ANNUAL REPORT
December 31, 1996
The REvest
Growth & Income
Fund
A No-Load Mutual Fund
Managed in Maine
A Value-Oriented
Investment In Small and
Medium-Sized Company Equities
A Series of The Royce Fund
Profile of the Fund
The REvest Growth & Income Fund ("REvest" or the "Fund") is
an open-end, diversified investment management company.
Thomas R. Ebright, President of Royce, Ebright & Associates,
Inc. ("RE&A"), a registered investment adviser, is
responsible for the management of the Fund"s portfolio,
subject to the authority of the Fund's Trustees.
REvest seeks long-term growth and secondarily current income
by investing in a diversified portfolio of common stocks and
convertible securities. Prospective portfolio investments
are selected on a value basis, and are limited to small and
medium-sized companies, viewed by the Fund's investment
adviser as having attractive financial characteristics
and/or growth prospects. By combining the prospect of growth
with a value-oriented selection process, we believe we are
able to buy GREAT COMPANIES at GREAT PRICES. These tenets
are elaborated upon in the following outline:
[BACK OF SUSAN B -- SMALL & MID-CAP STOCKS - We believe these securities
ANTHONY DOLLAR] have more potential for capital appreciation as they
have historically generated higher returns for investors, and are
generally less well-known, and thus more likely to be
improperly priced by the marketplace. The Fund will normally
invest at least 90% of its assets in common stocks,
convertible preferred stocks and convertible bonds. At least
80% of these securities will be income-producing, and 80% of
these will be issued by companies with market
capitalizations between $200 million and $2 billion.
[BACK OF SUSAN B -- VALUE-ORIENTATION, PLUS GROWTH - We look for companies
ANTHONY DOLLAR] with "value discrepancies," or market prices below our
assessment of their "real" business worth. We then select
companies from that group that have growth prospects which
will allow them to increase their long-term value. REvest
believes that profits can come from both the continued
success and growth of each portfolio company, as well as the
eventual elimination of any value discrepancy that we
believe was present at the time of purchase.
[BACK OF SUSAN B -- CONSISTENT PORTFOLIO CHARACTER - We will automatically
ANTHONY DOLLAR close the Fund to new investors at the end of any
calendar year during which its assets reach $350 million. Since we
specialize in small and medium size company equities, we
believe a larger asset base could limit our flexibility in
buying and selling for the Fund, or force us to invest in
more companies than we can closely follow. By placing
practical limits on our size, we believe we can make it
possible for the adviser to actively manage the portfolio,
and enable the Fund to maintain a constant character over
its lifetime.
MANAGER'S LETTER
Dear Friends:
[PHOTOGRAPH] 1996 should be remembered as the year when returns weren't
supposed to happen. The S&P 500 Index had never produced six
consecutive years of positive returns in its entire history.
The price-to-dividend ratio of the S&P 500 Index was below
3.0%, and at near record lows, predictive of lower returns
for stocks. We faced the prospect of an overheated economy
and higher interest rates, all normally negatives for the
stock market. Add to these factors the political gridlock
that was extended by an inconclusive election and what do
you get? Apparently, you get one of the strongest stock
markets of the last ten years with the S&P 500 Index up
23.0%!
Small company stocks played second fiddle to their larger
company brethren for the third consecutive year, with the
Russell 2000 Index up only 16.5%. The 1996 finish for small-
caps was even more disappointing given the fact that they
were actually leading large-cap stocks at mid-year, 10.4% to
10.2%. REvest, with its small-company, value-oriented
approach to investing achieved a 22.3% gain for its
shareholders in this environment, easily besting the primary
small-cap index.
We felt good about our performance during 1996. Beating
"our" index, the Russell 2000, was a step in the right
direction. However, we also have aspirations of beating the
S&P 500 Index over the long term. For this to happen we need
a market that is more favorable to small stocks. This is no
small order. As everyone knows, the market hasn't been very
friendly to small-cap stocks for some time. In fact, since
1983 ten out of the thirteen years have favored the big
boys.*
Usually what goes around, comes around. At some point,
obviously hard to pin down, we expect small company stocks
to resume market leadership. It may be hard to remember, but
prior to 1984, small-cap stocks led the market for seven out
of the nine years between 1974 and 1983.* Investors then
thought small-caps would go up forever just like today's
investors seem to believe that Dow and S&P 500-type stocks
can just keep going up and up. We believe that these sector-
oriented bull markets flip-flop back and forth as their
relative valuations reach extremes. Today, we believe that
we could make the argument that many small-cap stocks are
now statistically "cheaper" than the typical S&P 500-type
stock after the long, large-cap bull market of 1984-1996.
Our portfolio is, we believe, a good example of this better
valuation argument. Our stocks, on average, have lower price-
to-earnings and price-to-book ratios, higher dividend
yields, higher returns on their assets and equity, and
higher growth rates than the typical S&P 500 stock. In this
sense we have both a cheaper and better portfolio of
companies. We believe that they deserve to be differently
priced, presumably higher!
We continue to describe ourselves as the third baseman on
our shareholder's mutual fund team, a player who strives for
excellence in that position only and who will not wander
around the field trying to do other things. While we hope
the playing conditions for small company stocks get better,
we intend to continue playing our position, and our position
only, because of the long-term confidence we have in this
type of work.
We continue to believe that our commitment to a "fixed"
style that is both disciplined and consistent is the key
reason (other than returns) why investors have continued to
invest with us. We, and hopefully you, are pleased with our
1996 performance. On a going forward basis, we believe our
portfolio is well prepared for 1997. Your continued support
of our work through the ownership of your shares is much
appreciated.
Sincerely,
Thomas R. Ebright
Portfolio Manager
President, Royce, Ebright & Associates, Inc.
February 3, 1997
Note: The S&P 500 and the Russell 2000 are unmanaged
indices and include the reinvestment of dividends.
*Source: Barron's 1/13/97, Article entitled "Laggards Revenge."
PORTFOLIO SUMMARY
The following (unaudited) information provides a "bird's
eye" view of the REvest portfolio as of December 31, 1996.
For a more complete picture, the full portfolio and
accompanying financial statements should be read in their
entirety.
Portfolio Composition Value % of Net Assets
____________________________________________________________________________
[S] [C] [C]
Common Stocks:
Micro-Caps (under $200M) $ 5,747,283 13.6%
Small-Caps ($200M - $1B) 22,083,403 52.5%
Mid-Caps ($1B - $2B) 8,728,743 20.7%
Convertible Bonds 2,759,625 6.6%
Non-Convertible Bond 710,500 1.7%
Cash & Other Net Assets 2,069,293 4.9%
----------- ----
Total Net Assets $42,098,847 100.0%
---------- -----
---------- -----
Industry Concentration 12/31/95 versus 12/31/96 (% of Net Assets)
_________________________________________________________________
[BAR GRAPH]
Average Financial Characteristics of Portfolio Companies
_________________________________________________________________________
Market Capitalization $611 Million
P/E Ratio 15.8x
P/B Ratio 1.9x
Return on Assets 6.9%
Return on Equity 15.8%
Compound 5-Year Growth Rate 15.7%
Gross Portfolio Yield 2.8%
Top Ten Positions Market Value % of Net Assets
_____________________________________________________________________________
[S] [C] [C]
1. Peoples Heritage Financial Group $1,260,000 3.0%
2. Kimball International, Inc. Class B 1,117,125 2.7%
3. The Dress Barn, Inc. 1,095,000 2.6%
4. Storage Technology Corporation 8%
Conv. Sub. Deb. due 5/31/15 1,089,000 2.6%
5. Berry Petroleum Company Class A 1,042,187 2.5%
6. Mercantile Bankshares Corporation 1,008,000 2.4%
7. Susquehanna Bancshares, Inc. 984,216 2.3%
8. Penn Virginia Corporation 981,750 2.3%
9. Barrett Resources Corporation 956,505 2.3%
10. Cousins Properties Incorporated 956,250 2.3%
Major Portfolio Changes (Listed in Descending Order of Value)
____________________________________________________________________________
Ten Largest Purchases: Ten Largest Sales:
1. Snyder Oil Corporation (+)* 1. KCS Energy, Inc. (x)
2. Richardson Electronics, Ltd. (+)* 2. Pyxis Corporation (x)
3. Donegal Group Inc. (+) 3. PHH Corporation (x)
4. Kennametal Inc. (+) 4. W. R. Berkeley Corp. (x)
5. Cirrus Logic Inc. (+) 5. Arnold Industries, Inc. (x)
6. FEI Company (+) 6. C-TEC Corporation (x)
7. Sequa Corporation (+)* 7. Diebold, Incorporated (x)
8. Cohu, Inc. (+) 8. Zero Corporation (x)
9. AMETEK, Inc. (+) 9. Crompton & Knowles Corp. (x)
10. Arrow International, Inc. (+) 10. MedCath Incorporated (x)
(+) Position Added (x) Position Eliminated
* Debt Securities
Top Ten Contributors to the Change in Net Asset Value per Share
____________________________________________________________________________
[BAR GRAPH]
PORTFOLIO PROCESS
One question portfolio managers frequently get asked is "How
do you go about determining which stocks to put in your
Fund's portfolio?" To answer this question, we have
developed the following pictorial which goes step-by-step
through the decision making process:
Most prospects are identified through our own screening [PHOTOGRAPH]
efforts. By selecting various price and performance
parameters, we can reduce the large universe of companies
(over 7,000) down to a manageable short-list of candidates
for further exploration. The goal is to determine quickly
whether or not a particular company is worth spending
serious research time on, so that our energy can be more
effectively utilized.
[PHOTOGARPH] Once we have gathered all the appropriate public
information, a member of the research staff carefully
reviews the material. We try to determine whether the
company has a viable plan for its future growth and
development, and whether there is evidence that its recent
initiatives have produced the intended result(s). We also
try to identify what we call "critical issues," or those
factors which effect the company or its business in a
significant way. If a particular company appears to be a
"great company" at a "great price," the entire staff is
encouraged to become involved with the investigation of the
prospect.
The next step is visitation. The primary objective here is [PHOTOGRAPH]
to test our understanding of the company by exploring the
critical issues with management. Visitation also provides an
opportunity to view company facilities first-hand, to
determine their condition, usage and value. All these
factors help improve the decision making process, reducing
its risk and the potential for error. In the picture to the
right, the REvest team is seen touring a Hannaford Brothers
distribution center with Charles Crockett, their Director of
Investor Relations.
The final step is valuation. We use several valuation [PHOTOGRAPH]
techniques to cross-confirm our appraisal of each prospect's
business worth, and to determine whether or not there is a
"value discrepancy" between this value and the market price.
In addition, we attempt to identify those growth or
"vitality" factors that could increase the prospect's value
over our period of ownership. A limited number of companies
that pass through this process, about 50-65, become the
REvest portfolio.
PERFORMANCE DISCUSSION
In the first half of 1996, there was little performance
divergence, either by capitalization-size (large versus
small) or by style (growth versus value). Small-cap stocks
barely edged out large-cap stocks, with the Russell 2000
Index up 10.4% and the S&P 500 Index up 10.2%. Within the
small-cap universe, the Russell 2000 Growth Index beat the
Russell 2000 Value Index, 11.9% versus 8.6%, respectively.
REvest finished this period up 9.5%, more or less right in
the middle. The principle good news of early 1996 was the
better relative performance of small-cap stocks, which beat
large-cap stocks for the first time since 1993.
This equilibrium was quickly broken in the second half of
the year. In July alone, the Russell 2000 Growth Index
declined 12.2%, as compared to the S&P 500's 4.5% descent.
Most of this downdraft was due to a severe decline in the
prices of smaller-cap technology stocks. Although small
company growth stocks never fully recovered (ending down
0.6% for the last six months), both the value-oriented
stocks in the small-cap Russell 2000 (Value Index up 11.7%)
and the large-cap S&P 500 Index (up 11.8%) recouped their
losses and promptly moved ahead to new highs. REvest also
successfully recovered from the market's July problems,
gaining 11.7% in the second half, virtually matching the
value segment of the Russell 2000 Index.
REvest, with its value orientation, and small and mid-cap
sized companies, was close to the "right place to be" in
1996. Only the S&P 500, with its full-year 23.0% return,
beat REvest's 22.3% return. By contrast, REvest finished
ahead of the Russell 2000 Value Index, up 21.3%; the Russell
2000 Growth Index, up 11.2%; and the Russell 2000 Index
itself, up 16.5%. This shift in sentiment, to favoring value
over growth, marks the first time since the Fund's inception
that the market was favorable to the Fund's style of
investing.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INITIAL INVESTMENT
ON 8/1/94* BETWEEN THE REVEST GROWTH & INCOME FUND, THE S&P 500
AND THE RUSSELL 2000
[BAR GRAPH]
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/96 12/31/95 12/31/94*
[S] [C] [C] [C]
REvest total return 22.3% 16.2% -2.9%
S&P 500 total return 23.0% 37.6% 1.5%
Russell 2000 total return 16.5% 28.4% 3.3%
The above table and preceding narrative depict the
historical returns of REvest, the S&P 500, an unmanaged
index representative of large-company stocks, and the
Russell 2000, Russell 2000 Value and Growth indices,
unmanaged indices representative of small-company stocks.
The Fund's present investment philosophy was followed in
each of the periods identified. All results presented in
this Report are on a "total return" basis, which assumes
that all dividends and distributions were reinvested. No
redemption fees are included because they apply only to
accounts open for less than one year.
The results presented in this Report represent past
performance and should not be considered representative of
the "total return" from an investment in the Fund today.
They are provided only to give an historical perspective of
the Fund. The investment return and principal value of the
Fund's shares will fluctuate so that the shares may be worth
more or less than their original cost when redeemed.
*Commencement of Operations - August 1, 1994
SCHEDULE OF INVESTMENTS (at 12/31/96)
Common Stocks and Bonds- 95.1%
Shares or Principal Value Cost Value
[S] [C] [C]
CONSUMER PRODUCTS - 12.0%
45,000 Haggar Corporation $689,756 $714,375
19,000 LaDZDBoy Chair Company 565,324 560,500
17,000 National Presto Industries, Inc. 703,774 635,375
39,000 Oxford Industries, Inc. 705,543 936,000
36,000 The Rival Company 704,136 895,500
50,500 Russ Berrie and Company, Inc. 699,088 909,000
11,000 The Toro Company 375,045 401,500
--------- ---------
4,442,666 5,052,250
--------- ---------
ENERGY - 9.2%
22,440 Barrett Resources Corporation* 444,167 956,505
72,500 Berry Petroleum Company Class A 701,116 1,042,187
21,000 Penn Virginia Corporation 710,287 981,750
$900,000 Snyder Oil Corporation 7% Conv.
Sub. Notes due 5/15/01 818,156 905,625
--------- ---------
2,673,726 3,886,067
--------- ---------
FINANCIAL - 14.9%
39,000 Donegal Group Inc. 713,315 799,500
30,337 Keystone Financial, Inc. 598,230 758,425
34,121 Keystone Heritage Group, Inc. 690,372 784,783
31,500 Mercantile Bankshares Corporation 701,890 1,008,000
45,000 Peoples Heritage Financial
Group, Inc. 691,402 1,260,000
17,000 Protective Life Corporation 405,722 677,875
28,425 Susquehanna Bancshares, Inc. 702,686 984,216
--------- ---------
4,503,617 6,272,799
--------- ---------
HEALTH - 5.8%
10,000 Analogic Corporation 290,000 335,000
24,000 Arrow International, Inc. 690,900 690,000
12,000 Diagnostic Products Corporation 341,340 310,500
40,000 Haemonetics Corporation* 653,825 755,000
13,000 Invacare Corporation 351,000 357,500
--------- ---------
2,327,065 2,448,000
--------- ---------
INDUSTRIAL CYCLICALS - 16.5%
40,000 Ametek, Inc. 694,246 890,000
16,000 Baldor Electric Company 348,445 394,000
34,500 CLARCOR Inc. 702,027 763,313
30,000 Crompton & Knowles Corporation 409,067 577,500
29,000 Greif Brothers Corporation Class A 707,330 819,250
22,000 Kennametal, Inc. 702,102 855,250
27,000 Kimball International, Inc. Class B708,254 1,117,125
26,900 Matthews International Corporation
Class A 528,120 759,925
19,500 Rayonier, Inc. 690,490 748,313
--------- ---------
5,490,081 6,924,676
--------- ---------
REAL ESTATE - 6.4%
34,000 Cousins Properties Incorporated 597,529 956,250
38,000 Manufactured Home Communities, Inc.695,360 883,500
34,000 New Plan Realty Trust 701,292 862,750
--------- ---------
1,994,181 2,702,500
--------- ---------
Shares or Principal Value Cost Value
RETAIL - 7.4%
33,000 Cracker Barrel Old Country
Store, Inc. $704,617 $837,375
73,000 The Dress Barn, Inc.* 702,365 1,095,000
25,000 Hannaford Brothers Company 691,438 850,000
26,000 Lillian Vernon Corporation 360,304 318,500
--------- ---------
2,458,724 3,100,875
--------- ---------
SERVICES - 9.2%
22,000 BHC Financial, Inc. 347,650 346,500
18,000 Chemed Corporation 703,735 657,000
78,000 Lucor, Inc. Class A* 454,375 585,000
$900,000 Richardson Electronics, Ltd. 7.25%
Conv. Sub. Deb. due 12/15/06 780,000 765,000
$700,000 Sequa Corporation 9.375% Sr.
Sub. Notes due 12/15/03 696,834 710,500
25,000 The Standard Register Company 461,485 812,500
--------- ---------
3,444,079 3,876,500
--------- ---------
TECHNOLOGY - 13.7%
38,500 Cirrus Logic, Inc.* 700,819 596,750
32,100 Cohu, Inc. 623,892 746,325
50,000 Exabyte Corporation* 696,375 668,750
55,000 FEI Company* 699,393 515,625
51,000 Gilbert Associates, Inc. Class A 702,012 701,250
13,000 Helix Technology Corporation 351,475 377,000
$800,000 Storage Technology Corporation
8% Conv. Sub. Deb. due 5/31/15 750,250 1,089,000
13,500 Teleflex Incorporated 498,745 703,687
15,000 Watkins Johnson Co. 372,300 367,500
--------- ---------
5,395,261 5,765,887
--------- ---------
TOTAL COMMON STOCKS AND CORPORATE BONDS 32,729,400 40,029,554
U.S. TREASURY OBLIGATIONS - 4.8%
$1,000,000 U.S. Treasury Notes 6.75%
due 2/28/97 982,969 1,002,340
$1,000,000 U.S. Treasury Notes 6.00%
due 10/15/99 987,266 1,000,310
------- ---------
TOTAL U.S. TREASURY OBLIGATIONS 1,970,235 2,002,650
REPURCHASE AGREEMENT - 0.2%
State Street Bank and Trust Company, 4.90%
due 1/02/97, collateralized by U.S.
Treasury Notes 6.75% due 4/30/00,
valued at $103,372 100,000 100,000
------- -------
TOTAL INVESTMENTS - 100.1% $34,799,635 42,132,204
---------- ----------
---------- ----------
LIABILITIES LESS CASH AND OTHER ASSETS D (.1%) (33,357)
--------
TOTAL NET ASSETS - 100.0% $42,098,847
----------
----------
*Non-income producing.
INCOME TAX INFORMATION - The cost for federal income tax
purposes was $34,758,881. At December 31, 1996, net
unrealized appreciation for all securities amounted to
$7,373,323, consisting of aggregate gross unrealized
appreciation of $7,903,998 and aggregate gross unrealized
depreciation of $530,675. The Fund designates $1,670,285 as
a capital gain dividend for the purpose of the dividend paid
deduction.
The accompanying notes are an integral part of the financial statements.
STATEMENT OF ASSETS AND LIABILITIES (at 12/31/96)
[S] [C]
ASSETS:
Investments at value (identified cost $34,799,635) $42,132,204
Cash 37,879
Receivable for investments sold 113,330
Receivable for capital shares sold 13,850
Receivable for dividends and interest 97,813
----------
TOTAL ASSETS 42,395,076
----------
LIABILITIES:
Dividend payable 165,975
Payable for capital shares redeemed 67,752
Investment advisory fee payable 36,413
Accrued expenses 26,089
-------
TOTAL LIABILITIES 296,229
NET ASSETS $42,098,847
----------
----------
ANALYSIS OF NET ASSETS:
Distributions in excess of net investment income $ (11,703)
Distributions in excess of net realized gain on investments (14,842)
Net unrealized appreciation on investments 7,332,569
Capital shares 3,448
Additional paid-in capital 34,789,375
-----------
NET ASSETS $42,098,847
----------
----------
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($42,098,847 & 3,448,123 shares outstanding) $12.21
-----
-----
STATEMENT OF CHANGES IN NET ASSETS
Years ended December 31,
1996 1995
_________ _________
[S] [C] [C]
INVESTMENT OPERATIONS:
Net investment income $ 670,454 $ 550,063
Net realized gain on investments 2,201,712 1,063,263
Net change in unrealized appreciation
on investments 4,806,560 3,079,868
--------- ---------
Net increase in net assets resulting
from investment operations 7,678,726 4,693,194
DIVIDENDS AND DISTRIBUTIONS:
Net investment income (675,154) (525,810)
Net realized gain on investments (2,223,159) (1,034,263)
----------- -----------
(2,898,313) (1,560,073)
CAPITAL SHARE TRANSACTIONS:
Net increase in net assets from capital
share transactions 1,514,553 10,994,420
--------- ----------
NET INCREASE IN NET ASSETS 6,294,966 14,127,541
NET ASSETS:
Beginning of year 35,803,881 21,676,340
---------- ----------
End of year (including distributions in
excess of net investment income of
$11,703 and $6,056, respectively) $42,098,847 $35,803,881
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements.
STATEMENT OF OPERATIONS (at 12/31/96)
[S] [C]
INVESTMENT INCOME:
Income:
Dividends $ 829,917
Interest 327,767
---------
Total Income 1,157,684
---------
Expenses:
Investment advisory fee 375,493
Custodian and transfer agent fees 30,789
Professional fees 21,187
Administrative and office facilities 22,402
Federal and state registration fees 14,321
Trustees' fees 4,213
Other expenses 18,825
------
Total Expenses 487,230
-------
Net Investment Income 670,454
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 2,201,712
Net change in unrealized appreciation on investments 4,806,560
---------
Net realized and unrealized gain on investments 7,008,272
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,678,726
---------
---------
FINANCIAL HIGHLIGHTS
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the
Fund's performance.
<TABLE>
Period ended
Years ended December 31, December 31,
1996 1995 1994
________________________ ____________
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.73 $9.66 $10.00
----- ---- -----
INVESTMENT OPERATIONS:
Net Investment Income 0.21 0.18 0.04
Net realized and unrealized gain (loss) on investments 2.16 1.38 (0.33)
---- ---- ------
Total from investment operations 2.37 1.56 (0.29)
---- ---- ------
DIVIDENDS AND DISTRIBUTIONS:
Net investment income (0.21) (0.17) (0.05)
Net realized gain on investments (0.68) (0.32) -
------ ------ ------
Total dividends and distributions (0.89) (0.49) (0.05)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.21 $10.73 $9.66
----- ----- ----
TOTAL RETURN 22.3% 16.2% -2.9%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $42,099 $35,804 $21,676
Ratio of Expenses to Average Net Assets (a) 1.29% 1.30% 1.42%*
Ratio of Net Investment Income to Average Net Assets 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 64% 53% 5%
Average Commission Rate Paid+ $0.0580 - -
</TABLE>
* Annualized.
+ For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investments.
(a) The ratio of expenses to average net assets before waiver of fees by
the Investment adviser would have been 1.78% for the period ended
December 31, 1994.
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The REvest Growth & Income Fund (the "Fund") is a series of
The Royce Fund (the "Trust"), a diversified open-end
investment management company. The Trust, originally
established as a business trust under the laws of
Massachusetts, converted to a Delaware business trust at the
close of business on June 28, 1996. The Fund commenced
operations on August 1, 1994.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could
differ from those estimates.
a. Valuation of investments:
Securities listed on an exchange or on the Nasdaq National
Market System are valued on the basis of the last reported
sale prior to the time the valuation is made, or if no sale
is reported for such day, at their bid price for exchange-
listed securities and at the average of their bid and asked
prices for Nasdaq securities. Quotations are taken from the
market where the security is primarily traded. Other over-
the-counter securities for which market quotations are
readily available are valued at their bid price. Securities
for which market quotations are not readily available are
valued at their fair value under procedures established and
supervised by the Board of Trustees. Bonds and other fixed
income securities may be valued by reference to other
securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the trade date
and dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis. Realized
gains and losses from investment transactions and unrealized
appreciation and depreciation of investments are determined
on the basis of identified cost for book and tax purposes.
c. Taxes:
As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the Fund is not subject to
income taxes to the extent that it distributes substantially
all of its taxable income for its fiscal year. The schedule
of investments includes information regarding income taxes
under the caption "Income Tax Information."
d. Distributions:
The Fund declares dividends on a quarterly basis and capital
gain distributions annually. These dividends and
distributions are recorded on the ex-date and are determined
in accordance with income tax regulations which may differ
from generally accepted accounting principles. Permanent
book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid-in
capital and may affect net investment income per share.
Undistributed net investment income may include temporary
book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
e. Repurchase agreements:
The Fund enters into repurchase agreements with respect to
its portfolio securities solely with State Street Bank and
Trust Company ("SSB&T"), the custodian of its assets. The
Fund restricts repurchase agreements to maturities of no
more than seven days. Securities pledged as collateral for
repurchase agreements are held by SSB&T until maturity of
the repurchase agreements. Repurchase agreements could
involve certain risks in the event of default or insolvency
of SSB&T, including possible delays or restrictions upon the
ability of the Fund to dispose of the underlying securities.
2. INVESTMENT ADVISER:
Under the Trust's investment advisory agreement with Royce,
Ebright & Associates, Inc. ("RE&A"), the Fund accrued and
paid RE&A fees totaling $375,493 for the year ended December
31, 1996. The agreement provides for fees equal to 1.0% per
annum of the first $50 million of the Fund's average net
assets and 0.75% per annum of any additional average net
assets over $50 million. These fees are computed daily and
are payable monthly to RE&A.
3. FUND SHARES:
The Board of Trustees has authority to issue an unlimited
number of shares of beneficial interest of the Fund, with a
par value of $.001. Share transactions were as follows:
For the year For the year
ended ended
December 31, 1996 December 31, 1995
________________ ________________
Shares Amount Shares Amount
[S] [C] [C] [C] [C]
Sold 417,971 $4,876,471 1,147,378 $11,532,815
Issued as reinvested
dividends and
distributions 223,492 2,702,689 149,814 1,588,717
Redeemed (528,815) (6,064,607) (204,573) (2,127,112)
Shares redeemed within one year of purchase are subject to a
1.0% redemption fee.
4. PURCHASE AND SALES OF SECURITIES:
For the year ended December 31, 1996, the cost of purchases
and the proceeds from sales of investment securities, other
than short-term securities, amounted to $23,112,378 and
$23,817,335, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of The Royce Fund and Shareholders
of The REvest Growth & Income Fund:
We have audited the accompanying statement of assets and
liabilities of The REvest Growth & Income Fund, including
the schedule of investments as of December 31, 1996, the
related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years
in the period then ended, and the financial highlights for
each of the two years in the period then ended and for the
period from August 1, 1994 (commencement of operations) to
December 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these
financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial
highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of The REvest Growth &
Income Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended,
and the financial highlights for each of the two years in
the period then ended and for the period from August 1, 1994
(commencement of operations) to December 31, 1994 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 7, 1997
MEET THE REVEST STAFF
Thomas R. Ebright is President and controlling shareholder [PHOTOGRAPH]
of RE&A. As such, he is responsible for management of the
Fund's portfolio and RE&A's business operations. Tom has
over 20 years of investment management experience with Penn
Square Management Corp. and Quest Advisory Corp. He helped
build the Quest organization from $50 million in assets in
1978 to over $3 billion in 1994. A graduate of Drexel
University and Harvard Graduate School of Business
Administration, he enjoys ice hockey, trains and spending
time with his wife Joyce and two daughters Jennifer and
Ellen.
[PHOTOGRAPH] Jennifer E. Goff is Vice President and Director of Research
at RE&A. She acts as primary assistant to Mr. Ebright in the
general research efforts. Prior to coming to RE&A, she
worked as an analyst at Quest Advisory Corp. in New York
City. A graduate of Dartmouth College and Columbia
University's Graduate School of Business, Jen enjoys
watching ice hockey, traveling and spending time with her
new husband John.
Michael T. McNamara is Vice President and our Customer [PHOTOGRAPH]
Service Officer at RE&A. He is responsible for answering
shareholder questions and customer inquiries. He also aids
the research process by heading up our screening activities
and participating in prospect evaluations. Prior to coming
to RE&A, Mike graduated from Fairfield University. Outside
of work he enjoys playing golf, traveling and spending time
at his family's summer home in Islesboro, Maine.
[PHOTOGRAPH] Johanna J. Bondeson is the Office Manager and our On-Premise
Computer Authority. Jodi is responsible for coordinating
inter-office activities, as well as maintaining the
accounting system and preforming most of the back office
operations specifically for RE&A. A graduate from the
University of Southern Maine, she enjoys camping, hiking and
skiing in her free time.
HOME SWEET HOME
[PHOTOGRAPH]
The office of the adviser to the Fund, Royce, Ebright & Associates, Inc.
Is located on the top floor of the building pictured at 50 Portland Pier
in downtown Portland, Maine. The adviser encourages shareholders to visit
If they are planning a trip to Maine. In addition to parking on our pier,
there is mooring space for our customers' yachts.
CUSTOMER SERVICE
1. If I HAVE QUESTIONS OR NEED LITERATURE ABOUT THE FUND WHO MAY I CALL?
Call Mike McNamara, RE&A's customer service officer, at 800-277-5573.
The RE&A office is open from 9:00am to 5:30pm (Eastern Time) every
business day.
2. If I HAVE QUESTIONS ABOUT THE FUND'S INVESTMENTS WHO SHOULD I CALL?
Call Tom Ebright, the portfolio manager, at 800-277-5573. We're one of
a small number of funds where the manager is available to talk directly
to investors. If Tom's traveling he'll return your call when he returns
to the office. We try to treat our investors as true partners with us,
in the Fund.
3. HOW OFTEN DOES THE FUND MAIL OUT STATEMENTS?
Cumulative year-to-date statements are mailed out after each transaction
and after each dividend. Tax information is mailed by January 31st of
each year. The Fund distributes formal Semi-Annual and Annual Reports
which are mailed to each shareholder in August and February.
4. DOES THE FUND MAINTAIN A MAILING LIST FOR THE BENEFIT OF ITS "STREET
NAME" SHAREHOLDERS
Yes, if your shares are held in a brokerage account and you would like
to receive your mailings directly from the Fund call Mike McNamara in
RE&A's office and we will add your name to the Fund's mailing list.
This will get Fund material to you much faster and allow us to contact
you directly by mail.
5. IS IT CORRECT THAT THERE ARE NO SALES CHARGES OR 12B-1 FEES?
Yes, not one penny of your investment goes to any sales charge or 12b-1
fee. The Fund is one of the so-called "pure" no-load Funds. You will
rarely, if ever, see the Fund advertised to investors. We believe that
the Fund should sell itself because it does a good job for its investors.
6. IS THE FUND AVAILABLE FOR IRA INVESTMENTS AND OTHER RETIREMENT PLANS?
Yes, the Fund offers both IRA and 403(b)(7) plans to its investors.
Because of the Fund's philosophy and long-term approach to investing,
we believe that it may be an appropriate vehicle for all types of
retirement plans.
7. WHEN DOES THE FUND PAY INCOME AND CAPITAL GAIN DISTRIBUTIONS?
The Fund makes quarterly income distributions and an annual capital
gain distribution at the end of December. A preliminary, non-binding
estimate of the amount of the year-end distributions is available to
shareholders by calling the RE&A office any time after the Thanksgiving
holiday. Distributions are automatically reinvested unless we receive
other instructions from the shareholder.
8. WHY DOES THE FUND IMPOSE A 1% REDEMPTION FEE DURING THE FIRST YEAR
OF OWNERSHIP?
This fee is charged to discourage short-term trading in the Fund's
shares. When short-term investors trade in and out of a mutual fund,
they increase the costs of operations for the permanent shareholders.
This activity can also disrupt the investment plan for the portfolio
and reduce overall returns. When charged, the 1% fee recovers the costs
of this disruption for the rest of the shareholders.
HISTORICAL PRICE & DISTRIBUTION CHART
<TABLE>
Quarter Payable Distribution Reinvest
Ending Price Date Amount Type Price
<S> <C> <C> <C> <C> <C>
8/01/94* 10.00*
9/30/94 10.04 None
12/31/94 9.66 12/30/94 0.050 Income 9.66
3/31/95 10.00 3/24/95 0.045 Income 9.91
6/30/95 10.55 6/30/95 0.045 Income 10.55
9/30/95 11.16 9/25/95 0.040 Income 11.20
12/31/95 10.73 12/29/95 0.040 Income 10.73
12/29/95 0.160 ST Gains 10.73
12/29/95 0.160 LT Gains 10.73
3/31/96 11.26 3/15/96 0.050 Income 11.06
6/30/96 11.65 6/14/96 0.050 Income 11.90
9/30/96 11.92 9/13/96 0.060 Income 11.77
12/31/96 12.21 12/31/96 0.050 Income 12.21
12/31/96 0.160 ST Gains 12.21
12/31/96 0.520 LT Gains 12.21
</TABLE>
*Initial offering date and price.
Special Note: The Fund maintains a "direct" mailing list especially for its
"street name" shareholders. This will speed up your receipt of all Fund
mailings such as our financial reports and special interim shareholder
letters. If you are not on the mailing list and would like to be included,
please call Mike McNamara, our customer service officer, and he will add
your name.
This report must be accompanied or preceded by a current Prospectus of
the Fund.
Royce, Ebright & Associates, Inc.
Investment Adviser
50 Portland Pier
Portland, ME 04101-4721
(207) 774-7455 (800) 277-5573
Fax (207) 772-7370
REvest Growth & Income Fund
1414 Avenue of the Americas
New York, New York 10019
(800) 221-4268
A Series of The Royce Fund
