the appropriate Fund to the fullest extent not prohibited by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof; and
(ii) The words "claim", "action", "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative, investigatory or other, including
appeals), actual or threatened, while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to
a Covered Person:
(i) Who shall, in respect of the matter or
matters involved, have been adjudicated by a court or body before which
the proceeding
6
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
was brought (A) to be liable to the Trust or its Shareholders by reason
of willful misfeasance, bad faith, gross negligence in the performance
of his duties or reckless disregard of the obligations and duties
involved in the conduct of his office or (B) not to have acted in the
belief that his action was in the best interest of the Trust; or
(ii) In the event of a settlement, unless there
has been a determination that such Trustee or officer did not engage in
willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office,
(A) By the court or other body approving
the settlement;
(B) By a majority of those Trustees who are
neither Interested Persons of the Trust nor are parties to the matter,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry); or
(C) By written opinion of independent legal
counsel, based upon a review of readily available facts (as opposed to
a full trial-type inquiry).
(c) The rights of indemnification herein provided may
be insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer
and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect
any rights to indemnification to which Trust personnel, other than
Trustees and officers, and other persons may be entitled by contract or
otherwise under law.
(d) Expenses in connection with the
preparation and presentation of a defense to any claim, action, suit or
proceeding of the type described in subsection (a) of this Section 2
may be paid by the applicable Fund from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the
applicable Fund if and when it is ultimately determined that he is not
entitled to indemnification under this Section 2; provided, however,
that either (i) such Covered Person shall have provided appropriate
security for such undertaking, (ii) the Trust is insured against losses
arising out of any such advance payments or (iii) either a majority of
the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this Section 2."
7
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
(b)(1) Paragraph 8 of the Investment Advisory Agreements by
and between the Registrant and Quest Advisory Corp. provides as follows:
"8. Protection of the Adviser. The Adviser shall not
be liable to the Fund or to any portfolio series thereof for any action
taken or omitted to be taken by the Adviser in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an investment adviser of the Fund or such series, and the
Fund or each portfolio series thereof involved, as the case may be,
shall indemnify the Adviser and hold it harmless from and against all
damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by
the Adviser in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an action or
suit by or in the right of the Fund or any portfolio series thereof or
its security holders) arising out of or otherwise based upon any action
actually or allegedly taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or obligations
under this Agreement or otherwise as an investment adviser of the Fund
or such series. Notwithstanding the preceding sentence of this
Paragraph 8 to the contrary, nothing contained herein shall protect or
be deemed to protect the Adviser against or entitle or be deemed to
entitle the Adviser to indemnification in respect of, any liability to
the Fund or to any portfolio series thereof or its security holders to
which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its duties and
obligations under this Agreement.
Determinations of whether and the extent to which the Adviser
is entitled to indemnification hereunder shall be made by reasonable
and fair means, including (a) a final decision on the merits by a court
or other body before whom the action, suit or other proceeding was
brought that the Adviser was not liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was
not liable by reason of such misconduct by (i) the vote of a majority
of a quorum of the Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of the Investment
Company Act of 1940) nor parties to the action, suit or other
proceeding or (ii) an independent legal counsel in a written opinion."
(b)(2) Paragraph 8 of the Investment Advisory Agreement by and
between the Registrant and Royce, Ebright & Associates, Inc. provides as
follows:
"8. Protection of the Adviser. The Adviser shall not
be liable to the Fund or to any portfolio series thereof for any action
taken or omitted to be taken by the Adviser in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an investment adviser of the Fund or such series, and the
Fund or each portfolio series thereof involved, as the case may be,
shall indemnify the Adviser and hold it harmless from and against
8
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
all damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by
the Adviser in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an action or
suit by or in the right of the Fund or any portfolio series thereof or
its security holders) arising out of or otherwise based upon any action
actually or allegedly taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or obligations
under this Agreement or otherwise as an investment adviser of the Fund
or such series. Notwithstanding the preceding sentence of this
Paragraph 8 to the contrary, nothing contained herein shall protect or
be deemed to protect the Adviser against or entitle or be deemed to
entitle the Adviser to indemnification in respect of, any liability to
the Fund or to any portfolio series thereof or its security holders to
which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its duties and
obligations under this Agreement.
Determinations of whether and the extent to which the Adviser
is entitled to indemnification hereunder shall be made by reasonable
and fair means, including (a) a final decision on the merits by a court
or other body before whom the action, suit or other proceeding was
brought that the Adviser was not liable by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was
not liable by reason of such misconduct by (i) the vote of a majority
of a quorum of the Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of the Investment
Company Act of 1940) nor parties to the action, suit or other
proceeding or (ii) an independent legal counsel in a written opinion."
(c) Paragraph 9 of the Distribution Agreement made October 31,
1985 by and between the Registrant and Quest Distributors, Inc.
provides as follows:
"9. Protection of the Distributor. The Distributor
shall not be liable to the Fund or to any series thereof for any action
taken or omitted to be taken by the Distributor in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an underwriter of the Shares, and the Fund or each
portfolio series thereof involved, as the case may be, shall indemnify
the Distributor and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys' fees
and amounts reasonably paid in settlement) incurred by the Distributor
in or by reason of any pending, threatened or completed action, suit,
investigation or other proceeding (including an action or suit by or in
the right of the Fund or any series thereof or
9
<PAGE>
<PAGE>
Item 27. Indemnification (Continued)
its security holders) arising out of or otherwise based upon any action
actually or allegedly taken or omitted to be taken by the Distributor
in connection with the performance of any of its duties or obligations
under this Agreement or otherwise as an underwriter of the Shares.
Notwithstanding the preceding sentences of this Paragraph 9 to the
contrary, nothing contained herein shall protect or be deemed to
protect the Distributor against, or entitle or be deemed to entitle the
Distributor to indemnification in respect of, any liability to the Fund
or to any portfolio series thereof or its security holders to which the
Distributor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its duties and
obligations under this Agreement.
Determinations of whether and to the extent to which the
Distributor is entitled to indemnification hereunder shall be made by
reasonable and fair means, including (a) a final decision on the merits
by a court or other body before whom the action, suit or other
proceeding was brought that the Distributor was not liable by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Distributor
was not liable by reason of such misconduct by (a) the vote of a
majority of a quorum of the Trustees of the Fund who are neither
"interested persons" of the Fund (as defined in Section 2(a)(19) of the
1940 Act) nor parties to the action, suit or other proceeding or (b) an
independent legal counsel in a written opinion."
Item 28. Business and Other Connections of Investment Advisers
Reference is made to the filings on Schedule D to the
Applications on Form ADV, as amended, of Quest Advisory Corp. and Royce, Ebright
& Associates, Inc. for Registration as Investment Advisers under the Investment
Advisers Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any principal
underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company Act of 1940, are
maintained at the following locations:
The Royce Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
10
<PAGE>
<PAGE>
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts trust
company ("State Street"), provides certain management-related services to the
Registrant pursuant to a Custodian Contract made as of December 31, 1985 between
the Registrant and State Street. Under such Custodian Contract, State Street,
among other things, has contracted with the Registrant to keep books of accounts
and render such statements as agreed to in the then current mutually-executed
Fee Schedule or copies thereof from time to time as requested by the Registrant,
and to assist generally in the preparation of reports to holders of shares of
the Registrant, to the Securities and Exchange Commission and to others, in the
auditing of accounts and in other ministerial matters of like nature as agreed
to between the Registrant and State Street. All of these services are rendered
pursuant to instructions received by State Street from the Registrant in the
ordinary course of business.
Registrant paid the following fees to State Street for
services rendered pursuant to the Custodian Contract, as amended, for each of
the three (3) fiscal years ended December 31:
1995: $335,180
1994: $309,492
1993: $224,234
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus for any series of the Registrant is delivered with a copy of the
latest annual report to shareholders of such series upon request and without
charge.
Registrant hereby undertakes to call a special meeting of the
Registrant's shareholders upon the written request of shareholders owning at
least 10% of the outstanding shares of the Registrant for the purpose of voting
upon the question of the removal of a trustee or trustees and, upon the written
request of 10 or more shareholders of the Registrant who have been such for at
least 6 months and who own at least 1% of the outstanding shares of the
Registrant, to provide a list of shareholders or to disseminate appropriate
materials at the expense of the requesting shareholders.
11
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
28th day of June, 1996.
THE ROYCE FUND
By: /s/ CHARLES M. ROYCE
..................................
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
/s/ CHARLES M. ROYCE President, Treasurer and Trustee (Principal 6/28/96
......................................... Executive, Financial and Accounting
CHARLES M. ROYCE Officer)
/s/ RICHARD M. GALKIN Trustee 6/28/96
.........................................
RICHARD M. GALKIN
/s/ STEPHEN L. ISSACS Trustee 6/28/96
.........................................
STEPHEN L. ISSACS
/s/ DAVID L. MEISTER Trustee 6/28/96
.........................................
DAVID L. MEISTER
</TABLE>
------------------------
NOTICE
A copy of the Declaration of Trust of The Royce Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Registrant by an officer of the
Registrant as an officer and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets and property of
the Registrant.
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of The Royce Fund:
We hereby consent to the following with respect to Post-Effective Amendment
No. 37 to the Registration Statement on Form N-1A (File No. 2-80348) under the
Securities Act of 1933, as amended, of The Royce Fund (consisting of Royce Value
Fund, Royce Total Return Fund, Royce Global Services Fund, Royce Premier Fund,
Royce Equity Income Fund, Royce Low-Priced Stock Fund, Royce Micro-Cap Fund,
Royce GiftShares Fund, and Pennsylvania Mutual Fund) (collectively, the
"Funds"):
1. The reference to our firm under the heading "Financial Highlights" in
the Fund's Prospectus.
2. The incorporation by reference of our reports dated February 7, 1996
accompanying the Funds' Annual Report for the year ended December 31,
1995, in the Funds' Prospectus and the Statement of Additional
Information.
3. The reference to our firm under the heading "Independent Accountants" in
the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 1, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 425549193
<INVESTMENTS-AT-VALUE> 622765081
<RECEIVABLES> 1731323
<ASSETS-OTHER> 27860
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 639810131
<PAYABLE-FOR-SECURITIES> 1753615
<SENIOR-LONG-TERM-DEBT> 7937905
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 9691520
<SENIOR-EQUITY> 81702
<PAID-IN-CAPITAL-COMMON> 412541837
<SHARES-COMMON-STOCK> 81701995
<SHARES-COMMON-PRIOR> 104068607
<ACCUMULATED-NII-CURRENT> 2681
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20276503
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<ACCUM-APPREC-OR-DEPREC> 197215888
<NET-ASSETS> 630118611
<DIVIDEND-INCOME> 13344746
<INTEREST-INCOME> 1789770
<OTHER-INCOME> 0
<EXPENSES-NET> 6853151
<NET-INVESTMENT-INCOME> 8281365
<REALIZED-GAINS-CURRENT> 95221780
<APPREC-INCREASE-CURRENT> 17417882
<NET-CHANGE-FROM-OPS> 120921027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8285016
<DISTRIBUTIONS-OF-GAINS> 73143226
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39278575
<NUMBER-OF-SHARES-REDEEMED> 294670193
<SHARES-REINVESTED> 74600820
<NET-CHANGE-IN-ASSETS> (180790798)
<ACCUMULATED-NII-PRIOR> 91343
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5449527
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<GROSS-EXPENSE> 6941324
<AVERAGE-NET-ASSETS> 702706045
<PER-SHARE-NAV-BEGIN> 7.41
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> .97
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.71
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> ROYCE PREMIER FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 277289836
<INVESTMENTS-AT-VALUE> 299569817
<RECEIVABLES> 4375470
<ASSETS-OTHER> 5899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 303951186
<PAYABLE-FOR-SECURITIES> 1038571
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 673165
<TOTAL-LIABILITIES> 1711736
<SENIOR-EQUITY> 42426
<PAID-IN-CAPITAL-COMMON> 278877731
<SHARES-COMMON-STOCK> 42425895
<SHARES-COMMON-PRIOR> 31209893
<ACCUMULATED-NII-CURRENT> 303771
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 735541
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22279981
<NET-ASSETS> 302239450
<DIVIDEND-INCOME> 4085248
<INTEREST-INCOME> 3053383
<OTHER-INCOME> 0
<EXPENSES-NET> 3260522
<NET-INVESTMENT-INCOME> 3878109
<REALIZED-GAINS-CURRENT> 16399430
<APPREC-INCREASE-CURRENT> 20989542
<NET-CHANGE-FROM-OPS> 41267081
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3659780
<DISTRIBUTIONS-OF-GAINS> 16629199
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 138651613
<NUMBER-OF-SHARES-REDEEMED> 78736015
<SHARES-REINVESTED> 18955637
<NET-CHANGE-IN-ASSETS> 99849337
<ACCUMULATED-NII-PRIOR> 84442
<ACCUMULATED-GAINS-PRIOR> 965310
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2609724
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3266801
<AVERAGE-NET-ASSETS> 261228783
<PER-SHARE-NAV-BEGIN> 6.48
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 1.05
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> .42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.12
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> ROYCE VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 120592519
<INVESTMENTS-AT-VALUE> 166496966
<RECEIVABLES> 1222324
<ASSETS-OTHER> 4467
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<TOTAL-ASSETS> 167723757
<PAYABLE-FOR-SECURITIES> 702895
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 261717
<TOTAL-LIABILITIES> 964612
<SENIOR-EQUITY> 16649
<PAID-IN-CAPITAL-COMMON> 118370243
<SHARES-COMMON-STOCK> 16648949
<SHARES-COMMON-PRIOR> 18312598
<ACCUMULATED-NII-CURRENT> 62471
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2405335
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 45904447
<NET-ASSETS> 166759145
<DIVIDEND-INCOME> 3038954
<INTEREST-INCOME> 673266
<OTHER-INCOME> 0
<EXPENSES-NET> 2943037
<NET-INVESTMENT-INCOME> 769183
<REALIZED-GAINS-CURRENT> 12863372
<APPREC-INCREASE-CURRENT> 14831715
<NET-CHANGE-FROM-OPS> 28464270
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 781023
<DISTRIBUTIONS-OF-GAINS> 11521019
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5233818
<NUMBER-OF-SHARES-REDEEMED> 33282011
<SHARES-REINVESTED> 11764560
<NET-CHANGE-IN-ASSETS> (121405)
<ACCUMULATED-NII-PRIOR> 77262
<ACCUMULATED-GAINS-PRIOR> 1060031
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1440673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3578333
<AVERAGE-NET-ASSETS> 167139500
<PER-SHARE-NAV-BEGIN> 9.11
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.65
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> .74
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 1.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> ROYCE EQUITY INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 52726365
<INVESTMENTS-AT-VALUE> 55828784
<RECEIVABLES> 744004
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56572788
<PAYABLE-FOR-SECURITIES> 275390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 120216
<TOTAL-LIABILITIES> 395606
<SENIOR-EQUITY> 9859
<PAID-IN-CAPITAL-COMMON> 52996935
<SHARES-COMMON-STOCK> 9858885
<SHARES-COMMON-PRIOR> 15071358
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 67969
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3102419
<NET-ASSETS> 56177182
<DIVIDEND-INCOME> 1995242
<INTEREST-INCOME> 1107671
<OTHER-INCOME> 0
<EXPENSES-NET> 813811
<NET-INVESTMENT-INCOME> 2289102
<REALIZED-GAINS-CURRENT> 2816539
<APPREC-INCREASE-CURRENT> 5050556
<NET-CHANGE-FROM-OPS> 10156197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2310331
<DISTRIBUTIONS-OF-GAINS> 394120
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8488920
<NUMBER-OF-SHARES-REDEEMED> 38773144
<SHARES-REINVESTED> 1878994
<NET-CHANGE-IN-ASSETS> (20953484)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 5515
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 655813
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 870841
<AVERAGE-NET-ASSETS> 65581270
<PER-SHARE-NAV-BEGIN> 5.12
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> .21
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.70
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> REVEST GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 33297684
<INVESTMENTS-AT-VALUE> 35823693
<RECEIVABLES> 87422
<ASSETS-OTHER> 2259
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35913374
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 109493
<TOTAL-LIABILITIES> 109493
<SENIOR-EQUITY> 3336
<PAID-IN-CAPITAL-COMMON> 33274006
<SHARES-COMMON-STOCK> 3335475
<SHARES-COMMON-PRIOR> 2242856
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 6056
<ACCUMULATED-NET-GAINS> 6586
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2526009
<NET-ASSETS> 35803881
<DIVIDEND-INCOME> 807850
<INTEREST-INCOME> 153573
<OTHER-INCOME> 0
<EXPENSES-NET> 411360
<NET-INVESTMENT-INCOME> 550063
<REALIZED-GAINS-CURRENT> 1063263
<APPREC-INCREASE-CURRENT> 3079868
<NET-CHANGE-FROM-OPS> 4693194
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 525810
<DISTRIBUTIONS-OF-GAINS> 1034263
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11532815
<NUMBER-OF-SHARES-REDEEMED> 2127112
<SHARES-REINVESTED> 1588717
<NET-CHANGE-IN-ASSETS> 14127541
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 27236
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 320761
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 411360
<AVERAGE-NET-ASSETS> 31748908
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> 1.38
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> .32
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> ROYCE MICRO-CAP FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 92604170
<INVESTMENTS-AT-VALUE> 99420470
<RECEIVABLES> 707419
<ASSETS-OTHER> 8757
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100136646
<PAYABLE-FOR-SECURITIES> 2164166
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 243245
<TOTAL-LIABILITIES> 2407411
<SENIOR-EQUITY> 12971
<PAID-IN-CAPITAL-COMMON> 90702127
<SHARES-COMMON-STOCK> 12970866
<SHARES-COMMON-PRIOR> 4134829
<ACCUMULATED-NII-CURRENT> 55739
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 142098
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6816300
<NET-ASSETS> 97729235
<DIVIDEND-INCOME> 629358
<INTEREST-INCOME> 506195
<OTHER-INCOME> 0
<EXPENSES-NET> 1079814
<NET-INVESTMENT-INCOME> 55739
<REALIZED-GAINS-CURRENT> 2372160
<APPREC-INCREASE-CURRENT> 6249422
<NET-CHANGE-FROM-OPS> 8677321
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2163270
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 78958661
<NUMBER-OF-SHARES-REDEEMED> 16364647
<SHARES-REINVESTED> 1847447
<NET-CHANGE-IN-ASSETS> 70955512
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 818952
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1093861
<AVERAGE-NET-ASSETS> 55603508
<PER-SHARE-NAV-BEGIN> 6.48
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .19
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.53
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> ROYCE LOW-PRICED STOCK FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4540476
<INVESTMENTS-AT-VALUE> 4562276
<RECEIVABLES> 22446
<ASSETS-OTHER> 5143
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4589865
<PAYABLE-FOR-SECURITIES> 367938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 374812
<SENIOR-EQUITY> 750
<PAID-IN-CAPITAL-COMMON> 4049013
<SHARES-COMMON-STOCK> 750049
<SHARES-COMMON-PRIOR> 370451
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 143490
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21800
<NET-ASSETS> 4215053
<DIVIDEND-INCOME> 21360
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 49289
<NET-INVESTMENT-INCOME> (27929)
<REALIZED-GAINS-CURRENT> 529308
<APPREC-INCREASE-CURRENT> (32889)
<NET-CHANGE-FROM-OPS> 468490
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 356922
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2067601
<NUMBER-OF-SHARES-REDEEMED> 181994
<SHARES-REINVESTED> 338028
<NET-CHANGE-IN-ASSETS> 2335203
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37599
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 86980
<AVERAGE-NET-ASSETS> 2506573
<PER-SHARE-NAV-BEGIN> 5.07
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.14
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.62
<EXPENSE-RATIO> 1.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> ROYCE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2320584
<INVESTMENTS-AT-VALUE> 2561650
<RECEIVABLES> 16992
<ASSETS-OTHER> 5754
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2584396
<PAYABLE-FOR-SECURITIES> 23446
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13276
<TOTAL-LIABILITIES> 36722
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