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<PAGE> PAGE 2
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007 C021200 PENNSYLVANIA MUTUAL FUND
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007 C021300 PMFII
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 13
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<PAGE> PAGE 20
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<PAGE> PAGE 21
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<PAGE> PAGE 22
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<PAGE> PAGE 23
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<PAGE> PAGE 24
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<PAGE> PAGE 25
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<PAGE> PAGE 26
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<PAGE> PAGE 27
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<PAGE> PAGE 28
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<PAGE> PAGE 29
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<PAGE> PAGE 30
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<PAGE> PAGE 31
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<PAGE> PAGE 32
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<PAGE> PAGE 33
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<PAGE> PAGE 34
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<PAGE> PAGE 35
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<PAGE> PAGE 36
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<PAGE> PAGE 38
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<PAGE> PAGE 39
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<PAGE> PAGE 40
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<PAGE> PAGE 41
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<PAGE> PAGE 42
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<PAGE> PAGE 43
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<PAGE> PAGE 44
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<PAGE> PAGE 45
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<PAGE> PAGE 46
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<PAGE> PAGE 47
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<PAGE> PAGE 48
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<PAGE> PAGE 49
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<PAGE> PAGE 50
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<PAGE> PAGE 51
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<PAGE> PAGE 52
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<PAGE> PAGE 53
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<PAGE> PAGE 55
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<PAGE> PAGE 56
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SIGNATURE JOHN E. DENNEEN
TITLE SECRETARY
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 7
<NAME> ROYCE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
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<ACCUMULATED-NII-CURRENT> (72122)
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<ACCUMULATED-NET-GAINS> 1028379
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 449929
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 8
<NAME> ROYCE TOTAL RETURN FUND
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 9
<NAME> REVEST GROWTH & INCOME FUND
<S> <C>
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9062647
<NET-ASSETS> 55485325
<DIVIDEND-INCOME> 438546
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<EXPENSES-NET> 292977
<NET-INVESTMENT-INCOME> 429196
<REALIZED-GAINS-CURRENT> 2163729
<APPREC-INCREASE-CURRENT> 1730078
<NET-CHANGE-FROM-OPS> 4323003
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<DISTRIBUTIONS-OF-INCOME> 417747
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<NUMBER-OF-SHARES-SOLD> 16479269
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<SHARES-REINVESTED> 388187
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 10
<NAME> ROYCE GLOBAL SERVICES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
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<ACCUMULATED-NET-GAINS> 125218
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<NET-INVESTMENT-INCOME> (1443)
<REALIZED-GAINS-CURRENT> 68348
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 11
<NAME> ROYCE GIFTSHARES FUND
<S> <C>
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<PAID-IN-CAPITAL-COMMON> 1331969
<SHARES-COMMON-STOCK> 241
<SHARES-COMMON-PRIOR> 183
<ACCUMULATED-NII-CURRENT> 1201
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 80570
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 163509
<NET-ASSETS> 1577490
<DIVIDEND-INCOME> 9442
<INTEREST-INCOME> 828
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<EXPENSES-NET> 9069
<NET-INVESTMENT-INCOME> 1201
<REALIZED-GAINS-CURRENT> 66577
<APPREC-INCREASE-CURRENT> 86553
<NET-CHANGE-FROM-OPS> 154331
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<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 369770
<NUMBER-OF-SHARES-REDEEMED> 10200
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 513901
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 13993
<OVERDISTRIB-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 5.83
<PER-SHARE-NII> 0
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<PER-SHARE-NAV-END> 6.54
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 12
<NAME> PENNSYLVANIA MUTUAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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<PAID-IN-CAPITAL-COMMON> 342180345
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<OVERDISTRIBUTION-GAINS> 0
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<REALIZED-GAINS-CURRENT> 26937131
<APPREC-INCREASE-CURRENT> 29104286
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000709364
<NAME> THE ROYCE FUND
<SERIES>
<NUMBER> 13
<NAME> PMF II
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<PERIOD-END> JUN-30-1997
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17263682
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<SHARES-COMMON-PRIOR> 3394
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<ACCUMULATED-NET-GAINS> 795819
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1363721
<NET-ASSETS> 19617836
<DIVIDEND-INCOME> 263682
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<OTHER-INCOME> 0
<EXPENSES-NET> 89691
<NET-INVESTMENT-INCOME> 180259
<REALIZED-GAINS-CURRENT> 798691
<APPREC-INCREASE-CURRENT> 892219
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<NUMBER-OF-SHARES-SOLD> 1538609
<NUMBER-OF-SHARES-REDEEMED> 1649123
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2872)
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<PER-SHARE-NII> .05
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</TABLE>
N-SAR ATTACHMENT
Item 77(C)
At a Special Meeting of Shareholders of Royce Equity
Income Fund held on May 28, 1997, the shareholders approved
a plan of organization providing for (i) the acquisition of
all of the assets and the assumption of all of the
liabilities of Royce Equity Income Fund by Royce Total
Return Fund in exchange for Royce Total Return Fund shares,
and (ii) the liquidation of Royce Equity Income Fund and the
pro rata distribution of its Royce Total Return Fund shares
to its shareholders, as follows:
Votes Cast For Votes Cast Against Votes Abstained
-------------- ------------------ ---------------
2,954,103 266,234 110,879
At a Special Meeting of Shareholders of Royce Value
Fund held on May 28, 1997, the shareholders approved a plan
of reorganization providing for (i) the acquisition of all
of the assets and the assumption of all of the liabilities
of Royce Value Fund by Pennsylvania Mutual Fund in exchange
for shares of Pennsylvania Mutual Fund's Consultant Class,
and (ii) the liquidation of Royce Value Fund an the pro rata
distribution of its Pennsylvania Mutual Fund Consultant
Class shares to its shareholders, as follows:
Votes Cast For Votes Cast Against Votes Abstained
-------------- ------------------ ---------------
7,096,825 225,333 301,819
At a Special Meeting of Shareholders of Royce
Giftshares Fund held on May 28, 1997, the shareholders
approved a distribution plan for shares of Royce Giftshares
Fund providing for payments by Royce Giftshares Fund at a
maximum annual rate of .25% of the average daily net assets
of Royce Giftshares Fund's shares, as follows:
Votes Cast For Votes Cast Against Votes Abstained
-------------- ------------------ ---------------
198,367.44 - 0 - - 0 -
THE ROYCE FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
May 2, 1997
Dear Shareholder:
The Board of Trustees of The Royce Fund has recently
approved and unanimously endorsed a proposal for Royce Value
Fund, a series of The Royce Fund, to be acquired by Pennsylvania
Mutual Fund, a series of The Royce Fund, in exchange for shares
of a newly-created Consultant Class of Pennsylvania Mutual Fund
("Pennsylvania Mutual"). Pennsylvania Mutual, which has more
than 20 years of operating history and $456,867,950 million of
net assets as of December 31, 1996, has the same investment objective
and substantially identical investment policies and restrictions as
Royce Value Fund.
As a result of this transaction, Royce Value Fund would be
combined with Pennsylvania Mutual and you would become a
shareholder of Pennsylvania Mutual. The aggregate net asset
value of your shares of Royce Value Fund will be equal to the
aggregate net asset value of the Pennsylvania Mutual Consultant
Class shares that you will receive as a result of the
Combination. The Combination is anticipated to be tax-free for
Federal income tax purposes.
THE COMBINATION IS BEING PROPOSED BECAUSE IT IS BELIEVED
THAT THE COMBINED PENNSYLVANIA MUTUAL WILL HAVE LOWER ADVISORY
AND OTHER OPERATING EXPENSE RATIOS, BEFORE FEE WAIVERS, THAN
ROYCE VALUE FUND OR THE INVESTMENT CLASS OF PENNSYLVANIA MUTUAL.
The Board has called a Special Meeting of Shareholders to be
held on May 28, 1997 to consider this transaction. YOUR VOTE IS VERY
IMPORTANT! If the Fund does not receive a sufficient number of votes
prior to the meeting date, it will have additional expenses for proxy
solicitation, and the meeting may have to be postponed.
PLEASE COMPLETE, SIGN AND MAIL YOUR PROXY CARD AS SOON AS
POSSIBLE. IF YOU HAVE ANY QUESTIONS REGARDING THE PROXY
MATERIAL, PLEASE CALL INVESTOR INFORMATION AT 1-800-221-4268.
An outside firm that specializes in proxy solicitation has
been retained to assist the Fund with any necessary follow-up.
If the Fund has not received your vote as the meeting date
approaches, you may receive a telephone call from Shareholder
Communications Corporation to ask for your vote. We hope that
their call does not inconvenience you.
Sincerely,
CHARLES M. ROYCE
President
THE ROYCE FUND
PROSPECTUS/PROXY
This Prospectus/Proxy Statement is being furnished in
connection with a Special Meeting of Shareholders of Royce Value
Fund ("Value Fund"), a series of The Royce Fund (the "Trust"), to
be held on May 28, 1997, at which Value Fund shareholders will be
asked to vote on the proposed combination of Value Fund with and
into Pennsylvania Mutual Fund ("Pennsylvania Mutual"), a separate
series of the Trust. Under the proposed combination (the
"Combination"), Value Fund will transfer all of its assets to
Pennsylvania Mutual in exchange for shares of Pennsylvania
Mutual's Consultant Class and for the assumption by Pennsylvania
Mutual of all of its liabilities, which shares will stand to the
credit of the persons who are shareholders of Value Fund
immediately prior to the time of the Combination. At the time
the Combination is effected, each person who, immediately prior
to such time, is a shareholder of Value Fund, (a) will become a
shareholder of Pennsylvania Mutual's Consultant Class and (b)
will cease to be a shareholder of Value Fund. If approved by the
shareholders of Value Fund, the Combination is expected to be
effected on or about June 17, 1997.
This Prospectus/Proxy Statement, which should be retained
for future reference, sets forth concisely the information about
Pennsylvania Mutual that a prospective investor should know
before investing and is accompanied by a copy of Pennsylvania
Mutual's Consultant Class Prospectus dated April 30, 1997, which is
incorporated herein by reference. Additional information about
the Trust is contained in the Statement of Additional Information
of the Trust dated April 30, 1997. Additional information is
contained in a Statement of Additional Information also dated
April 30, 1997 relating to the transaction described in this
Prospectus/Proxy Statement. Each such Statement of Additional
Information has been filed with the Securities and Exchange
Commission, is incorporated herein by reference and is available
without charge and may be obtained, together with Pennsylvania Mutual's
1996 Annual Report to Shareholders (which was previously mailed to both
Value Fund and Pennsylvania Mutual shareholders) by writing to the Trust
at 1414 Avenue of the Americas, New York, New York 10019 or calling
toll-free at 1-800-221-4268.
The Trust is an open-end diversified management investment
company whose shares are currently offered in eleven series
("Series"). Each Series generally operates as a separate fund,
with its own investment objectives and policies designed to meet
its specific investment goals. Pennsylvania Mutual's investment
objective is long-term capital appreciation. It seeks to achieve
this objective primarily by investing in common stocks and
convertible securities of small companies. Production of income
is incidental to this objective.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------------------------------
Prospectus dated April 30, 1997
SUMMARY OF THE PROPOSED TRANSACTION
This summary is qualified by reference to the more complete
information contained elsewhere in this Prospectus/Proxy
Statement, in the prospectuses of Value Fund and Pennsylvania
Mutual's Consultant Class and in the Plan of Reorganization
attached to this Prospectus/Proxy Statement as Exhibit A.
PROPOSED TRANSACTION
The Board of Trustees of The Royce Fund, including the
Trustees who are not "interested persons" (the "Independent
Trustees"), as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), has unanimously approved the Plan
providing for the acquisition of all of the assets of Value Fund,
a separate series of The Royce Fund, by Pennsylvania Mutual, and
the assumption by Pennsylvania Mutual of all of the liabilities
of Value Fund. The aggregate net asset value of the Consultant
Class shares of Pennsylvania Mutual issued in the exchange will
equal the aggregate net asset value of the Value Fund shares then
outstanding. In connection with the Combination, Consultant
Class shares of Pennsylvania Mutual will be distributed to
shareholders of Value Fund, and Value Fund will be terminated.
As a result of the Combination, each shareholder of Value Fund
will cease to be a shareholder of Value Fund, and will receive
that number of full and fractional shares of the Consultant Class
of Pennsylvania Mutual having an aggregate net asset value equal
to the aggregate net asset value of such shareholder's shares of
Value Fund. No sales charge will be imposed on the transaction,
and, following the Combination, shareholders will own Consultant
Class shares of Pennsylvania Mutual. As a condition to closing,
Value Fund and Pennsylvania Mutual will obtain an opinion of
Rosenman & Colin LLP, counsel to the Trust, to the effect that
the Combination will qualify as a tax-free reorganization for
Federal income tax purposes. See "Information about the
Combination."
INVESTMENT OBJECTIVES AND POLICIES
Pennsylvania Mutual and Value Fund have substantially
similar investment objectives and policies. The risks of
investing in the two Funds are substantially the same, although
the investment restrictions of Pennsylvania Mutual are slightly
different from the investment restrictions of Value Fund. These
differences are not expected to affect the manner in which the
assets of Pennsylvania Mutual will be managed compared to Value
Fund. See "Comparison of the Series" below.
REASONS FOR THE TRANSACTION
For the reasons set forth below, the Board of Trustees of
The Royce Fund, including all of the Independent Trustees, has
unanimously concluded that the Combination will be in the best
interests of the shareholders of Value Fund, and that the
interests of existing shareholders of Value Fund will not be
diluted as a result of the Combination. The Board of Trustees
therefore has submitted the Combination for approval by the
shareholders of Value Fund at a Special Meeting of Shareholders
to be held on May 28, 1997. Approval of the Combination
requires the vote of a majority of the outstanding shares of
Value Fund. The Combination will not be effected unless the
requisite approval is provided . See "Required Vote" below.
The Trustees of The Royce Fund have approved the Combination
because they believe it would benefit shareholders of Value Fund
and Pennsylvania Mutual. In reaching their decision to recommend
Value Fund shareholder approval of the Combination, the Trustees
took into account a variety of factors discussed below in greater
detail, including the fact that the Combination would permit
Value Fund shareholders to pursue substantially identical
investment goals in a larger fund, which should result in a
reduced expense ratio due to the spreading of certain operating
expenses over a larger asset base. See "Determination by the
Trustees Regarding the Combination" below. The Trustees also
considered the fact that the investments of Pennsylvania Mutual
have been and will continue to be managed in a manner similar to
Value Fund. As mutual funds investing in common stocks of small
and/or micro-cap companies, both Pennsylvania Mutual and Value Fund
are generally subject to the same investment risks. Shareholders of
each Fund also have identical redemption, exchange and other rights.
THE BOARD OF TRUSTEES OF THE ROYCE FUND, INCLUDING THE
INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN
OF REORGANIZATION.
FEE TABLE
The table below sets forth information with respect to Value
Fund and Pennsylvania Mutual as well as pro forma information for
Pennsylvania Mutual's Consultant Class after giving effect to the
Combination. The table was prepared by the Trust's management
based on the net asset, fee and expense levels of Value Fund and
Pennsylvania Mutual as of December 31, 1996.
<TABLE>
Pro Forma
Combined(i.e.,
Pennsylvania
Mutual
Consultant Class
Value Pennsylvania following the
Fund Mutual Transaction)
<S> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load None None None
Deferred Sales Load None None None
Redemption Fee - on purchases held
for 1 year or more None None None
Early Redemption Fee - on purchases
held for less than 1 year 1% 1% 1%
Annual Expenses
Management Fees (after waivers) .87% .76% .74%
12b-1 Fees (after waivers) .67% None .67%
Other Expenses .32% .23% .24%
Total Fund Operating Expenses 1.86% .99% 1.65%
</TABLE>
The purpose of the above table is to assist you in
understanding the various relative costs and expenses that are
borne by shareholders of Value Fund and Pennsylvania Mutual.
Value Fund 12b-1 fees would have been 1.00% and its total
operating expenses would have been 2.19% without such fee waiver.
Pennsylvania Mutual's Consultant Class would bear a 12b-1 fee
equal to that of Value Fund. A portion of Pennsylvania Mutual's
management fee was waived in 1996. Pennsylvania Mutual's
management fees would have been .80% and its total operating
expenses would have been 1.03% without such waiver. The Pro
Forma Combined Financial Statements do not reflect such waiver as
it may not continue into 1997.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
THE ROYCE FUND
To the Shareholders of
Royce Value Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders of Royce Value Fund, a series of The Royce Fund,
will be held at the offices of the Trust, 1414 Avenue of the
Americas, New York, New York, on May 28, 1997 at 3:00 p.m.
(Eastern Time), for the following purposes:
1. To approve a Plan of Reorganization providing for
(a) the acquisition of all of the assets and the assumption
of all of the liabilities of Royce Value Fund by
Pennsylvania Mutual Fund in exchange for Pennsylvania Mutual
Fund's Consultant Class shares, and (b) the liquidation of
Royce Value Fund and the pro rata distribution of its
Pennsylvania Mutual Fund Consultant Class shares to its
shareholders.
2. To transact such other business as may come before
the meeting or any adjournment thereof.
The Board of Trustees has fixed the close of business on
April 18, 1997 as the record date for the determination of
those shareholders entitled to vote at the meeting, and only
holders of record at the close of business on that date will be
entitled to vote.
Royce Value Fund's Annual Report to Shareholders, including
the accompanying Schedule of Investments, for the year ended
December 31, 1996 was previously mailed to shareholders, and
copies are available upon request, without charge, by
writing to the Trust at 1414 Avenue of the Americas, New York,
New York 10019 or calling toll-free at 1-800-221-4268.
IMPORTANT
To save the Trust the expense of additional proxy
solicitation, please insert your instructions on the enclosed
Proxy, date and sign it and return it in the enclosed envelope
(which requires no postage if mailed in the United States), even
if you expect to be present at the meeting. The Proxy is
solicited on behalf of the Board of Trustees, is revocable and
will not affect your right to vote in person in the event that
you attend the meeting.
By order of the Board of Trustees,
John E. Denneen
Secretary
May 2, 1997
STATEMENT CONCERNING THE SPECIAL MEETING OF
SHAREHOLDERS OF THE ROYCE FUND
This Prospectus/Proxy is solicited on behalf of the Trustees of
The Royce Fund (the "Trust"), for use at the Special Meeting of
Shareholders of Royce Value Fund, a series of the Trust, to be
held at the offices of the Trust, 1414 Avenue of the Americas,
New York, New York 10019 (10th Floor), at 3:00 p.m., Eastern Time,
on May 28, 1997 and at any adjournments thereof.
The purpose of the meeting is the approval or disapproval of
the proposed Combination of Value Fund with and into Pennsylvania
Mutual.
The Proxy may be revoked at any time before it is exercised
by written instructions to the Trust or by filing a new Proxy
with a later date, and any shareholder attending the meeting may
vote in person, whether or not he or she has previously filed a
Proxy.
Shares represented by all properly executed proxies received
in time for the meeting will be voted. Where a shareholder has
specified a choice on the proxy with respect to Proposal 1 in the
Notice of Special Meeting, his or her shares will be voted
accordingly. If no directions are given, the shareholder's
shares will be voted in favor of this Proposal. The cost of
soliciting proxies will be borne by Quest Advisory Corp.
("Quest"), the Trust's principal investment adviser, which will
reimburse brokerage firms, custodians, nominees and fiduciaries
for their expenses in forwarding proxy material to the beneficial
owners of Value Fund's shares. Some officers and employees of
the Trust and/or Quest may solicit proxies personally and by
telephone, if deemed desirable. Quest may engage the services of
a professional solicitor, such as Shareholder Communications
Corporation, for help in securing shareholder representation at
the meeting.
On April 18, 1997, the record date for the meeting, there were
14,148,196 shares of Value Fund outstanding. The shareholders
entitled to vote are those of record on that date. Each share is
entitled to one vote on each item of business at the meeting.
Shareholders vote at the Special Meeting by casting ballots (in
person or by proxy) which are tabulated by one or two persons,
appointed by the Board of Trustees before the meeting, who serve
as Inspectors and Judges of Voting at the meeting and who have
executed an Inspectors and Judges Oath. Neither abstentions nor
broker non-votes are counted in the tabulation of such votes.
No one was known to the Trust to be the beneficial owner or
owner of record of 5% or more of Value Fund's outstanding shares
of beneficial interest as of the record date. As of such date,
all of the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of Pennsylvania Mutual and
of Value Fund.
APPROVAL OR DISAPPROVAL OF THE COMBINATION OF
ROYCE VALUE FUND
WITH AND INTO PENNSYLVANIA MUTUAL FUND
INFORMATION ABOUT THE COMBINATION
The Trustees of the Trust are proposing that the net assets
of Value Fund be acquired by and combined with those of
Pennsylvania Mutual. The proposed Plan of Reorganization (the
"Plan"), attached as Exhibit A, provides that Pennsylvania Mutual
will acquire all of the assets and assume all of the liabilities
of Value Fund in exchange for shares of the Consultant Class of
Pennsylvania Mutual at the Closing, which is defined in the Plan
to be 4:00 p.m. (Eastern Time) on June 17, 1997 or such later date as
may be set by the Board of Trustees or President of the Trust.
The discussion of the Plan contained herein is qualified in its
entirety by the full text of the Plan.
As a result of the Combination, the shareholders of Value
Fund will receive that number of full and fractional shares of
the Consultant Class of Pennsylvania Mutual which are equal in
value as of 4:00 p.m. (Eastern Time) on the date of the Closing
to the respective values of their pro rata shares of the net
assets of Value Fund transferred to Pennsylvania Mutual.
Portfolio securities of Value Fund and Pennsylvania Mutual will
be valued in accordance with the valuation policies of the Trust,
which are described under "Net Asset Value Per Share" at page 8
of the enclosed Prospectus of the Consultant Class of
Pennsylvania Mutual. The Combination is being accounted for as a
tax-free business combination.
The Trustees of the Trust have determined that the interests
of existing shareholders of Value Fund will not be diluted as a
result of the transaction contemplated by the reorganization.
The distribution of Pennsylvania Mutual's Consultant Class
shares to Value Fund shareholders will be effected by
establishing accounts on the share records of Pennsylvania Mutual's
Consultant Class in the names of Value Fund's shareholders, with each
account representing the respective number of full and fractional shares
of Pennsylvania Mutual's Consultant Class due such shareholders
and issued and outstanding share certificates of Value Fund being
automatically cancelled. New certificates for Pennsylvania Mutual's
Consultant Class shares will not be issued as part of the Combination,
but may be obtained upon request after the Combination.
The Plan may be terminated and the reorganization abandoned
at any time, before or after approval by Value Fund's
shareholders, prior to the Closing by the Board of Trustees of
the Trust.
All fees and expenses, including legal, accounting,
printing, filing and proxy solicitation expenses, portfolio
transfer taxes (if any) or other similar expenses incurred in
connection with the consummation by Value Fund and Pennsylvania
Mutual of the transaction contemplated by the Plan will be paid
directly by Quest.
COMPARISION OF THE SERIES AND REASONS FOR THE PROPOSED COMBINATION
Pennsylvania Mutual
- -------------------
Pennsylvania Mutual'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.
Normally, Pennsylvania Mutual 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, Pennsylvania Mutual focuses on a limited
number of companies with superior financial characteristics
and/or unusually attractive business prospects, companies Quest
classifies as "premier." Pennsylvania Mutual 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.
Value Fund
- ----------
Value Fund's investment objective is long-term capital
appreciation, primarily through investment in securities of small
companies. Production of income is incidental to this objective.
Normally, Value Fund invests at least 65% of its assets in
common stocks, convertible preferred stocks and convertible bonds
of small companies with stock market capitalizations under $750
million at the time of investment. The remainder of its assets
may be invested in securities of companies with higher stock
market capitalizations, non-convertible preferred stocks and debt
securities.
INVESTMENT RISKS
Value Fund and Pennsylvania Mutual are subject to
substantially similar risks, including (a) the risk that common
stock prices will decline over short or even extended periods and
(b) the risk of investing in small-cap companies that may be more
volatile in price than larger capitalization companies.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as set forth below, Value Fund and Pennsylvania
Mutual have identical fundamental investment restrictions (which
may not be changed without shareholder approval).
Investment Restriction Value Fund Pennsylvania Mutual
---------------------- ---------- -------------------
Illiquid Securities May not invest more May invest in illiquid
than 10% of its securities to the extent
assets in securities permitted by Securities
without readily and Exchange guidelines
available market (currently, up to 15%
quotations of net assets)
Diversification May not invest more With respect to 75%
than 5% of its of its total assets,
assets in the may not invest more
securities of any than 5% of its assets
one issuer except in the securities of any
U.S. Government one issuer except U.S.
securities Government securities
Other Investment
Companies May not invest in May invest in
securities of other securities of other
investment companies investment companies
to the extent permitted
by applicable law
________________________
The preceding description of the investment objectives and
policies of Value Fund and Pennsylvania Mutual is qualified in
its entirety by the information relating to both series contained
in their respective Prospectuses and in the Trust's Statement of
Additional Information dated April 30, 1997. The Prospectus for
Pennsylvania Mutual's Consultant Class is enclosed herewith, and
copies of Value Fund's Prospectus and the Trust's Statement of
Additional Information dated April 30, 1997 are available upon
request by writing to the Trust at 1414 Avenue of the Americas,
New York, New York 10019, or by calling toll-free at (800) 221-
4268.
Both Value Fund and Pennsylvania Mutual also have identical
redemption and purchase features and identical brokerage
practices. For 1996, the respective portfolio turnover rates of
Value Fund and Pennsylvania Mutual were 30% and 29%. As of April 18,
1997, the record date, Value Fund had net assets of approximately
$136.8 million, and Pennsylvania Mutual had net assets of approximately
$$423.5 million.
MANAGEMENT
Quest, the Trust's principal investment adviser, manages the
portfolios of both Value Fund and Pennsylvania Mutual. As
compensation for its services, Quest is entitled to receive the
following fees per annum from each series:
1.00% of first $50 million of average net assets
.875% of next $50 million
.75% of average net assets over $100 million
These fees are payable monthly from the assets of the series
involved. For 1996, the fees paid to Quest were .87% (after
waivers) of Value Fund's and .76% (after waivers) of Pennsylvania
Mutual's average net assets for such year.
DISTRIBUTION AND 12B-1 FEE
Value Fund and the Pennsylvania Mutual Consultant Class each
has a Distribution Plan pursuant to Rule 12b-1 to provide for the
orderly growth and stabilization of its assets. Under the
Distribution Plan, Value Fund pays, and Pennsylvania Mutual's
Consultant Class will pay, a fee to Quest Distributors, Inc.
("QDI"), the distributor of the Trust's shares, not to exceed
1.00% per annum of its average net assets. The fees paid to QDI
may be used by QDI to pay sales commissions and other fees to
those broker-dealers who introduce investors to Value Fund and
Pennsylvania Mutual's Consultant Class and various other
promotional, sales-related and servicing costs and expenses. The
fees payable to QDI are allocated between asset-based sales
charges and personal service and/or account maintenance fees.
For 1996, the fees paid to QDI were .67% (after waivers) of Value
Fund's average net assets.
DIVIDENDS
Value Fund and Pennsylvania Mutual distribute substantially
all of their net investment income and net realized capital
gains, if any, to their shareholders annually in December. If
the Combination is approved, in order to maintain its tax status
as a regulated investment company and avoid the imposition of
taxes on undistributed income, Value Fund will make its final
distribution of net investment income and capital gains
immediately prior to the Combination. The distribution will be
taxable to those persons who are shareholders of Value Fund on
the record date for such distribution.
TAX CONSEQUENCES OF THE COMBINATION
It is anticipated that the transaction contemplated by the
Plan will be a reorganization described in Section 368(a)(1)(C)
of the Internal Revenue Code and, as such, will be tax-free for
Federal income tax purposes. The consummation of the Combination
is conditioned upon the receipt by the Trust of an opinion of
counsel to the effect that, for Federal income tax purposes,
(a) no gain or loss will be recognized by (i) Value Fund upon
the transfer of all its assets and liabilities to Pennsylvania
Mutual in exchange solely for shares of Pennsylvania Mutual's
Consultant Class and the assumption of Value Fund's liabilities
by Pennsylvania Mutual or (ii) Pennsylvania Mutual upon its receipt
of the assets of Value Fund in exchange for shares of Pennsylvania
Mutual's Consultant Class, (b) no gain or loss will be recognized by
the shareholders of Value Fund on the distribution to them of such shares
of Pennsylvania Mutual's Consultant Class in exchange for their
Value Fund shares, (c) the basis of the shares of Pennsylvania
Mutual's Consultant Class received by a shareholder of Value Fund
in place of his Value Fund shares will be the same as the basis
of his Value Fund shares surrendered in exchange therefor and (d)
a shareholder's holding period for such shares of Pennsylvania
Mutual's Consultant Class will include the period for which he
held the Value Fund shares surrendered in exchange therefor,
provided that he held such Value Fund shares as a capital asset.
Such opinion will rely on certain representations of the Trust as
to Value Fund and Pennsylvania Mutual that are anticipated to be
true as of the date of the proposed Combination, and will reflect
counsel's analysis and interpretation of existing statutory and
other authority in the absence of any court decision or published
regulation or ruling addressing these questions in comparable
circumstances. The Internal Revenue Service or a court could
interpret the applicable Federal law differently. The Trust has
not made any investigation as to the state or local tax
consequences of the proposed Combination.
At the time of the Combination, Pennsylvania Mutual's net asset
value may reflect undistributed income or capital gains or net
unrealized appreciation in the value of its securities. Any
distribution by Pennsylvania Mutual of these amounts after the
Combination will be taxable to its shareholders, including the
former shareholders of Value Fund. Each Value Fund shareholder
should consult his own tax adviser with respect to the Federal,
state and local tax consequences to him of the Combination.
CAPITALIZATION
The capitalizations of Value Fund and Pennsylvania Mutual's
Consultant Class as of December 31, 1996, and the pro forma
capitalization of Pennsylvania Mutual as of that date, after
giving effect to the Combination, are as follows:
<TABLE>
Value Fund
Combined into
Value Pennsylvania Pennsylvania
Fund Mutual Mutual's
---- ------ --------
<S> <C> <C> <C>
Net assets $145,410,680 $456,867,950 $602,536,130
Shares outstanding 15,152,732 64,250,277 84,744,885
Share value 9.60 7.11 7.11
</TABLE>
DETERMINATION BY THE TRUSTEES REGARDING THE COMBINATION
The Trustees of the Trust have unanimously determined that
Value Fund's and Pennsylvania Mutual's participation in the
Combination is in the best interests of each such series, and
that the interests of existing shareholders of each such series
will not be diluted as a result of its effecting the Combination.
In recommending to Value Fund shareholders that Value Fund be
combined into Pennsylvania Mutual, the Trustees of the Trust,
including the Independent Trustees, concluded that the
Combination would permit Value Fund shareholders to pursue
substantially identical investment goals in a larger fund, which
should result in a reduced expense ratio due to the spreading of
certain operating expenses over a larger asset base.
In particular, the Trustees reviewed the unaudited pro forma
combining financial statements, including the pro forma schedule
of investments of Pennsylvania Mutual as of and for the year ended
December 31, 1996. Such pro forma combining financial statements,
which are included in the Statement of Additional Information
relating to the transaction described in this Prospectus/Proxy
Statement, show the separate assets, liabilities and operations
of Value Fund and Pennsylvania Mutual and the effect of combining
them as of and for the year ended December 31, 1996. Based on
such pro forma combining financial statements and on other
information presented to them, the Trust's management estimated
that, for the year ending December 31, 1997, the proposed
Combination should reduce the annual expense ratio for Value Fund
shareholders from approximately 1.86% to approximately 1.65%, as
set forth in the Fee Table on page 4 of this Prospectus/Proxy
Statement. There is, however, no assurance that operating
expenses will be reduced to the extent set forth in such
combining financial statements and Fee Table.
RECOMMENDATION OF THE TRUSTEES; REQUIRED VOTE
THE TRUSTEES RECOMMEND THAT VALUE FUND SHAREHOLDERS VOTE TO
APPROVE THE PROPOSED COMBINATION. Approval of the Combination
will require the favorable vote of more than 50% of the
outstanding shares of Value Fund.
Shareholder Communications Corporation ("SCC") has been
retained by Quest to assist shareholders with the voting process.
Certain shareholders of Value Fund may receive a call from a
representative of SCC if the Trust has not yet received their
vote. Authorization to permit SCC to execute proxies may be
obtained by telephonic or electronically transmitted instructions
from shareholders of Value Fund.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask the shareholder for such
shareholder's full name, address, social security or employer
identification number, title (if the person giving the proxy is
authorized to act on behalf of an entity such as a corporation)
and the number of shares owned and to confirm that the
shareholder has received the Prospectus/Proxy Statement in the
mail. If the information obtained agrees with the information
provided to SCC by the Trust, then the SCC representative has the
responsibility to explain the process, read the proposals listed
on the card and ask for the shareholder's instructions on each
proposal. The SCC representative, although he or she is
permitted to answer questions about the process, is not permitted
to recommend to the shareholder how to vote, other than to read
any recommendations set forth in the Prospectus/Proxy Statement.
SCC will record the shareholder's instructions on the card.
Within 72 hours, SCC will send the shareholder a letter or
mailgram to confirm the shareholder's vote and ask the
shareholder to call SCC immediately if the shareholder's
instructions are not correctly reflected in the confirmation.
ADJOURNMENT OF MEETING; OTHER MATTERS
In the event that sufficient votes in favor of Proposal 1 in
the Notice of Special Meeting are not received by the time
scheduled for the meeting, the persons named as proxies may
propose one or more adjournments of the meeting to permit further
solicitation of proxies for such Proposal. Any such adjournment
will require the affirmative vote of a majority of the shares
present in person or by proxy at the session of the meeting to be
adjourned. The persons named as proxies will vote in favor of
such adjournment those proxies which they are entitled to vote in
favor of Proposal 1. They will vote against any such adjournment
those proxies required to be voted against Proposal 1.
While the meeting has been called to transact any business
that may properly come before it, the only matter which the
Trustees intend to present is the matter stated in the Notice of
Special Meeting. However, if any additional matter properly
comes before the meeting and on all matters incidental to the
conduct of the meeting, it is the intention of the persons named
in the enclosed proxy to vote the proxy in accordance with their
judgment on such matters unless instructed to the contrary.
SHAREHOLDER PROPOSALS
The Trust does not hold annual shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to the
Secretary of the Trust, 1414 Avenue of the Americas, New York, New
York 10019.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
The Trust is subject to the informational requirements of
the Investment Company Act of 1940, as amended, and, in
accordance therewith files reports and other information with the
Securities and Exchange Commission. Such reports and other
information can be inspected and copied at the Public Reference
Room maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained
at prescribed rates from the Public Reference Section of the
Commission, Washington D.C. 20549.
EXPERTS
The audited financial statements and schedules of
investments of Royce Value Fund and Pennsylvania Mutual Fund are
incorporated by reference into the Statement of Additional
Information relating to the transaction described in this
Prospectus/Proxy Statement and have been so included in reliance
upon the reports of Coopers & Lybrand L.L.P., given on the
authority of such firm as experts in auditing and accounting.
Exhibit A
PLAN OF REORGANIZATION
This Plan of Reorganization (the "Plan") pursuant to Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code") is hereby adopted by The Royce Fund, a Delaware
business trust (the "Trust"), as of this 13th day of March, 1997,
on behalf of its series designated as Royce Value Fund (the
"Acquired Series") and Pennsylvania Mutual Fund (the "Acquiring
Series"), such Series constituting separate corporations for
purposes of Code Section 851(h).
1. At the Closing (as defined below), the Acquired Series
shall, in exchange solely for shares of the Consultant Class of
the Acquiring Series and the assumption by the Acquiring Series
of the liabilities of the Acquired Series, transfer all of its
assets and liabilities to the Acquiring Series; the Trust shall
issue, on behalf of the Acquiring Series, and shall distribute to
each shareholder of the Acquired Series, in complete liquidation
of the Acquired Series, shares of beneficial interest of the
Consultant Class of the Acquiring Series (including any
fractional share rounded to the nearest one-thousandth of a
share) equal in aggregate value to the aggregate value of the
shares of beneficial interest of the Acquired Series (including
any fractional share rounded to the nearest one-thousandth of a
share) then owned by such shareholder, such values to be
determined by the net asset values per share of the Acquired
Series and the Acquiring Series at the time of the Closing.
2. The distribution on behalf of the Acquiring Series to
the shareholders of the Acquired Series shall be accomplished by
the Trust's establishing an account on the share records of the
Acquiring Series in the name of each registered shareholder of
the Acquired Series, and crediting that account with a number of
shares of the Consultant Class of the Acquiring Series having a
value at the Closing equal to the value of the shares of the
Acquired Series (including any fractional share rounded to the
nearest one-thousandth of a share) then owned by such
shareholder, as determined on that date. Outstanding shares of
the Acquiring Series to be issued at the Closing will be determined
by multiplying outstanding shares of the Acquired Series by the
quotient of the Net Asset Value of the Acquired Series divided by
the Net Asset Value of the Acquiring Series. Issued and outstanding
share certificates of the Acquired Series will be deemed to have been
automatically cancelled at the Closing.
3. The Acquired Series shall liquidate, and the foregoing
distribution of shares of the Consultant Class of the Acquiring
Series shall be made to the shareholders of the Acquired Series
in complete liquidation of the Acquired Series. The Acquired
Series shall automatically terminate immediately thereafter, and
shall be dissolved.
4. The distribution to shareholders of the Acquired Series
of shares of the Consultant Class of the Acquiring Series at the
Closing under this Plan shall not be subject to any front-end
sales load, and the termination of the interest of shareholders
of the Acquired Series in such Series at the Closing under this
Plan shall not be subject to any contingent deferred sales charge
or redemption fee.
5. The completion of the transaction in Section 1 above
(the "Closing") shall occur on June 17, 1997 at 4:00 p.m., Eastern
Time, at the office of the Trust in New York, New York or such
other date, time or place as may be determined by the Board of
Trustees or the President. At the Closing, the Trust shall
receive an opinion of Rosenman & Colin LLP or other special tax
counsel to the Trust, to the effect that, for Federal income tax
purposes, (a) no gain or loss will be recognized by (i) the
Acquired Series upon the transfer of all its assets and
liabilities to the Acquiring Series solely in exchange for shares
of the Consultant Class of the Acquiring Series and the
assumption of its liabilities by the Acquiring Series, or (ii)
the Acquiring Series upon its receipt of the assets of the
Acquired Series in exchange for shares of the Consultant Class,
(b) no gain or loss will be recognized by the shareholders of the
Acquired Series on the distribution to them of such shares of the
Consultant Class of the Acquiring Series in exchange for their
shares of the Acquired Series, (c) the basis of the shares of the
Consultant Class of the Acquiring Series received by a
shareholder of the Acquired Series in place of his shares of the
Acquired Series will be the same as the basis of his shares of
the Acquired Series surrendered in exchange therefor and (d) a
shareholder's holding period for such shares of the Consultant
Class of the Acquiring Series will include the period for which
he held the shares of the Acquired Series surrendered in exchange
therefor, provided that he held such Acquired Series shares as a
capital asset.
6. This Plan may be amended at any time and may be
terminated at any time before the completion of the transaction
described in Section 1, whether or not this Plan has been
approved by the shareholders of the Acquired Series, by action of
the Trust, provided that no amendment shall have a material
adverse effect upon the interests of shareholders of the Acquired
Series or the Acquiring Series.
7. A copy of the Trust's Certificate of Trust is on file
with the Secretary of State of the State of Delaware, and notice
is hereby given that this Plan is executed on behalf of the
Trustees of the Trust as the trustees of the Trust and not
individually, and that the obligations under this instrument are
not binding upon any of the trustees, officers or shareholders of
the Trust individually, but binding only upon the assets and
property of the Acquired Series and the Acquiring Series.
8. At any time after the Closing, the Trust on behalf of
the Acquired Series shall execute and deliver such additional
instruments of transfer or other written assurances and take such
other action as may be necessary in order to vest in the
Acquiring Series title to the assets transferred by the Acquired
Series under this Plan.
9. This Plan shall be construed in accordance with
applicable Federal laws and the
laws of the State of New York, except as to the provisions of
Section 7 hereof which shall be construed in accordance with the
laws of the State of Delaware.
THE ROYCE FUND
By: /s/ Charles M. Royce
Charles M. Royce, President
Attest:
/s/ John E. Denneen
John E. Denneen, Secretary
TABLE OF CONTENTS Page
Cover Page 1
Summary of the Proposed Transaction 2
Notice of Meeting 5
Statement Concerning the Special Meeting 6
Information about the Combination 7
Comparison of the Series and Reasons for
the Proposed Combination 8
Investment Risks 8
Fundamental Investment Restrictions 9
Management 10
Distribution and 12b-1 Fee 10
Dividends 10
Tax Consequences of the Combination 11
Capitalization 11
Determination by the Trustees Regarding
the Combination 12
Recommendation of the Trustees; Required Vote 12
Adjournment of Meeting 13
Shareholder Proposals 13
Information Filed with the Securities and
Exchange Commission 13
Experts 14
Exhibit A: Plan of Reorganization 15
APPENDIX 1
PROXY ROYCE VALUE FUND PROXY
1414 Avenue of the Americas
New York, NY 10019
This Proxy is Solicited on Behalf of the Board of Trustees
The undersigned hereby appoints Charles M. Royce and John E.
Denneen, or either of them, acting in absence of the other,
as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as
designated on the reverse, all shares of the Fund held of
record by the undersigned on April 18, 1997, at the
Special Meeting of Shareholders to be held on May 28,
1997, or at any adjournment thereof.
This Proxy, when properly executed, will be voted in the
manner directed by the undersigned shareholder. If no
direction is made, this Proxy will be voted FOR Proposal 1.
PLEASE VOTE , DATE AND SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s) on reverse.
When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If
a corporation, pleas sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------ -------------------------
- ------------------------ -------------------------
- ------------------------ -------------------------
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
ROYCE VALUE FUND
For Against Abstain
1. PROPOSAL TO APPROVE A PLAN
OF REORGANIZATION PROVIDING
FOR (A) THE ACQUISITION OF
THE FUND'S ASSETS AND THE
ASSUMPTION OF ITS LIABILITIES
BY PENNSYLVANIA MUTUAL FUND
AND (B) THE LIQUIDATION OF
THE FUND AND THE PRO RATA
DISTRIBUTION OF PENNSYLVANIA
MUTUAL FUND CONSULTANT CLASS
SHARES TO ITS SHAREHOLDERS.
2. THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
Please be sure to sign and date this Proxy. Date: Mark box at right if an
address change or comment
has been noted on the
reverse side of this
card. / /
Shareholder sign here Co-owner sign here RECORD DATE SHARES:
THE ROYCE FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
May 2, 1997
Dear Shareholder:
The Board of Trustees of The Royce Fund recently approved
and unanimously endorsed a proposal for Royce Equity Income Fund
("Equity Income") to be acquired by Royce Total Return Fund
("Total Return"), each a series of The Royce Fund, in exchange
for shares of Total Return.
As a result of this transaction, Equity Income would be
combined with Total Return and you would become a shareholder of
Total Return. The aggregate net asset value of your shares of
Equity Income will be equal to the aggregate net asset value of
the Total Return shares that you will receive as a result of the
Combination. The Combination is anticipated to be tax-free for
Federal income tax purposes.
The investment objectives of the two funds are different
from one another. Total Return seeks both long-term growth of
capital and current income, while Equity Income seeks reasonable
income and considers the capital appreciation potential of its
portfolio securities. THE COMBINATION IS BEING PROPOSED BECAUSE
WE BELIEVE THAT THE TOTAL RETURN APPROACH SHOULD BE A MORE
ATTRACTIVE INVESTMENT STRAGEGY FOR A LONG-TERM INVESTOR THAN THE
EQUITY INCOME ONE, WHICH HAS A PRIMARY FOCUS ON YIELD. In
addition, a combined Total Return should have a lower operating
expense ratio before fee waivers than either Equity Income or
Total Return would have as a separate series.
The Board has called a Special Meeting of Shareholders to be
held on May 28, 1997, to consider this transaction. YOUR VOTE IS
VERY IMPORTANT! If the Fund does not receive a sufficient number
of votes prior to the meeting date, it will have additional expenses
for proxy solicitation, and the meeting may have to be postponed.
PLEASE COMPLETE, SIGN AND MAIL YOUR PROXY CARD AS SOON AS
POSSIBLE. IF YOU HAVE ANY QUESTIONS REGARDING THE PROXY
MATERIAL, PLEASE CALL INVESTOR INFORMATION AT 1-800-221-4268.
An outside firm that specializes in proxy solicitation has
been retained to assist the Fund with any necessary follow-up.
If the Fund has not received your vote as the meeting date
approaches, you may receive a telephone call from Shareholder
Communications Corporation to ask for your vote. We hope that
their call does not inconvenience you.
Sincerely,
CHARLES M. ROYCE
President
THE ROYCE FUND
PROSPECTUS/PROXY
This Prospectus/Proxy Statement is being furnished in
connection with a Special Meeting of Shareholders of Royce Equity
Income Fund ("Equity Income"), a series of The Royce Fund (the
"Trust"), to be held on May 28, 1997, at which Equity Income
shareholders will be asked to vote on the proposed combination of
such series with and into Royce Total Return Fund ("Total
Return"), a separate series of the Trust. Under the proposed
combination (the "Combination"), Equity Income will transfer all
of its assets to Total Return in exchange for shares of Total
Return and the assumption by Total Return of all of its
liabilities, which shares will stand to the credit of the persons
who are shareholders of Equity Income immediately prior to the
time of the Combination. At the time the Combination is
effected, each person who, immediately prior to such time, is a
shareholder of Equity Income, (a) will become a shareholder of
Total Return and (b) will cease to be a shareholder of Equity
Income. If approved by the shareholders of Equity Income, the
Combination is expected to be effected on or about June 17, 1997.
This Prospectus/Proxy Statement, which should be retained
for future reference, sets forth concisely the information about
Total Return that a prospective investor should know before
investing and is accompanied by a copy of Total Return's
Prospectus dated April 30, 1997, which is incorporated herein by
reference. Additional information about the Trust is contained
in the Statement of Additional Information of the Trust dated
April 30, 1997. Additional information relating to the transaction
described in this Prospectus/Proxy Statement is contained in a
Statement of Additional Information also dated April 30, 1997. Each
such Statement of Additional Information has been filed with the
Securities and Exchange Commission, is incorporated herein by
reference, is available without charge and may be obtained,
together with Total Return's 1996 Annual Report to Shareholders (which
was previously mailed to both Equity Income and Total Return
shareholders) by writing to the Trust at 1414 Avenue of the Americas,
New York, New York 10019 or calling toll-free at 1-800-221-4268.
The Trust is an open-end diversified management investment
company whose shares are currently offered in eleven series
("Series"). Each Series generally operates as a separate fund,
with its own investment objectives and policies designed to meet
its specific investment goals. Total Return's investment
objective is long-term growth of capital and current income. It
seeks to achieve this objective primarily by investing its assets
in a broadly diversified portfolio of dividend-paying common
stocks of small companies selected on a value basis.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------------------------------
Prospectus dated April 30, 1997
SUMMARY OF THE PROPOSED TRANSACTION
This summary is qualified by reference to the more complete
information contained elsewhere in this Prospectus/Proxy
Statement, in the Prospectuses of Equity Income and Total Return
and in the Plan of Reorganization attached to this
Prospectus/Proxy Statement as Exhibit A.
PROPOSED TRANSACTION
The Board of Trustees of The Royce Fund, including the
Trustees who are not "interested persons" (the "Independent
Trustees"), as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), has unanimously approved the Plan
providing for the acquisition of all of the assets of Equity
Income, a separate series of The Royce Fund, by Total Return, and
the assumption by Total Return of all of the liabilities of
Equity Income. The aggregate net asset value of the shares of
Total Return issued in the exchange will equal the aggregate net
asset value of Equity Income shares then outstanding. In
connection with the Combination, shares of Total Return will be
distributed to shareholders of Equity Income, and Equity Income
will be terminated. As a result of the Combination, each
shareholder of Equity Income will cease to be a shareholder of
Equity Income and will receive that number of full and fractional
shares of Total Return having an aggregate net asset value equal
to the aggregate net asset value of such shareholder's shares of
Equity Income. No sales charge will be imposed on the
transaction, and, following the Combination, shareholders will
own shares of Total Return. As a condition to closing, Equity
Income and Total Return will obtain an opinion of Rosenman &
Colin LLP, counsel to the Trust, to the effect that the
Combination will qualify as a tax-free reorganization for Federal
income tax purposes. See "Information about the Combination."
INVESTMENT OBJECTIVES AND POLICIES
Total Return and Equity Income have different investment
objectives and policies. The objective of Total Return is long-
term growth of capital and current income, while the objective of
Equity Income is reasonable income. See "Comparison of the
Series" below.
REASONS FOR THE TRANSACTION
For the reasons set forth below, the Board of Trustees of
The Royce Fund, including all of the Independent Trustees, has
unanimously concluded that the Combination will be in the best
interests of the shareholders of Equity Income, and that the
interests of existing shareholders of Equity Income will not be
diluted as a result of the Combination. The Board of Trustees
therefore has submitted the Combination for approval by the
shareholders of Equity Income at a Special Meeting of
Shareholders to be held on May 28, 1997. Approval of the
Combination requires the vote of a majority of the outstanding
shares of Equity Income. The Combination will not be effected
unless the requisite approval is obtained . See "Required Vote"
below.
The Trustees of The Royce Fund have approved the Combination
because they believe it would benefit shareholders of Equity
Income. In reaching their decision to recommend Equity Income
shareholder approval of the Combination, the Trustees took into
account a variety of factors discussed below in greater detail,
including management's belief that Total Return's investment
objective is a more attractive strategy for a long-term investor,
since it emphasizes both growth and income, than the reasonable
income objective of Equity Income which focuses on yield and only
considers the capital appreciation potential of its portfolio
securities. See "Determination by the Trustees Regarding the
Combination" below. As mutual funds investing in common stocks
of small and/or micro-cap companies, both Total Return and Equity
Income Fund are generally subject to the same investment risks.
Shareholders of each Fund also have identical redemption, exchange,
voting and other rights.
THE BOARD OF TRUSTEES OF THE ROYCE FUND, INCLUDING THE
INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN
OF REORGANIZATION.
FEE TABLE
The table below sets forth information with respect to
Equity Income and Total Return as well as pro forma information
for Total Return after giving effect to the Combination. The
table was prepared by the Trust's management based on the net
asset, fee and expense levels of Equity Income and Total Return
as of December 31, 1996.
<TABLE>
Pro Forma
Combined
Equity (i.e., Total
Income Total Return following
Fund Return the Transaction)
<S> <C> <C> <C>
Shareholder Transaction Expenses
Sales Load None None None
Deferred Sales Load None None None
Redemption Fee - on purchases held
for 1 year or more None None None
Early Redemption Fee - on purchases
held for less than 1 year 1% 1% 1%
Annual Expenses
Management Fees (after waivers) .92% .30% .83%
12b-1 Fees (after waivers) None None None
Other Expenses .45% .95% .42%
Total Fund Operating Expenses 1.37% 1.25% 1.25%
</TABLE>
The purpose of the above table is to assist you in understanding
the various relative costs and expenses that are borne by shareholders
of Equity Income and Total Return. Management fees for Equity Income
and Total Return would have been 1.00%, 12b-1 fees for Total Return
would have been .25% and total operating expenses would have been 1.44%
for Equity Income and 2.23% for Total Return without waivers. Quest
Advisory Corp. ("Quest"), the Funds' investment adviser, has voluntarily
committed to reduce Total Return's management fees to the extent
necessary to maintain total operating expenses at or below 1.25% for the
year ending December 31, 1997.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
THE ROYCE FUND
To the Shareholders of
Royce Equity Income Fund:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Royce Equity Income Fund, a series of The Royce Fund, will be held at
the offices of the Trust, 1414 Avenue of the Americas, New York, New
York, on May 28, 1997 at 2:00 p.m. (Eastern Time), for the
following purposes:
1. To approve a Plan of Reorganization providing for (a) the
acquisition of all of the assets and the assumption of all
liabilities of Royce Equity Income Fund by Royce Total Return Fund
in exchange for Royce Total Return Fund shares, and (b) the
liquidation of Royce Equity Income Fund and the pro rata
distribution of its Royce Total Return Fund shares to its
shareholders.
2. To transact such other business as may come before the
meeting or any adjournment thereof.
The Board of Trustees has fixed the close of business on
April 18, 1997 as the record date for the determination of those
shareholders entitled to vote at the meeting, and only holders of record
at the close of business on that date will be entitled to vote.
Royce Equity Income Fund's Annual Report to Shareholders and the
accompanying Schedules of Investments for the year ended December 31,
1996 was previously mailed to shareholders, and copies are
available upon request, without charge, by writing to the Trust at 1414
Avenue of the Americas, New York, New York 10019 or calling toll-free at
1-800-221-4268.
IMPORTANT
To save the Trust the expense of additional proxy solicitation,
please insert your instructions on the enclosed Proxy, date and sign it
and return it in the enclosed envelope (which requires no postage if
mailed in the United States), even if you expect to be present at the
meeting. The Proxy is solicited on behalf of the Board of Trustees, is
revocable and will not affect your right to vote in person in the event
that you attend the meeting.
By order of the Board of Trustees,
John E. Denneen
Secretary
May 2, 1997
STATEMENT CONCERNING THE SPECIAL MEETING OF
SHAREHOLDERS OF THE ROYCE FUND
This Prospectus/Proxy is solicited on behalf of the Trustees of The
Royce Fund (the "Trust"), for use at the Special Meeting of Shareholders
of Royce Equity Income Fund, a series of the Trust, to be held at the
offices of the Trust, 1414 Avenue of the Americas, New York, New York
10019 (10th Floor), at 2:00 p.m., Eastern Time, on May 28, 1997 and at
any adjournments thereof.
The purpose of the meeting is the approval or disapproval of the
proposed Combination of Equity Income with and into Total Return.
The Proxy may be revoked at any time before it is exercised by
written instructions to the Trust or by filing a new Proxy with a later
date, and any shareholder attending the meeting may vote in person,
whether or not he or she has previously filed a Proxy.
Shares represented by all properly executed proxies received in
time for the meeting will be voted. Where a shareholder has specified a
choice on the proxy with respect to Proposal 1 in the Notice of Special
Meeting, his or her shares will be voted accordingly. If no directions
are given, the shareholder's shares will be voted in favor of this
Proposal. The cost of soliciting proxies will be borne by Quest
Advisory Corp. ("Quest"), the Trust's principal investment adviser,
which will reimburse brokerage firms, custodians, nominees and
fiduciaries for their expenses in forwarding proxy material to the
beneficial owners of Equity Income's shares. Some officers and
employees of the Trust and/or Quest may solicit proxies personally and
by telephone, if deemed desirable. Quest may engage the services of a
professional solicitor, such as Shareholder Communications Corporation,
for help in securing shareholder representation at the meeting.
On April 18, 1997, the record date for the meeting, there were 5,847,036
shares of Equity Income outstanding. The shareholders entitled to vote
are those of record on that date. Each share is entitled to one vote on
each item of business at the meeting. Shareholders vote at the Special
Meeting by casting ballots (in person or by proxy) which are tabulated
by one or two persons, appointed by the Board of Trustees before the
meeting, who serve as Inspectors and Judges of Voting at the meeting and
who have executed an Inspectors and Judges Oath. Neither abstentions
nor broker non-votes are counted in the tabulation of such votes.
The following persons were known to the Trust to be beneficial
owners or owners of record of 5% or more of Equity Income's outstanding
shares of beneficial interest as of the record date.
<TABLE>
Name and Address Amount and Nature Percentage
of Owner Class of Stock of Ownership of Class
- ---------------- -------------- ----------------- -----------
<S> <C> <C> <C>
Charles Schwab & Co., Inc. Common Record 38.1%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
As of such date, all of the Trustees and officers of the Trust as a
group owned less 1% of the shares of Equity Income and Total Return.
APPROVAL OR DISAPPROVAL OF THE COMBINATION OF
ROYCE EQUITY INCOME FUND
WITH AND INTO ROYCE TOTAL RETURN FUND
INFORMATION ABOUT THE COMBINATION
The Trustees of the Trust are proposing that the net assets of
Equity Income be acquired by and combined with those of Total Return.
The proposed Plan of Reorganization (the "Plan"), attached hereto as
Exhibit A, provides that Total Return will acquire all of the assets and
assume all of the liabilities of Equity Income in exchange for shares of
Total Return at the Closing, which is defined in the Plan to be 4:00 p.m.
(Eastern Time) on June 17, 1997 or such later date as may be set by the
Board of Trustees or President of the Trust. The discussion of the Plan
contained herein is qualified in its entirety by the full text of the
Plan.
As a result of the Combination, the shareholders of Equity Income
will receive that number of full and fractional shares of Total Return
which are equal in value, as of 4:00 p.m. (Eastern Time) on the date of
the Closing, to the respective values of their pro rata shares of the
net assets of Equity Income transferred to Total Return. Portfolio
securities of Equity Income and Total Return will be valued in
accordance with the valuation policies of the Trust, which are described
under "Net Asset Value Per Share" at page 17 of the enclosed Prospectus
of Total Return. The Combination is being accounted for as a tax-free
business combination.
The Trustees of the Trust have determined that the interests of
existing shareholders of Equity Income will not be diluted as a result
of the transaction contemplated by the reorganization.
The distribution of Total Return shares to Equity Income
shareholders will be effected by establishing accounts on the share
records of Total Return in the names of Equity Income's shareholders,
with each account representing the respective number of full and
fractional shares of Total Return due such shareholders and issued
and outstanding share certificates of Equity Income automatically being
cancelled. New certificates for Total Return's shares will not be issued as
part of the Combination, but may be obtained upon request after the
Combination.
The Plan may be terminated and the reorganization abandoned at any
time, before or after approval by Equity Income's shareholders, prior to
the Closing by the Board of Trustees of the Trust.
All fees and expenses, including legal, accounting, printing,
filing and proxy solicitation expenses, portfolio transfer taxes (if
any) or other similar expenses incurred in connection with the
consummation by Equity Income and Total Return of the transaction
contemplated by the Plan will be paid directly by Quest.
COMPARISON OF THE SERIES AND REASONS FOR THE PROPOSED COMBINATIONS
Total Return
- ------------
Total Return's investment objective is long-term growth of capital
and current income.
In accordance with its dual objective of seeking both capital
appreciation (realized and unrealized) and current income, Total Return
normally invests at least 80% of its assets in common stocks. At least
90% of these securities are dividend-paying, and at least 65% of these
securities are issued by companies with stock market capitalizations
under $1 billion at the time of investment. The remainder of Total
Return's assets may be invested in securities with higher stock market
capitalizations, non-dividend-paying common stocks and convertible and
non-convertible securities. While most of Total Return's securities are
income-producing, the composite yield of Total Return will vary and may
be either higher or lower than the composite yield of the stocks in the
Standard & Poor's 500 Index.
Equity Income
- -------------
Equity Income's investment objective is to seek reasonable income
by investing primarily in dividend-paying common and preferred stocks
and debt securities convertible into common stocks. The potential for
capital appreciation is also considered when selecting its portfolio
holdings.
In accordance with its objective of seeking reasonable income,
Equity Income normally invests at least 80% of its assets in common
stocks, convertible preferred stocks and convertible bonds. At least
90% of these securities are income-producing, and at least 65% of these
securities are issued by companies with stock market capitalizations
under $1 billion at the time of investment. The remainder of Equity
Income'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. Equity Income seeks a
portfolio 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 Trust's portfolio.
INVESTMENT RISKS
Equity Income and Total Return are subject to substantially similar
risks, including (a) the risk that common stock prices will decline over
short or even extended periods and (b) the risk of investing in small-
cap companies that may be more volatile in price than larger
capitalization companies.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Except as set forth below, Equity Income and Total Return have
identical fundamental investment restrictions (which may not be changed
without shareholder approval).
Investment Restriction Equity Income Total Return
---------------------- ------------- ------------
Diversification May not invest more than With respect to
5% of its assets in the 75% of its total
securities of any one issuer assets, may not
except U.S. Government invest more than
securities 5% of its assets
in the securities
of any one issuer
except U.S.
Government
securities
Although Total Return may invest more than 5% of its assets in the
securities of any one issuer, as of March 13, 1997, it had no such
positions.
_____________________________
The preceding description of the investment objectives and policies
of Equity Income and Total Return is qualified in its entirety by the
information relating to both series contained in their respective
Prospectuses and in the Trust's Statement of Additional Information
dated April 30, 1997. The Prospectus for Total Return is enclosed
herewith, and copies of Equity Income's Prospectus and the Trust's
Statement of Additional Information are available upon request by
writing to the Trust at 1414 Avenue of the Americas, New York, New York
10019 or by calling toll-free at (800) 221-4268.
Both Equity Income and Total Return also have identical redemption
and purchase features and identical brokerage practices. For 1996, the
respective portfolio turnover rates of Equity Income and Total Return
were 36% and 111%. As of April 18, 1997, the record date, Equity Income
had net assets of approximately $33.0 million, and Total Return had net
assets of approximately $17.6 million.
MANAGEMENT
Quest, the Funds' investment adviser, manages the portfolios of
both Equity Income and Total Return. As compensation for its services,
Quest is entitled to receive 1.00% of average net assets from both
Equity Income and Total Return. These fees are payable monthly from the
assets of the series involved. For 1996, the fees paid to Quest were
.92% (after waivers) of Equity Income's, and .30% (after waivers) of
Total Return's average total net assets for such year.
DISTRIBUTION AND 12B-1 FEE
The Trust has adopted a Distribution Plan pursuant to Rule 12b-1 to
provide for orderly growth and stabilization of Fund assets. The
Distribution Plan provides for payment by Total Return to Quest
Distributors, Inc. ("QDI"), the distributor of the Trust's shares, of
.25% per annum of Total Return's average net assets. Any such fees paid
to QDI may be used to pay sales commissions and other fees to those
broker-dealers who introduce investors to Total Return and various
other promotional, sales-related and shareholder servicing costs and
expenses. QDI has waived its fees since Total Return's inception and
has voluntarily committed to waive its fees through 1997. The Distribution
Plan does not cover Equity Income, which does not pay any fees to QDI.
DIVIDENDS
Equity Income distributes substantially all of its net investment
income to shareholders on a quarterly basis and net realized capital
gains, if any, are distributed to its shareholders annually in December.
If the Combination is approved, in order to maintain its tax status as a
regulated investment company and avoid the imposition of taxes on
undistributed income, Equity Income will make its final distribution of
net investment income and capital gains immediately prior to the
Combination. The distribution will be taxable to those persons who are
shareholders of Equity Income on the record date for such distributions.
Total Return distributes substantially all of its net investment
income and net realized capital gains, if any, to its shareholders
annually in December.
TAX CONSEQUENCES OF THE COMBINATION
It is anticipated that the transaction contemplated by the Plan
will be a reorganization described in Section 368(a)(1)(C) of the Internal
Revenue Code and, as such, will be tax-free for Federal income tax purposes.
The consummation of the Combination is conditioned upon the receipt by the
Trust of an opinion of counsel to the effect that, for Federal income tax
purposes, (a) no gain or loss will be recognized by (i) Equity Income upon
the transfer of all of its assets and liabilities to Total Return in
exchange solely for shares of Total Return and the assumption of Equity
Income's liabilities by Total Return, or (ii) Total Return upon its
receipt of the assets of Equity Income in exchange for shares of Total
Return, (b) no gain or loss will be recognized by the shareholders of
Equity Income on the distribution to them of such shares of Total Return
in exchange for their Equity Income shares, (c) the basis of the shares
of Total Return received by a shareholder of Equity Income in place of
his Equity Income shares will be the same as the basis of his Equity
Income shares surrendered in exchange therefor and (d) a shareholder's
holding period for such shares of Total Return will include the period
for which he held the Equity Income shares surrendered in exchange
therefor, provided that he held such Equity Income shares as a capital
asset. Such opinion will rely on certain representations of Equity
Income and Total Return that are anticipated to be true as of the date
of the proposed Combination, and will reflect counsel's analysis and
interpretation of existing statutory and other authority in the absence
of any court decision or published regulation or ruling addressing these
questions in comparable circumstances. The Internal Revenue Service or
a court could interpret the applicable Federal income tax law
differently. The Trust has not made any investigation as to the state
or local tax consequences of the proposed Combination.
At the time of the Combination, Total Return's net asset value may
reflect undistributed income or capital gains on net unrealized appreciation
in the value of its securities. Any distribution by Total Return of these
amounts after the Combination will be taxable to its shareholders, including
the former shareholders of Equity Income. Each Equity Income shareholder
should consult his own tax adviser with respect to the Federal, state and
local tax consequences to him of the Combination.
CAPITALIZATION
The capitalizations of Total Return and Equity Income as of
December 31, 1996, and the pro forma capitalization of Total Return as
of that date, after giving effect to the Combination, are as follows:
<TABLE>
Equity Income
Equity Total Combined into
Income Return Total Return
------ ------ ------------
<S> <C> <C> <C>
Net assets $35,996,441 $6,233,537 $42,229,978
Shares outstanding 6,308,587 990,877 6,713,682
Share value 5.71 6.29 6.29
</TABLE>
DETERMINATION BY THE TRUSTEES REGARDING THE COMBINATION
The Trustees of the Trust unanimously determined that Equity
Income's and Total Return's participation in the Combination is in the
best interests of each such series, and that the interests of existing
shareholders of each such series will not be diluted as a result of its
effecting the Combination. At the meeting of the Board of Trustees that
considered the proposed Combination, management advised the Board that,
after comparing the performances of Equity Income and Total Return for
the three years ended December 31, 1996 and the volatility of those
returns, it had concluded that the Total Return approach emphasizing
both growth and income and using a more concentrated portfolio of high
quality companies generating free cash flows should be a more attractive
investment strategy for a long-term investor than the "reasonable
income" objective of Equity Income, with its primary focus on yield and
lack of emphasis on capital appreciation. The Board agreed with
management's conclusion, which was based on the following total return
and risk information for the three year period ended December 31, 1996:
<TABLE>
Three Year
One Year Average Annual Standard Morningstar
Total Return Total Return Total Return Deviation Beta Risk Score
- ------------ ------------ ------------ --------- ---- ----------
<S> <C> <C> <C> <C> <C>
Equity Income 16.50% 9.45% 6.83 .43 .62
Total Return 25.50% 18.72% 6.90 .30 .27
</TABLE>
Total returns are historical measures of past performance and are
not intended to indicate future performance. They assume the
reinvestment of all net investment income dividends and capital gains
distributions. Investors evaluating the above measures of risk should
understand that the risk profiles of Equity Income and Total Return may
change over time, and that such measures are not predictive of future
volatility. The Prospectuses of Equity Income and Total Return dated
April 30, 1997, and the Statement of Additional Information of the Trust
dated April 30, 1997, contain further information on total return,
Standard Deviation, Beta and Morningstar Risk Scores.
In recommending to shareholders that Equity Income be combined into
Total Return, the Trustees also recognized that the Combination would
result in a substantially larger fund, which should result in a reduced
expense ratio due to the spreading of certain operating expenses over a
larger asset base. In particular, the Trustees reviewed the unaudited
pro forma combining financial statements, including the pro forma
schedule of investments of Total Return as of and for the year ended
December 31, 1996. Such pro forma combining financial statements, which
are included in the Statement of Additional Information relating to the
transaction described in this Prospectus/Proxy Statement, show the
separate assets, liabilities and operations of Equity Income and Total
Return and the effect of combining them as of and for the year ended
December 31, 1996. Based on these financial statements and on other
information presented to them, the Trust's management estimated that,
for the year ending December 31, 1997, the proposed Combination should
reduce the annual expense ratio for Equity Income shareholders from
approximately 1.37% to approximately 1.25%, as set forth in the Fee
Table on page 4 of this Prospectus/Proxy Statement. There is, however,
no assurance that operating expenses will be reduced to the extent set
forth in such combining financial statements and Fee Table.
RECOMMENDATION OF THE TRUSTEES; REQUIRED VOTE
THE TRUSTEES RECOMMEND THAT EQUITY INCOME SHAREHOLDERS VOTE TO
APPROVE THE PROPOSED COMBINATION. Approval of the Combination will
require the favorable vote of more than 50% of the outstanding shares of
Equity Income.
Shareholder Communications Corporation ("SCC") has been retained by
Quest to assist shareholders with the voting process. Certain
shareholders of Equity Income may receive a call from a representative
of SCC if the Trust has not yet received their vote. Authorization to
permit SCC to execute proxies may be obtained by telephonic or
electronically transmitted instructions from shareholders of Equity
Income.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask the shareholder for such shareholder's
full name, address, social security or employer identification number,
title (if the person giving the proxy is authorized to act on behalf of
an entity such as a corporation) and the number of shares owned and to
confirm that the shareholder has received the Prospectus/Proxy Statement
in the mail. If the information solicited agrees with the information
provided to SCC by the Trust, then the SCC representative has the
responsibility to explain the process, read the proposals listed on the
card and ask for the shareholder's instructions on each proposal. The
SCC representative, although he or she is permitted to answer questions
about the process, is not permitted to recommend to the shareholder how
to vote, other than to read any recommendations set forth in the
Prospectus/Proxy Statement. SCC will record the shareholder's
instructions on the card. Within 72 hours, SCC will send the
shareholder a letter or mailgram to confirm the shareholder's vote and
asking the shareholder to call SCC immediately if the shareholder's
instructions are not correctly reflected in the confirmation.
ADJOURNMENT OF MEETING; OTHER MATTERS
In the event that sufficient votes in favor of Proposal 1 in the
Notice of Special Meeting are not received by the time scheduled for the
meeting, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies
for such Proposal. Any such adjournment will require the affirmative
vote of a majority of the shares present in person or by proxy at the
session of the meeting to be adjourned. The persons named as proxies
will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of Proposal 1. They will vote against any
such adjournment those proxies required to be voted against Proposal 1.
While the meeting has been called to transact any business that may
properly come before it, the only matter which the Trustees intend to
present is the matter stated in the Notice of Special Meeting. However,
if any additional matter properly comes before the meeting and on all
matters incidental to the conduct of the meeting, it is the intention of
the persons named in the enclosed proxy to vote the proxy in accordance
with their judgment on such matters unless instructed to the contrary.
SHAREHOLDER PROPOSALS
The Trust does not hold annual shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a
subsequent shareholder meeting should send their written proposals to
the Secretary of the Trust, 1414 Avenue of the Americas, New York,
New York 10019.
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
The Trust is subject to the informational requirements of the
Investment Company Act of 1940, as amended, and, in accordance
therewith, files reports and other information with the Securities and
Exchange Commission. Such reports and other information can be
inspected and copied at the Public Reference Room maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington D.C. 20549.
EXPERTS
The audited financial statements and schedules of investments of
Royce Equity Income and Total Return Funds are incorporated by reference
into the Statement of Additional Information relating to the transaction
described in this Prospectus/Proxy Statement and have been so included
in reliance upon the reports of Coopers & Lybrand L.L.P., given on the
authority of such firm as experts in auditing and accounting.
Exhibit A
PLAN OF REORGANIZATION
This Plan of Reorganization (the "Plan") pursuant to Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the
"Code") is hereby adopted by The Royce Fund, a Delaware business trust
(the "Trust"), as of this 13th day of March, 1997, on behalf of its
series designated as Royce Equity Income Fund (the "Acquired Series")
and Royce Total Return Fund (the "Acquiring Series"), such Series
constituting separate corporations for purposes of Code Section 851(h).
1. At the Closing (as defined below), the Acquired Series shall,
in exchange solely for shares of the Acquiring Series and the assumption
by the Acquiring Series of the liabilities of the Acquired Series,
transfer all of its assets and liabilities to the Acquiring Series; the
Trust shall issue, on behalf of the Acquiring Series, and shall
distribute to each shareholder of the Acquired Series, in complete
liquidation of the Acquired Series, shares of beneficial interest of the
Acquiring Series (including any fractional share rounded to the nearest
one-thousandth of a share) equal in aggregate value to the aggregate
value of the shares of beneficial interest of the Acquired Series
(including any fractional share rounded to the nearest one-thousandth of
a share) then owned by such shareholder, such values to be determined by
the net asset values per share of the Acquired Series and the Acquiring
Series at the time of the Closing.
2. The distribution on behalf of the Acquiring Series to the
shareholders of the Acquired Series shall be accomplished by the Trust's
establishing an account on the share records of the Acquiring Series in
the name of each registered shareholder of the Acquired Series, and
crediting that account with a number of shares of the Acquiring Series
having a value at the Closing equal to the value of the shares of the
Acquired Series (including any fractional share rounded to the nearest
one-thousandth of a share) then owned by such shareholder, as determined
on that date. Outstanding shares of the Acquiring Series to be issued
at the Closing will be determined by multiplying outstanding shares of the
Acquired Series by the quotient of the Net Asset Value of the Acquired
Series divided by the Net Asset Value of the Acquiring Series. Issued
and outstanding share certificates of the Acquired Series will be deemed
to have been automatically cancelled at the Closing.
3. The Acquired Series shall liquidate, and the foregoing
distribution of shares of the Acquiring Series shall be made to the
shareholders of the Acquired Series in complete liquidation of the
Acquired Series. The Acquired Series shall automatically terminate
immediately thereafter, and shall be dissolved.
4. The distribution to shareholders of the Acquired Series of
shares of the Acquiring Series at the Closing under this Plan shall not
be subject to any front-end sales load, and the termination of the
interest of shareholders of the Acquired Series in such Series at the
Closing under this Plan shall not be subject to any contingent deferred
sales charge or redemption fee.
5. The completion of the transaction in Section 1 above (the
"Closing") shall occur on June 17, 1997 at 4:00 p.m., Eastern Time, at the
office of the Trust in New York, New York or such other date, time or
place as may be determined by the Board of Trustees or the President.
At the Closing, the Trust shall receive an opinion of Rosenman & Colin
LLP or other special tax counsel to the Trust, to the effect that, for
Federal income tax purposes, (a) no gain or loss will be recognized by
(i) the Acquired Series upon the transfer of all of its assets and
liabilities to the Acquiring Series in exchange solely for shares of the
Acquiring Series and the assumption of its liabilities by the Acquiring
Series, or (ii) the Acquiring Series upon its receipt of the assets of
the Acquired Series in exchange for shares of the Acquiring Series, (b)
no gain or loss will be recognized by the shareholders of the Acquired
Series on the distribution to them of such shares of the Acquiring
Series in exchange for their shares of the Acquired Series, (c) the
basis of the shares of the Acquiring Series received by a shareholder of
the Acquired Series in place of his shares of the Acquired Series will
be the same as the basis of his shares of the Acquired Series
surrendered in exchange therefor, and (d) a shareholder's holding period
for such shares of the Acquiring Series will include the period for
which he held the shares of the Acquired Series surrendered in exchange
therefor, provided that he held such Acquired Series shares as a capital
asset.
6. This Plan may be amended at any time, and may be terminated at
any time before the completion of the transaction described in Section
1, whether or not this Plan has been approved by the shareholders of the
Acquired Series, by action of the Trust, provided that no amendment
shall have a material adverse effect upon the interests of shareholders
of the Acquired Series or the Acquiring Series.
7. A copy of the Trust's Certificate of Trust is on file with the
Secretary of State of the State of Delaware, and notice is hereby given
that this Plan is executed on behalf of the Trustees of the Trust as the
trustees of the Trust and not individually, and that the obligations
under this instrument are not binding upon any of the trustees, officers
or shareholders of the Trust individually, but binding only upon the
assets and property of the Acquired Series and the Acquiring Series.
8. At any time after the Closing, the Trust on behalf of the
Acquired Series shall execute and deliver such additional instruments of
transfer or other written assurances and take such other action as may
be necessary in order to vest in the Acquiring Series title to the
assets transferred by the Acquired Series under this Plan.
9. This Plan shall be construed in accordance with applicable
Federal laws and the laws of the State of New York, except as to the
provisions of Section 7 hereof which shall be construed in accordance
with the laws of the State of Delaware.
THE ROYCE FUND
By: /s/ Charles M. Royce
Charles M. Royce, President
Attest:
/s/ John E. Denneen
John E. Denneen, Secretary
TABLE OF CONTENTS Page
Cover Page 1
Summary of the Proposed Transaction 2
Notice of Meeting 5
Statement Concerning the Special Meeting 6
Information about the Combination 7
Comparison of the Series and Reasons for
the Proposed Combination 8
Investment Risks 8
Fundamental Investment Restrictions 8
Management 9
Distribution and 12b-1 Fee 9
Dividends 10
Tax Consequences of the Combination 10
Capitalization 11
Determination by the Trustees Regarding
the Combination 11
Recommendation of the Trustees; Required Vote 12
Adjournment of Meeting 12
Shareholder Proposals 13
Information Filed with the Securities
and Exchange Commission 13
Experts 13
Exhibit A: Plan of Reorganization 14
APPENDIX I
PROXY ROYCE EQUITY INCOME FUND PROXY
1414 Avenue of the Americas
New York, NY 10019
This Proxy is Solicited on Behalf of the Board of Trustees
The undersigned hereby appoints Charles M. Royce and John E.
Denneen, or either of them, acting in absence of the other,
as Proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as
designated on the reverse, all shares of the Fund held of
record by the undersigned on April 18, 1997, at the
Special Meeting of Shareholders to be held on May 28, 1997,
or at any adjournment thereof.
This Proxy, when properly executed, will be voted in the
manner directed by the undersigned shareholder. If no
direction is made, this Proxy will be voted FOR Proposal 1.
PLEASE VOTE , DATE AND SIGN ON REVERSE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s) on reverse.
When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If
a corporation, pleas sign in full corporate name by
president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------- -------------------------
- ------------------------- -------------------------
- ------------------------- -------------------------
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
ROYCE EQUITY INCOME FUND
For Against Abstain
1. PROPOSAL TO APPROVE A PLAN
OF REORGANIZATION PROVIDING
FOR (A) THE ACQUISITION OF THE
FUND'S ASSETS AND THE ASSUMPTION
OF ITS LIABILITIES BY ROYCE
TOTAL RETURN FUND AND (B) THE
LIQUIDATION OF THE FUND AND THE
PRO RATA DISTRIBUTION OF ROYCE
TOTAL RETURN FUND SHARES TO ITS SHAREHOLDERS.
2. THE PROXIES ARE AUTHORIZED TO VOTE
UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
Please be sure to sign and date this Proxy. Date: Mark box at right if
an address change or
comment has been
noted on the reverse
side of this card. / /
Shareholder sign here Co-owner sign here RECORD DATE SHARES:
