THE ROYCE FUNDS
PENNSYLVANIA MUTUAL FUND - INVESTMENT CLASS
PROSPECTUS -- April 30, 1997
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR SERVICES --
1-800-33-ROYCE
INVESTMENT PENNSYLVANIA MUTUAL FUND (the "Fund") seeks long-
OBJECTIVE AND term capital appreciation by investing primarily in
POLICIES common stocks and securities convertible into
common stocks of small and micro-cap companies. The
Fund's securities are selected on a value basis.
There can be no assurance that the Fund will
achieve its objective.
The Fund is a series of The Royce Fund (the
"Trust"), a diversified open-end management
investment company. The Trust is currently
offering shares of 11 series, and the Fund is
currently offering two classes of its shares. This
Prospectus relates only to the Fund's Investment
Class. Shares of the Fund's other class are
generally offered only through certain broker-
dealers. Please call Investor Information at 1-800-
221-4268 for information on such class.
ABOUT THIS This Prospectus sets forth concisely the
PROSPECTUS information that you should know about the
Investment Class of Pennsylvania Mutual Fund before
you invest. It should be retained for future
reference. A "Statement of Additional
Information," containing further information about
the Fund and the Trust, has been filed with the
Securities and Exchange Commission. The Statement
is dated April 30, 1997 and has been incorporated
by reference into this Prospectus. A copy may be
obtained without charge by writing to the Trust or
calling Investor Information.
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TABLE OF CONTENTS
Page Page
Fund Expenses 2 SHAREHOLDER GUIDE
Financial Highlights 3 Opening an Account and Purchasing Shares 10
Investment Performance and Volatility 4 Choosing a Distribution Option 12
Investment Objective 5 Important Account Information 12
Investment Policies 5 Redeeming Your Shares 13
Investment Risks 5 Exchange Privilege 15
Investment Limitations 6 Transferring Ownership 15
Management of the Trust 8 Other Services 15
General Information 8
Dividends, Distributions and Taxes 9
Net Asset Value Per Share 9
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND EXPENSES The following tables summarize the maximum
transaction costs and estimated expenses and fees
that you would incur as an Investment Class
shareholder of the Fund. The Fund offers one other
class of shares, generally available through broker-
dealers, which has a different expense structure
than the Investment Class, resulting in different
performance for that class.
Shareholder Transaction Expenses
--------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee -- on share purchases held for 1 year or more None
Early Redemption Fee -- on share purchases held for less than 1 year 1%
Annual Fund Operating Expenses
------------------------------
Management Fees 0.80%
12b-1 Fees None
Other Expenses 0.23%
-----
Total Operating Expenses 1.03%
-----
The purpose of the above tables is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor in
shares of the Investment Class of the Fund.
The following examples illustrate the expenses that you would incur on a $1,000
investment over various periods, assuming a 5% annual rate of return and
redemption at the end of each period.
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$11 $33 $57 $126
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
FINANCIAL The following financial highlights are part of the
HIGHLIGHTS Fund's financial statements and have been audited
by Coopers & Lybrand L.L.P., independent
accountants. The Fund's financial statements and
(For a share Coopers & Lybrand L.L.P.'s reports on them are
outstanding included in the Fund's Annual Reports to
throughout Shareholders and are incorporated by reference into
each year the Statement of Additional Information and this
Prospectus. Further information about the Fund's
performance is contained elsewhere in this
prospectus and in the Fund's Annual Report to
Shareholders for 1996, which may be obtained
without charge by calling Investor Information.
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Year ended December 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
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NET ASSET VALUE, BEGINNING OF YEAR $7.71 $7.41 $8.31 $8.00 $7.29 $5.78 $6.85 $6.41 $5.47 $6.98
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.11 0.11 0.12 0.11 0.11 0.12 0.17 0.21 0.14 0.14
Net realized and unrealized
gain (loss) on investments 0.84 1.27 (0.18) 0.79 1.07 1.72 (0.96) 0.86 1.20 (0.02)
---- ---- ------ ---- ---- ---- ------ ---- ---- ------
Total from Investment
Operations 0.95 1.38 (0.06) 0.90 1.18 1.84 (0.79) 1.07 1.34 0.12
---- ---- ------ ---- ---- ---- ------ ---- ---- ----
LESS DISTRIBUTIONS
Dividends paid from net
investment income (0.11) (0.11) (0.11) (0.11) (0.10) (0.12) (0.16) (0.22) (0.12) (0.33)
Distributions paid from capital
gains (1.44) (0.97) (0.73) (0.48) (0.37) (0.21) (0.12) (0.41) (0.28) (1.30)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total Distributions (1.55) (1.08) (0.84) (0.59) (0.47) (0.33) (0.28) (0.63) (0.40) (1.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year $7.11 $7.71 $7.41 $8.31 $8.00 $7.29 $5.78 $6.85 $6.41 $5.47
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN 12.8% 18.7% -0.7% 11.3% 16.2% 31.8% -11.5% 16.7% 24.6% 1.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (millions) $457 $630 $771 $1,022 $1,102 $789 $549 $551 $444 $276
Ratio of Expenses to
Average Net Assets (a) .99% .98% 0.98% .98% .91% .95% .96% .97% 1.01% .99%
Ratio of Net Investment Income
to Average Net Assets 1.05% 1.18% 1.33% 1.23% 1.48% 1.73% 2.62% 2.93% 2.35% 2.02%
Portfolio Turnover Rate 29% 10% 17% 24% 22% 29% 15% 23% 24% 23%
Average Commission Rate Paid* $0.0588 --- --- --- --- --- --- --- --- ---
(a) Expense ratio before waiver of fees by the investment adviser
would have been 1.03% and .99% for the years ended December 31,
1996 and 1995, respectively.
* Beginning in 1996, the Fund is required to disclose average
commission rates paid per share for purchases and sales of
investments.
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INVESTMENT The Fund may include in communications to current
PERFORMANCE or prospective shareholders figures reflecting
AND total return over various time periods. "Total
VOLATILITY return" is the rate of return on an amount invested
in the Fund from the beginning to the end of the
Total return stated period. "Average annual total return" is
is the the annual compounded percentage change in the
change in value of an amount invested in the Fund from the
value over beginning until the end of the stated period.
a given time Total returns are historical measures of past
period, performance and are not intended to indicate future
assuming performance. Total returns assume the reinvestment
reinvestment of all net investment income dividends and capital
of dividends gains distributions. The figures do not reflect
and capital the Fund's early redemption fee because this fee
gains applies only to redemptions of share purchases held
distributions for less than one year. Additionally, the
performance of the Fund may be compared in
publications to (i) the performance of various
indices and investments for which reliable
performance data is available and (ii) averages,
performance rankings or other information prepared
by recognized mutual fund statistical services.
The Fund's average annual total returns for the
periods ended December 31, 1996 were:
One Three Five Ten Twenty
Year Year Year Year Year
---- ---- ---- ---- ----
12.8% 10.0% 11.5% 11.4% 16.1%
"Risk" may be The relative risk of investing in a particular fund
viewed should be considered in addition to the total
as the returns of a fund. Risk, in terms of how volatile
volatility of an investor's returns have been, can be measured in
a a number of ways, including standard deviation and
fund's total beta.
returns
over time Standard deviation measures the range of
performance within which a fund's total returns
have fallen. The lower the standard deviation of
the fund, the less volatile and more consistent the
fund's monthly total returns have been over that
period. When the standard deviation of a fund is
lower than the standard deviation of an index such
as the S&P 500, the fund has been less volatile
than the index.
Beta measures a fund's sensitivity to market
movements. The beta for the index chosen to
represent the stock market (the S&P 500) is 1.00.
If the fund has a beta greater than 1.00, it has
been more volatile than the index; if its beta is
less than 1.00, it has been less volatile than the
index.
These measures of risk, which are historical in
nature and not necessarily predictive of future
volatility, are more fully described in the
Statement of Additional Information. For the three
year period ended December 31, 1996, standard
deviation and beta for the Fund, the Russell 2000,
an index representative of small company stocks,
and the S&P 500 were:
Standard
Deviation Beta
--------- ----
Pennsylvania Mutual Fund 8.07 0.52
Russell 2000 12.10 0.94
S&P 500 9.72 1.00
Investors evaluating these and other quantitative
measures of risk should understand that the risk
profiles of the Fund's portfolio may change over
time. The investment risks associated with the
types of securities in which the Fund may invest
are described below -- see "Investment Risks".
INVESTMENT The investment objective of the Fund is long-term
OBJECTIVE capital appreciation. It seeks to achieve this
objective primarily through investments in common
stocks and securities convertible into common
stocks of small companies. There can be no
assurance that the Fund will achieve its investment
objective.
The Fund's investment objective is fundamental and
may not be changed without the approval of a
majority of its outstanding voting shares.
INVESTMENT Royce & Associates, Inc. ("Royce"), the Fund's
POLICIES investment adviser, uses a "value" method in
managing the Fund's assets. In its selection
The Fund process, Royce puts primary emphasis on the
invests understanding of various internal returns
on a value indicative of profitability, balance sheet quality,
basis cash flows and the relationships that these factors
have to the price of a given security.
The Fund
invests Royce's value method is based on its belief that
primarily in the securities of certain companies may sell at a
small and discount from its estimate of such companies'
micro-cap "private worth," that is, what a knowledgeable
companies buyer would pay for the entire company. Royce
attempts to identify and invest in these securities
for the Fund, with the expectation that this "value
discount" will narrow over time and thus provide
capital appreciation for the Fund.
The Fund normally invests at least 65% of its
assets in the common stocks and securities
convertible into common stocks of small and micro-
cap companies (stock market capitalizations below
$1 billion). Such companies represent Royce's core
investment focus.
In selecting securities for the Fund, Royce
generally gives approximately equal weighting to
both small and micro-cap companies. In the upper
end of this range, $300 million to $1 billion in
stock market capitalization, the Fund invests in a
limited number of companies with superior financial
characteristics and/or unusually attractive
business prospects, companies Royce classifies as
"premier." The Fund uses a more diversified
approach to investments in the lower end of the
range, below $300 million, the sector known as
"micro-cap."
Other The assets of the Fund that are not invested in the
securities equity securities of small and micro-cap companies
may be invested in securities of companies with
higher stock market capitalizations and in non-
convertible preferred stocks and debt securities.
INVESTMENT As a mutual fund investing primarily in common
RISKS stocks and/or securities convertible into common
stocks, the Fund is subject to market risk, that
The Fund is is, the possibility that common stock prices will
subject decline over short or even extended periods. The
to certain Fund invests substantial portions of its assets in
investment securities of small and/or micro-cap companies.
risks Such companies may not be well-known to the
investing public, may not have significant
institutional ownership and may have cyclical,
static or only moderate growth prospects. In
addition, the securities of such companies may be
more volatile in price, have wider spreads between
their bid and ask prices and have significantly
lower trading volumes than larger capitalization
stocks. Accordingly, Royce's investment focus
requires a long-term horizon, and the Fund should
not be used to play short-term swings in the
market.
In addition, the Fund invests in micro-cap
securities that are followed by relatively few
securities analysts, with the result that there
tends to be less publicly available information
concerning the securities. The securities of these
companies may have more limited trading volumes and
be subject to more abrupt or erratic market
movements than the securities of small-cap
companies, and Royce may be required to deal with
only a few market-makers when purchasing and
selling these securities. Such companies also may
have limited product lines, markets or financial
resources, may lack management depth and may be
more vulnerable to adverse business or market
developments. Thus, the Fund may involve
considerably more risk than a mutual fund investing
in more liquid equity securities.
INVESTMENT The Fund has adopted certain fundamental
LIMITATIONS limitations, designed to reduce its exposure to
specific situations, which may not be changed
The Fund has without the approval of a majority of its
adopted outstanding voting shares, as that term is defined
certain in the 1940 Act. These limitations are set forth
fundamental in the Statement of Additional Information and
limitations provide, among other things, that the Fund will
not:
(a) as to not less than 75% of its assets, invest
more than 5% of its assets in the securities of any
one issuer, excluding U.S. Government obligations;
(b) invest more than 25% of its assets in any one
industry; or
(c) invest in companies for the purpose of
exercising control of management.
OTHER In addition to investing primarily in the equity and fixed
INVESTMENT income securities described above, the Fund may follow a
PRACTICES number of additional investment practices.
Short-term The Fund may invest in short-term fixed income
fixed securities for temporary defensive purposes, to
income invest uncommitted cash balances or to maintain
securities liquidity to meet shareholder redemptions. These
securities consist of United States Treasury bills,
domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements
collateralized by U.S. Government securities. In a
repurchase agreement, a bank sells a security to
the Fund at one price and agrees to repurchase it
at the Fund's cost plus interest within a specified
period of seven or fewer days. In these
transactions, which are, in effect, secured loans
by the Fund, the securities purchased by the Fund
will have a value equal to or in excess of the
value of the repurchase agreement and will be held
by the Fund's custodian bank until repurchased.
Should the Fund implement a temporary investment
policy, its investment objective may not be
achieved.
Securities The Fund may lend up to 25% of its assets to
lending qualified institutional investors for the purpose
of realizing additional income. Loans of
securities of the Fund will be collateralized by
cash or securities issued or guaranteed by the
United States Government or its agencies or
instrumentalities. The collateral will equal at
least 100% of the current market value of the
loaned securities. The risks of securities lending
include possible delays in receiving additional
collateral or in recovery of loaned securities or
loss of rights in the collateral if the borrower
defaults or becomes insolvent.
Lower-rated The Fund may invest no more than 5% of its net
debt assets in lower-rated (high-risk) non-convertible
securities debt securities, which are below investment grade.
The Fund does not expect to invest in debt
securities that are rated lower than Caa by Moody's
Investors Service, Inc. or CCC by Standard & Poor's
Corp. or, if unrated, determined to be of
comparable quality.
Foreign The Fund may invest up to 10% of its assets in
securities foreign securities, measured at the time of
purchase. The Fund may purchase foreign securities
in the form of American Depositary Receipts
("ADRs"). ADRs are certificates held in trust by a
bank or similar financial institution evidencing
ownership of shares of a foreign-based issuer.
Designed for use in U.S. securities markets, ADRs
are alternatives to the purchase of the underlying
foreign securities in their national markets and
currencies.
The Fund does not expect to purchase or sell
foreign currencies to hedge against declines in the
U.S. dollar or to lock in the value of the foreign
securities it purchases, and its foreign
investments may be adversely affected by changes in
foreign currency rates. Consequently, the risks
associated with such investments may be greater
than if the Fund did engage in foreign currency
transactions for hedging purposes. Foreign
investments may also be adversely affected by
exchange control regulations, if any, in such
foreign markets, and the Fund's ability to make
certain distributions necessary to maintain
eligibility as a regulated investment company and
avoid the imposition of income and excise taxes may
to that extent be limited.
There may be less information available about a
foreign company than a domestic company; foreign
companies may not be subject to accounting,
auditing and reporting standards and requirements
comparable to those applicable to domestic
companies; and foreign markets, brokers and issuers
are generally subject to less extensive government
regulation than their domestic counterparts.
Foreign securities may be less liquid and may be
subject to greater price volatility than domestic
securities. Foreign brokerage commissions and
custodial fees are generally higher than those in
the United States. Foreign markets also have
different clearance and settlement procedures, and
in certain markets there have been times when
settlements have been unable to keep pace with the
volume of securities transactions, thereby making
it difficult to conduct such transactions. Delays
or problems with settlements might affect the
liquidity of the Fund's portfolio. Foreign
investments may also be subject to local economic
and political risks, political instability and
possible nationalization of issuers or
expropriation of their assets, which might
adversely affect the Fund's ability to realize on
its investment in such securities. Furthermore,
some foreign securities are subject to brokerage
taxes levied by foreign governments, which have the
effect of increasing the cost of such investment
and reducing the realized gain or increasing the
realized loss on such securities at the time of
sale.
Income earned or received by the Fund from sources
within foreign countries may be subject to
withholding and other taxes imposed by such
countries. Any such taxes paid by the Fund will
reduce its cash available for distribution to
shareholders. The Fund is required to calculate
its distributable income and capital gains for U.S.
Federal income tax purposes by reference to the
U.S. dollar. Fluctuations in applicable foreign
currency exchange rates may cause the Fund's
distributable income and capital gains for U.S.
Federal income tax purposes to differ from the
value of its investments calculated by reference to
foreign currencies. If the Fund invests in stock
of a so-called passive foreign investment company,
the Fund may make certain elections that will
affect the calculation of its net investment income
and capital gains.
Portfolio Although the Fund generally seeks to invest for the
turnover long term, it retains the right to sell securities
regardless of how long they have been held. The Fund's
annual portfolio turnover rates are shown in the "Financial
Highlights."
MANAGEMENT OF The Trust's business and affairs are managed under
THE TRUST the direction of its Board of Trustees. Royce &
Associates, Inc., formerly named Quest Advisory
Royce & Corp., the Fund's investment adviser, is
Associates, responsible for the investment of their assets,
Inc. is subject to the authority of the Board. Charles M.
responsible Royce, Royce's President, Chief Investment Officer
for and sole voting shareholder since 1972, is
management of primarily responsible for managing the Fund's
the portfolio. He is assisted by Royce's investment
Fund's assets staff, including W. Whitney George, Portfolio
Manager and Managing Director, and by Jack E.
Fockler, Jr., Managing Director. Royce is also the
investment adviser to PMF II, Royce Premier, Micro-
Cap, Equity Income, Low-Priced Stock, Total Return,
Global Services and GiftShares Funds, which are
other series of the Trust, and to other investment
and non-investment company accounts.
As compensation for its services to the Fund, Royce
is entitled to receive annual advisory fees as
follows: (i) 1.0% of the first $50 million of the
average net assets of the Fund, (ii) 0.875% of the
next $50 million of average net assets and (iii)
0.75% of average net assets in excess of $100
million. The fees paid by the Fund to Royce for
1996 amounted to 0.76% of average net assets (net
of voluntary waiver).
Royce selects the brokers who execute the purchases
and sales of the Fund's portfolio securities and
may place orders with brokers who provide brokerage
and research services to Royce. Royce is
authorized, in recognition of the value of
brokerage and research services provided, to pay
commissions to a broker in excess of the amount
which another broker might have charged for the
same transaction.
Royce Fund Services, Inc. ("RFS"), formerly named
Quest Distributors, Inc., which is wholly-owned by
Charles M. Royce, acts as distributor of the Fund's
shares.
GENERAL The Royce Fund (the "Trust") is a Delaware business
INFORMATION trust, registered with the Securities and Exchange
Commission as a diversified open-end management
investment company. It is the successor to a
Massachusetts business trust established in October
1985 and merged into the Trust in June 1996. The
Trustees have the authority to issue an unlimited
number of shares of beneficial interest, without
shareholder approval, and these shares may be
divided into an unlimited number of series and
classes. Shareholders are entitled to one vote per
share. Shares vote by individual series on all
matters, except that shares are voted in the
aggregate and not by individual series or class
when required by the 1940 Act and that if the
Trustees determine that a matter affects only one
series or class, then only shareholders of that
series or class are entitled to vote on that
matter.
Meetings of shareholders will not be held except as
required by the 1940 Act or other applicable law.
A meeting will be held to vote on the removal of a
Trustee or Trustees of the Trust if requested in
writing by the holders of not less than 10% of the
outstanding shares of the Trust.
The custodian for the securities, cash and other
assets of the Fund is State Street Bank and Trust
Company. State Street, through its agent National
Financial Data Services ("NFDS"), also serves as
the Fund's transfer agent. Coopers & Lybrand,
L.L.P. serves as independent accountants for the
Fund.
DIVIDENDS, The Fund pays dividends from net investment income
DISTRIBUTIONS (if any) and distributes its net realized capital
AND TAXES gains annually in December. Dividends and
distributions will be automatically reinvested in
The Fund pays additional shares of the Class unless the
dividends and shareholder chooses otherwise.
capital
gains Shareholders receive information annually as to the
annually in tax status of distributions made by the Fund for
December the calendar year. For Federal income tax
purposes, all distributions by the Fund are taxable
to shareholders when declared, whether received in
cash or reinvested in shares. Distributions paid
from the Fund's net investment income and short-
term capital gains are taxable to shareholders as
ordinary income dividends. A portion of the Fund's
dividends may qualify for the corporate dividends
received deduction, subject to certain limitations.
The portion of the Fund's dividends qualifying for
such deduction is generally limited to the
aggregate taxable dividends received by the Fund
from domestic corporations. Distributions paid
from long-term capital gains of the Fund are
treated by a shareholder for Federal income tax
purposes as long-term capital gains, regardless of
how long the shareholder has held Fund shares.
If a shareholder disposes of shares held for six
months or less at a loss, such loss is treated as a
long-term capital loss to the extent of any long-
term capital gains reported by the shareholder with
respect to such shares. A loss realized on a
taxable disposition of Fund shares may be
disallowed to the extent that additional Fund
shares are purchased (including by reinvestment of
distributions) within 30 days before or after such
disposition.
The redemption of shares is a taxable event, and a
shareholder may realize a capital gain or capital
loss. The Fund will report to redeeming
shareholders the proceeds of their redemptions.
However, because the tax consequences of a
redemption will also depend on the shareholder's
basis in the redeemed shares for tax purposes,
shareholders should retain their account statements
for use in determining their tax liability on a
redemption.
At the time of a shareholder's purchase, the Fund's
net asset value may reflect undistributed income or
capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the
shareholder even though the distribution
economically is a return of part of the
shareholder's investment.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions and
redemptions paid to non-corporate shareholders who
have not complied with Internal Revenue Service
taxpayer identification regulations. Shareholders
may avoid this withholding requirement by
certifying on the Account Application their proper
Social Security or Taxpayer Identification Number
and that they are not subject to backup
withholding.
The discussion of Federal income taxes above is for
general information only. The Statement of
Additional Information includes a more detailed
description of Federal income tax aspects that may
be relevant to a shareholder. Shareholders may
also be subject to state and local taxes on income
and any gains from their investment. Investors
should consult their own tax advisers concerning
the tax consequences of an investment in the Fund.
NET ASSET Shares are purchased and redeemed at their net asset
VALUE value per share next determined after an order is
PER SHARE reeived by the Fund's transfer agent or an authorized
service agent or sub-agent. Net asset value per share
Net asset is determined by dividing the total value of the Fund's
value per investments plus cash and other assets, less any
share (NAV) liabilities, by the number of outstanding shares of the
is determined Fund. Net asset value per share is calculated at the
each day close regular trading on the New York Stock Exchange on
the New York each day the Exchange is open for business.
Stock Exchange
is open In determining net asset value, securities listed on an
exchange or the Nasdaq National Market System are valued on
the basis of the last reported sale price prior to the time
the valuation is made or, if no sale is reported for that day,
at their bid price for exchange-listed securities and at the
average of their bid and ask prices for Nasdaq securities.
Quotations are taken from the market where the security is
primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their
bid price. Securities for which market quotations are not
readily available are valued at their fair value under
procedures established and supervised by the Board of Trustees.
Bonds and other fixed income securities may be valued by
reference to other securities with comparable ratings, interest
rates and maturities, using established independent pricing
services.
SHAREHOLDER GUIDE
OPENING AN The Fund's shares are offered on a no-load basis.
ACCOUNT AND To open a new account (other than an IRA or
PURCHASING 403(b)(7) account) either by mail, by telephone or
SHARES by wire, simply complete and return an Account
Application. If you need assistance with the
Account Application or have any questions about the
Fund, please call Investor Information at 1-800-221-
4268. Note: For certain types of account
registrations (e.g., corporations, partnerships,
foundations, associations, other organizations,
trusts or powers of attorney), please call Investor
Information to determine if you need to provide
additional forms with your application.
MINIMUM Type of Account Minimum
INITIAL --------------- -------
INVESTMENT Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
401(k) and 403(b)(7) accounts* None
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor
Information if you need these forms.
SUBSEQUENT Subsequent investments may be made by mail ($50
INVESTMENTS minimum), telephone ($500 minimum), wire ($1,000
minimum) or Express Service (a system of electronic
funds transfer from your bank account).
NEW ACCOUNT ADDITIONAL INVESTMENTS
PURCHASING BY Please include the TO EXISTING ACCOUNTS
MAIL amount of your initial Additional investments should
Complete and investment on the include the Invest-by-Mail
sign the Account Application, remittance form attached to
enclosed make your check payable your Fund account confirmation
Account to The Royce Fund, and statements. Please make your
Application mail to: check payable to The Royce
The Royce Funds Fund, write your account number
P.O. Box 419012 on your check and, using the
Kansas City, MO 64141-6012 return envelope provided, mail
64141-6012 to the address indicated
on the Invest-by-Mail form.
For express The Royce Funds All written requests
or c/o National Financial should be mailed to one
registered Data Services of the addresses
mail, 1004 Baltimore, 5th Floor indicated for new
send to: Kansas City, MO 64105 accounts.
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Purchasing By To open an account by Subsequent telephone purchases
Telephone telephone, you should ($500 minimum) may also be made
call Investor by calling Investor Information.
Information (1-800-221- For all telephone purchases,
4268) before 4:00 p.m., payment is due within three
Eastern time. You will business days and may be made
be given a confirming by wire or personal, business
order number for your or bank check, subject to
purchase. This number collection.
must be placed on your
completed Account
Application before
mailing. If a completed
and signed Account
Application is not
received on an account
opened by telephone, the
account may be subject
to backup withholding of
Federal income taxes.
PURCHASE BY WIRE Money should be wired to:
BEFORE WIRING: State Street Bank and Trust Company
For a new ABA 011000028 DDA 9904-712-8
account, please Ref: Pennsylvania Mutual Fund - Investment Class
contact Investor Order Number or Account Number____________________
Information at Account Name ________________________
1-800-221-4268
To ensure proper receipt, please be sure your bank
includes the name of the Fund and your order number (for
telephone purchases) or account number. If you are opening
a new account, your financial consultant must call Investor
Information to obtain an order number, and complete the
Account Application and mail it the "New Account" address
above after completing the wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the
Fund and its custodian are open for business.
PURCHASING BY Additional shares can be purchased automatically or
EXPRESS at your discretion through the following options:
SERVICE
EXPEDITED PURCHASE OPTION permits you, at your
discretion, to transfer funds ($100 minimum and
$200,000 maximum) from your bank account to
purchase shares in your Royce Fund account by
telephone or computer online access.
AUTOMATIC INVESTMENT PLAN allows you to make
regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce
Fund account on the monthly or quarterly schedule
you select.
To establish the Expedited Purchase Option and/or
Automatic Investment Plan, please provide the
appropriate information on the Account Application
and attach a voided check. We will send you a
confirmation of Express Service activation. Please
wait three weeks before using the service.
To make an Expedited Purchase, other than through
computer online access, please call Shareholder
Services at 1-800-841-1180 before 4:00 p.m.,
Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT
DEPOSIT PLAN let you have investments ($50 minimum)
made from your net payroll or government check into
your existing Royce Fund account each pay period.
Your employer must have direct deposit capabilities
through ACH (Automated Clearing House) available to
its employees. You may terminate participation in
these programs by giving written notice to your
employer or government agency, as appropriate. The
Fund is not responsible for the efficiency of the
employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must
complete an Authorization for Direct Deposit form
which may be obtained from Investor Information by
calling 1-800-221-4268.
PURCHASING If you purchase shares of the Fund through a
THROUGH program of services offered or administered by a
A SERVICE broker-dealer, financial institution or other
PROVIDER service provider, you should read the program
materials provided by the service provider,
including information regarding fees which may be
charged, in conjunction with this Prospectus.
Certain shareholder servicing features of the Fund
may not be available or may be modified in
connection with the program of services offered.
When shares of the Fund are purchased in this way,
the service provider, rather than the customer, may
be the shareholder of record of the shares. RFS,
Royce and/or the Fund may pay fees to unaffiliated
broker-dealers, financial institutions or other
service providers who introduce investors to the
Fund and/or provide certain administrative services
to those of their customers who are Fund
shareholders.
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option--Both net
investment income dividends and capital gains
distributions will be reinvested in additional
Fund shares. This option will be selected for you
automatically unless you specify one of the other
options.
2. Cash Dividend Option--Your dividends will be
paid in cash and your capital gains distributions
will be reinvested in additional Investment Class
shares.
3. All Cash Option--Both dividends and capital
gains distributions will be paid in cash.
You may change your option by calling Shareholder
Services at 1-800-841-1180.
IMPORTANT The easiest way to establish optional services on
ACCOUNT your account is to select the options you desire
INFORMATION when you complete your Account Application. If you
want to add or change shareholder options later,
you may need to provide additional information and
a signature guarantee. Please call Shareholder
Services at 1-800-841-1180 for further assistance.
Signature For our mutual protection, we may require a
Guarantees signature guarantee on certain written transaction
requests. A signature guarantee verifies the
authenticity of your signature and may be obtained
from banks, brokerage firms and any other guarantor
that our transfer agent deems acceptable. A
signature guarantee cannot be provided by a notary
public.
Certificates Certificates for whole shares will be issued upon
request. If a certificate is lost, stolen or
destroyed, you may incur an expense to replace it.
Telephone and Neither the Fund nor its transfer agent will be
Online Access liable for following instructions communicated by
Transactions telephone or computer online access that are
reasonably believed to be genuine. The transfer
agent uses certain procedures designed to confirm
that telephone and computer online access
instructions are genuine, which may include
requiring some form of personal identification
prior to acting on the instructions, providing
written confirmation of the transaction and/or
recording incoming telephone calls, and if it does
not follow such procedures, the Fund or the
transfer agent may be liable for any losses due to
unauthorized or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment
is not received for any telephone or computer
online access purchase, the transaction will be
canceled and you will be responsible for any loss
the Fund incurs. If you are already a shareholder,
the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for
any loss incurred.
Trade Date Your TRADE DATE is the date on which share
for purchases are credited to your account. If your
Purchases purchase is made by check, Federal Funds wire,
telephone, computer online access or exchange and
is received by the close of regular trading on the
New York Stock Exchange (generally 4:00 p.m.,
Eastern time), your trade date is the date of
receipt. If your purchase is received after the
close of regular trading on the Exchange, your
trade date is the next business day. Your shares
are purchased at the net asset value determined on
your trade date.
In order to prevent lengthy processing delays
caused by the clearing of foreign checks, the Fund
will accept only a foreign check which has been
drawn in U.S. dollars and has been issued by a
foreign bank with a United States correspondent
bank.
The Trust reserves the right to suspend the
offering of Fund shares to new investors. The
Trust also reserves the right to reject any
specific purchase request.
REDEEMING You may redeem any portion of your account at any
YOUR time. You may request a redemption in writing or
SHARES by telephone. Redemption proceeds normally will be
sent within two business days after the receipt of
the request in Good Order.
Redemption requests should be mailed to The Royce
REDEEMING BY Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
MAIL 64141-6012. (For express or registered mail, send
your request to The Royce Funds, c/o National
Financial Data Services, 1004 Baltimore, 5th Floor,
Kansas City, MO 64105.)
The redemption price of shares will be their net asset
value next determined after NFDS or an authorized service
agent or sub-agent has received all required documents in
Good Order.
DEFINITION OF GOOD ORDER means that the request includes the following:
GOOD ORDER
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars
or shares).
3. Signatures of all owners exactly as they are registered on
the account.
4. Signature guarantees if the value of the shares being
redeemed exceeds $50,000 or if the payment is to be sent
to an address other than the address of record or is to be
made to a payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required,
in the case of retirement plans, corporations, trusts,
estates and certain other accounts.
If you have any questions about what is required as it pertains
to your request, please call Shareholder Services at 1-800-841-
1180.
REDEEMING BY Shareholders who have not established Express Service may
redeem up to $50,000 of their shares by telephone, provided
the proceeds are mailed to their address of record. If pre-
approved, higher minimums may apply for institutional
accounts. To redeem shares by telephone, you or your pre-
authorized representative may call Shareholder Services at
1-800-841-1180. Redemption requests received by telephone
prior to the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) are
processed on the day of receipt; redemption requests received
by telephone after the close of regular trading on the
Exchange are processed on the business day following receipt.
Telephone redemption service is not available for Trust-
sponsored retirement plan accounts or if certificates are
held. TELEPHONE REDEMPTIONS WILL NOT BE PERMITTED FOR A
PERIOD OF SIXTY DAYS AFTER A CHANGE IN THE ADDRESS OF
RECORD. See also "Important Account Information - Telephone
and Online Access Transactions."
REDEEMING BY If you select the Express Service Automatic Withdrawal option,
EXPRESS SERVICE shares will be automatically redeemed from your Fund account
and the proceeds transferred to your bank account according
to the schedule you have selected. You must have at least
$25,000 in your Fund account to establish the Automatic
Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000
of shares from your Fund account by telephone and transfer the
proceeds directly to your bank account. You may elect Express
Service on the Account Application or call Shareholder Services
at 1-800-841-1180 for an Express Service application.
IMPORTANT If you are redeeming shares recently purchased by check,
REDEMPTION Express Service Expedited Purchase or Automatic Investment
INFORMATION Plan, the proceeds of the redemption may not be sent until
payment for the purchase is collected, which may take up to
fifteen calendar days. Otherwise, redemption proceeds must
be sent to you within seven days of receipt of your request
in Good Order.
If you experience difficulty in making a telephone redemption
during periods of drastic economic or market changes, your
redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined
after your request has been received by the transfer agent in
Good Order. The Trust reserves the right to revise or
terminate the telephone redemption privilege at any time.
The Trust may suspend the redemption right or postpone
payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the
Securities and Exchange Commission.
Although the Trust will normally make redemptions in cash,
it may cause the Fund to redeem in kind under certain
circumstances.
EARLY In order to discourage short-term trading, the Fund
REDEMPTION assesses an early redemption fee of 1% on
FEE redemptions of share purchases held for less than
one year. Redemption fees will be paid to the
Fund, out of the redemption proceeds otherwise
payable to the shareholder, to help offset
transaction costs.
The Fund will use the "first-in, first-out" (FIFO)
method to determine the one-year holding period.
Under this method, the date of the redemption will
be compared with the earliest purchase date of the
share purchases held in the account. If this
holding period is less than one year, the fee will
be assessed. In determining "one year," the Fund
will use the anniversary month of a transaction.
Thus, shares purchased in October 1996, for
example, will be subject to the fee if they are
redeemed prior to October 1997. If they are
redeemed on or after October 1, 1997, they will not
be subject to the fee.
No redemption fee will be payable on shares
acquired through reinvestment, on an exchange into
another Royce Fund or by shareholders who are (a)
employees of the Trust or Royce or members of their
immediate families or employee benefit plans for
them; (b) current participants in an Automatic
Investment Plan or an Automatic Withdrawal Plan;
(c) certain Trust-approved Group Investment Plans
and charitable organizations; (d) profit-sharing
trusts, corporations or other institutional
investors who are investment advisory clients of
Royce; or (e) omnibus and other similar account
customers of certain Trust-approved broker-dealers
and other institutions.
MINIMUM Due to the relatively high cost of maintaining
ACCOUNT smaller accounts, the Trust reserves the right to
BALANCE involuntarily redeem shares in any Fund account
REQUIREMENT that falls below the minimum initial investment due
to redemptions by the shareholder. If at any time
the balance in an account does not have a value at
least equal to the minimum initial investment or,
if an Automatic Investment Plan is discontinued
before an account reaches the minimum initial
investment that would otherwise be required, you
may be notified that the value of your account is
below the Fund's minimum account balance
requirement. You would then have sixty days to
increase your account balance before the account is
liquidated. Proceeds would be promptly paid to the
shareholder.
EXCHANGE Exchanges between series of the Trust are permitted
PRIVILEGE by telephone, computer online access or mail. An
exchange is treated as a redemption and purchase;
therefore, you could realize a taxable gain or loss
on the transaction. Exchanges are accepted only if
the registrations and the tax identification
numbers of the two accounts are identical. Minimum
investment requirements must be met when opening a
new account by exchange, and exchanges may be made
only for shares of a series then offering its
shares for sale in your state of residence. The
Trust reserves the right to revise or terminate the
exchange privilege at any time.
TRANSFERRING You may transfer the ownership of any of your Fund
OWNERSHIP shares to another person by writing to: The Royce
Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. The request must be in Good Order (see
"Redeeming Your Shares - Definition of Good
Order"). Before mailing your request, please
contact Shareholder Services (1-800-841-1180) for
full instructions.
OTHER For more information about any of these services,
SERVICES please call Investor Information at 1-800-221-4268.
Statements A confirmation statement will be sent to you each
and time you have a transaction in your account, and an
Reports account statement is sent semi-annually.
Shareholder reports are mailed semi-annually. To
reduce expenses, only one copy of most shareholder
reports may be mailed to a household. Please call
Investor Information if you need additional copies.
Tax-sheltered Shares of the Fund are available for purchase in
Retirement connection with certain types of tax-sheltered
Plans retirement plans, including Individual Retirement
Accounts (IRA's) for individuals and 403(b)(7)
Plans for employees of certain tax-exempt
organizations.
These plans should be established with the Trust
only after an investor has consulted with a tax
adviser or attorney. Information about the plans
and the appropriate forms may be obtained from
Investor Information at 1-800-221-4268.
THE ROYCE FUNDS
1414 Avenue of the Americas THE ROYCE FUNDS
New York, NY 10019
1-800-221-4268
[email protected]
INVESTMENT ADVISER Pennsylvania
Royce & Associates, Inc. Mutual Fund
1414 Avenue of the Americas Investment Class
New York, NY 10019
DISTRIBUTOR
Royce Fund Services, Inc.
1414 Avenue of the Americas
New York, NY 10019
TRANSFER AGENT
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President PROSPECTUS
Daniel A. O'Byrne, Vice President and APRIL 30, 1997
Assistant Secretary
John E. Denneen, Secretary
