As filed with the Securities and Exchange Commission on
February 18, 1997.
Registration Nos. 2-80348
811-3599
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
Pre-Effective Amendment No. ______ / /
Post-Effective Amendment No. 40 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 42 /X /
(Check appropriate box or boxes)
THE ROYCE FUND
(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 355-7311
Charles M. Royce, President
The Royce Fund
1414 Avenue of the Americas, New York, New York 10019
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/x/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)*
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/X / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Royce Fund has registered an indefinite number of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Its 24f-2 Notice for its most
recent fiscal year will be filed on or before February 28, 1996.
Total number of pages:
Index to Exhibits is located on page:
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
Item of Form N-1A CAPTION or Location in Prospectus
Part A
I. Cover Page......... Cover Page
II. Synopsis........... FUND EXPENSES
III. Condensed Financial Information... FINANCIAL HIGHLIGHTS
IV. General Description of Registrant.. INVESTMENT OBJECTIVES,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
SIZE LIMITATIONS***,
GENERAL INFORMATION
V. Management of the Fund............ MANAGEMENT OF THE TRUST,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance................... *
VI. Capital Stock and Other Securities. GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
IMPORTANT ACCOUNT INFORMATION,
REDEEMING YOUR SHARES,
TRANSFERRING OWNERSHIP,
OTHER SERVICES
VII. Purchase of Securities Being
Offered ........................ INVESTMENT POLICIES****,
NET ASSET VALUE PER SHARE,
OPENING AN ACCOUNT AND
PURCHASING SHARES,
EXCHANGE PRIVILEGE,
OTHER SERVICES
VIII. Redemption or Repurchase.......... REDEEMING YOUR SHARES
IX. Pending Legal Proceedings......... *
<PAGE>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
Part B
X. Cover Page.................. Cover Page
XI. Table of Contents................. TABLE OF CONTENTS
XII. General Information and History.... *
XIII. Investment Objectives and Policies. INVESTMENT POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund............. MANAGEMENT OF THE TRUST
XV. Control Persons and Principal
Holders of Securities............. MANAGEMENT OF THE TRUST,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services .......... MANAGEMENT OF THE TRUST,
INVESTMENT ADVISORY SERVICES,
CUSTODIAN,
INDEPENDENT ACCOUNTANTS
XVII. Brokerage Allocation and Other
Practices.................... PORTFOLIO TRANSACTIONS
XVIII. Capital Stock and Other Securities. DESCRIPTION OF THE TRUST
XIX. Purchase, Redemption and Pricing
of Securities Being Offered....... PRICING OF SHARES BEING OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status......................... TAXATION
XXI. Underwriters....................... *
XXII. Calculation of Performance Data.... PERFORMANCE DATA
XXIII. Financial Statements.............. **
* Not applicable.
** Incorporated by reference.
*** Relates only to The REvest Growth & Income Fund, a series of the Trust.
**** Relates only to Royce GiftShares Fund, a series of the Trust.
<PAGE>
PROSPECTUS
February 18, 1997
The REvest
Growth & Income
Fund
A No-Load Mutual Fund
Managed by
Royce, Ebright & Associates, Inc.
A Series of The Royce Fund
The REvest Growth & Income Fund
PROSPECTUS -- February 18, 1997
___________________________________________________________________________
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
___________________________________________________________________________
INVESTMENT ADVISER INFORMATION -- 1-800-277-5573
___________________________________________________________________________
SHAREHOLDER SERVICES -- 1-800-841-1180
___________________________________________________________________________
INVESTMENT
OBJECTIVES AND
POLICIES
The REvest Growth & Income Fund (the "Fund") primarily seeks long-term
growth and secondarily current income by investing in a broadly diversified
portfolio of common stocks and convertible securities of small and medium-
sized companies viewed by the Fund's investment adviser as having
attractive financial characteristics and/or growth prospects and selected
on a value basis. There can be no assurance that the Fund will achieve its
objectives.
The Fund is a no-load series of The Royce Fund (the "Trust"), a diversified
open-end management investment company. The Trust is currently offering
shares of eleven series. This Prospectus relates to The REvest Growth &
Income Fund only.
____________________________________________________________________________
ABOUT THIS
PROSPECTUS
This Prospectus sets forth concisely the information that you should know
about the 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 February 18,
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.
____________________________________________________________________________
TABLE OF CONTENTS
Page Page
Fund Expenses 3 Dividends, Distributions and Taxes 10
Financial Highlights 4 Net Asset Value Per Share 11
Investment Performance 5 SHAREHOLDER GUIDE
Investment Objectives 5 Opening an Account and Purchasing Shares 12
Investment Policies 6 Choosing a Distribution Option 14
Investment Risks 7 Important Account Information 15
Investment Limitations 7 Redeeming Your Shares 16
Management of the Trust 9 Exchange Privilege 18
Size Limitations 10 Transferring Ownership 19
General Information 10 Other Services 19
____________________________________________________________________________
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.
____________________________________________________________________________
A Series of The Royce Fund
<PAGE>
FUND EXPENSES
The Fund is no-load and has no 12b-1 fees
The following table illustrates all expenses and fees that you would incur
as a shareholder of the Fund.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . None
Redemption Fee --
1 Year or More After Initial Purchase. . .. . None
Early Redemption Fee --
Less Than 1 Year After Initial Purchase . . 1%
Annual Fund Operating Expenses
Management Fees . . . . .. . . . . . . . 1.00%
Other Expenses . . . . . . . . . . . . . .29%
Total Operating Expenses . . . . . . . . 1.29%
___________________
The purpose of the above table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as an
investor in 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
$13 $41 $71 $156
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 HIGHLIGHTS
(For a share outstanding throughout the period)
The following financial highlights are part of the Fund's financial
statements and have been audited by Coopers & Lybrand L.L.P., independent
accountants. Such financial statements and Coopers & Lybrand L.L.P.'s
reports on them are included in the Fund's Annual Report to Shareholders
for 1996 and are incorporated by reference into 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.
Year Year 8/1/94
Ended Ended to
12/31/96 12/31/95 12/31/94
Net Asset Value, Beginning of Period $10.73 $9.66 $10.00
Investment Operations
Net investment income 0.21 0.18 0.04
Net realized and unrealized gain
(loss) on investments 2.16 1.38 (0.33)
Total from Investment
Operations 2.37 1.56 (0.29)
Dividends and Distributions
Net investment income (0.21) (0.17) (0.05)
Net realized gain on investments (0.68) (0.32) -
Total Dividends and
Distributions (0.89) (0.49) (0.05)
Net Asset Value, End of Period $12.21 $10.73 $9.66
Total Return 22.3% 16.2% -2.90%
Ratios/Supplemental Data
Net Assets, End of Period (000's) $42,099 $35,804 $21,676
Ratio of Expenses to
Average Net Assets (a) 1.29% 1.30% 1.42%*
Ratio of Net Investment Income
to Average Net Assets (a) 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 64% 53% 5%
Average Commission Rate Paid+ $0.0580 - -
___________________
* Annualized.
(a) Expenses for 1994 are shown after fee waiver by the adviser. Absent
such waiver, the ratio of expenses to average net assets for the Fund would
have been 1.78%.
+ For fiscal years beginning on or after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investments.
<PAGE>
______________________________________________
INVESTMENT PERFORMANCE
Total return is the change in value over a given period for a continuous
shareholder, assuming reinvestment of dividends and capital gains
From time to time, the Fund may include in communications to current or
prospective shareholders figures reflecting total return over various time
periods. "Total return" is the rate of return on an amount invested in the
Fund from the beginning to the end of the stated period and assumes
redemption at the end of the period. "Average annual total return" is the
annual compounded percentage change in the value of an amount invested in
the Fund from the beginning until the end of the stated period.
Total returns are historical measures of past performance and are not
intended to indicate future performance. Both rates of return assume the
reinvestment of all net investment income dividends and capital gains
distributions . The figures do not reflect the Fund's early redemption fee
because it applies only to redemptions in accounts open for less than one
year.
The Fund's average annual total return for the periods ended December 31,
1996 were:
One Year Since Inception*
22.3% 14.3%
*August 1, 1994
______________________________________________
INVESTMENT OBJECTIVES
The REvest Growth & Income Fund primarily seeks long-term growth and
secondarily current income by investing in a broadly diversified portfolio
of common stocks and convertible securities of small and medium-sized
companies viewed by the Fund's investment adviser as having attractive
financial characteristics and/or growth prospects and selected on a value
basis. Since certain risks are inherent in owning any security, there can
be no assurance that the Fund will achieve its objectives.
The investment objectives of primarily long-term growth and secondarily
current income are fundamental and may not be changed without the approval
of a majority of the Fund's voting shares, as that term is defined in the
Investment Company Act of 1940 (the "1940 Act").
______________________________________________
INVESTMENT POLICIES
The Fund invests on a "value" basis
Royce, Ebright & Associates, Inc. ("RE&A"), the Fund's investment adviser,
uses a "value" method in managing the Fund's assets. In its selection
process, RE&A considers a company's cash flows, its balance sheet quality,
an understanding of various internal returns indicative of profitability
and its growth prospects in trying to relate such factors to the price of a
given security. With regard to each portfolio security in which the Funds
invests, RE&A seeks to identify a "valuation discrepancy" between the
security's then current market price and its "business worth," that is,
what a knowledgeable buyer would pay for the entire company, based on an
appraisal of its financial characteristics and/or growth prospects.
After this appraisal of value process is completed, RE&A then, in addition,
seeks to identify and evaluate "vitality factors", which are those
characteristics of a portfolio company that could result in the building of
future value for shareholders. Examples of such "vitality factors" include
research and development efforts, new products, new market development
efforts, the redeployment of underutilized assets, an active acquisition
program, stock buy-back programs, cost reduction programs and investments
in new technologies or processes.
The portfolio, therefore, is a collection of securities that RE&A believes
have all been purchased at a discount to their real "business worth" and
posses, in addition, "vitality factors" that should allow them to build
future incremental value for shareholders. RE&A believes that profits can
come both from the continued success and growth of each portfolio company
as well as the eventual elimination of each security's valuation
discrepancy.
<PAGE>
The Fund invests primarily in small and medium-sized
companies
The Fund invests primarily in small and medium-sized companies. RE&A
believes that there are many high quality companies in the "small-cap" and
"mid-cap" sectors that have above average growth prospects but are not
widely followed or understood by investors. RE&A seeks to identify and
invest in such companies when their securities can be purchased at
appropriate discounts to RE&A's assessment of their "business worth".
In accordance with its objectives of seeking primarily long-term growth
(realized and unrealized) and secondarily current income, the Fund will
normally invest at least 90% of its assets in common stocks, convertible
preferred stocks and convertible bonds. At least 80% of these securities
will be income-producing, and 80% of these securities will be issued by
companies with stock market capitalizations between $200,000,000 and
$2,000,000,000 at the time of investment. The Fund will normally have a
weighted average market capitalization size in excess of $500,000,000. The
remainder of the Fund's assets may be invested in securities with lower or
higher market capitalizations, non-dividend paying common stocks and non-
convertible fixed income securities. The securities in which the Fund
invests may be traded on securities exchanges or in the over-the-counter
market. While most of the Fund's securities will be income-producing, the
composite yield of the Fund's securities may be either higher or lower than
the composite yield of the stocks in the S & P 500 Index.
______________________________________________
INVESTMENT RISKS
The Fund is subject to certain investment risks
As a mutual fund investing primarily in common stocks and/or securities
convertible into common stocks, the Fund is subject to market risk, that
is, the possibility that common stock prices will decline over short or
even extended periods. The Fund may invest in securities of companies that
are not well-known to the investing public, may not have significant
institutional ownership and may have cyclical, static or only moderate
growth prospects. The stocks of such companies may be more volatile in
price and have lower trading volumes than the larger capitalization stocks
included in the S&P 500 Index. Accordingly, RE&A's investment method
requires a long-term investment horizon. The Fund should not be used to
play short-term swings in the market.
______________________________________________
INVESTMENT LIMITATIONS
The Fund has adopted a number of fundamental policies
The Fund has adopted a number of fundamental policies, designed to reduce
its exposure to specific situations, which may not be changed without the
approval of a majority of its outstanding voting shares, as that term is
defined in the 1940 Act. These policies are set forth in the Statement of
Additional Information and provide, among other things, that the Fund will
not:
(a) with respect to 75% of its assets, invest more than 5% of its assets
in the securities of any one issuer, excluding obligations of the U.S.
Government;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of
management.
Other Investment Practices:
In addition to investing primarily in the equity and fixed income
securities described above, the Fund may follow a number of additional
investment practices.
Short-term fixed income securities
The Fund may invest in short-term fixed income securities for temporary
defensive purposes, to invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. These securities consist of
United States Treasury bills, domestic bank certificates of deposit, high-
quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security
to the Fund at one price and agrees to repurchase it at the Fund's cost
plus interest within a specified period of seven or fewer days. In these
transactions, which are, in effect, secured loans by the Fund, the
securities purchased by the Fund will have a value equal to or in excess of
<PAGE>
the value of the repurchase agreement and will be held by the Fund's
custodian bank until repurchased. Should the Fund implement a temporary
defensive investment policy, its investment objectives may not be achieved.
Foreign securities
The Fund may invest up to 5% of its net assets in debt and/or equity
securities of foreign issuers. Foreign investments involve certain risks,
such as political or economic instability of the issuer or of the country
of issue, fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to greater
fluctuations in price than the securities of U.S. corporations, and there
may be less publicly available information about their operations. Foreign
companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors such as the Fund.
Lower-rated debt securities
The Fund may also invest no more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities, which are below investment
grade. The Fund does not expect to invest in non-convertible debt
securities that are rated lower than Caa by Moody's Investors Service, Inc.
or CCC by Standard & Poor's Corporation or, if unrated, determined to be of
comparable quality.
Portfolio turnover
Although the Fund generally seeks to invest for the long term, it retains
the right to sell securities regardless of how long they have been held.
______________________________________________
MANAGEMENT OF THE TRUST
Royce, Ebright & Associates, Inc. is responsible for the management of the
Fund's portfolio
The Trust's business and affairs are managed under the direction of its
Board of Trustees. Royce, Ebright & Associates, Inc. (RE&A), the Fund's
investment adviser, is responsible for the management of the Fund's
portfolio, subject to the authority of the Board of Trustees. RE&A was
organized in June 1994, and became the Fund's investment adviser on August
1, 1994, when the Fund commenced operations. Thomas R. Ebright is the
President and Treasurer, a director and the principal shareholder of RE&A.
He is also a Vice President of Quest Advisory Corp. ("Quest"), the
investment adviser for the ten other series currently offered by the Trust.
Jennifer E. Goff, Mr. Ebright's daughter, has been a Vice President, a
director and a shareholder of RE&A since RE&A's inception, June 1, 1994.
Also, during the last five years Ms. Goff has completed her undergraduate
education at Dartmouth College (BA `93), worked full-time as a security
analyst at Quest from July 1993 to August 1994, and then completed her
graduate studies in Finance at Columbia University (MBA `96). Charles M.
Royce, President, Secretary, Treasurer, sole director and sole voting
shareholder of Quest, and a trust for various members of his family, are
also shareholders of RE&A. The Fund's portfolio is managed primarily by
Mr. Ebright and secondarily by Ms. Goff, who are solely responsible for
RE&A's investment management activities.
As compensation for its services to the Fund, RE&A is entitled to receive
advisory fees equal to 1% per annum of the first $50,000,000 of the Fund's
average net assets and 0.75% per annum of any additional average net assets
over $50,000,000. These fees are payable monthly from the assets of the
Fund. For 1996, the fees paid to RE&A by the Fund were 1.00% of its
average net assets.
Brokerage Allocation
RE&A 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 RE&A. RE&A is authorized, in
recognition of the value of brokerage and research services provided, to
pay commissions to a broker in excess of the amounts which another broker
might have charged for the same transaction.
<PAGE>
Distribution
Quest Distributors, Inc. ("QDI"), which is wholly-owned by Charles M.
Royce, acts as distributor of the Fund's shares. RE&A and/or the Fund may
pay, 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, up to .25% of the assets invested in the Fund by their
customers. Compensation paid in connection with such programs may include
payments from the Fund for certain shareholder-related services being
provided to the Fund. When shares of the Fund are purchased in this way,
the service provider, rather than its customer, may be the shareholder of
record of the Fund's shares. Investors 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.
______________________________________________
SIZE LIMITATIONS
If the Fund's assets total $350,000,000 or more on December 31 of any year,
then the Fund will, commencing on March 1 of the next year, cease selling
shares to any new investors and will not resume selling its shares to new
investors unless and until its assets total $250,000,000 or less on the
last day of any subsequent calendar quarter, in which case it may resume
sales to new investors on the first day of the next calendar quarter and
continue them subject to the $350,000,000 limitation. In addition, prior
to August 1, 1997, shares of the Fund may be offered and sold only to
investors who are customers of certain broker-dealers or clients of certain
investment advisors that have been pre-approved by QDI and to certain other
classes of investors. These limitations will cause the Fund's ratio of
total operating expenses to average net assets to be higher than it would
be in their absence.
______________________________________________
GENERAL INFORMATION
The Royce Fund (the "Trust") is a Delaware business trust registered with
the Securities and Exchange Commission as an open-end, diversified
management investment company. The Trustees have the authority to issue an
unlimited number of shares of beneficial interest, without shareholder
approval, and these shares may be divided into an unlimited number of
series. Shareholders are entitled to one vote per share. Shares vote by
individual series on all matters, except that shares are voted in the
aggregate and not by individual series when required by the 1940 Act and
that if the Trustees determine that a matter affects only one series, then
only shareholders of that series are entitled to vote on that matter.
Meetings of shareholders will not be held except as required by the 1940
Act or other applicable law. A meeting will be held to vote on the removal
of a Trustee or Trustees of the Trust if requested in writing by the
holders of not less than 10% of the outstanding shares of the Trust.
The custodian for 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, DISTRIBUTIONS AND TAXES
Dividends are paid quarterly and capital gain distributions are made in
December
The Fund pays dividends from net investment income quarterly and
distributes its net realized capital gains annually in December. Dividends
and distributions will be automatically reinvested in additional shares of
the Fund unless the shareholder chooses otherwise.
Shareholders will receive information annually as to the tax status of
distributions made by the Fund for the calendar year. For Federal income
<PAGE>
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 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 will be treated as a long-term capital loss to
the extent of any long-term capital gains reported by the shareholder with
respect to such shares.
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 Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to
backup withholding.
The discussion of Federal income taxes above is for general information
only. The Statement of Additional Information includes an additional
description of Federal income tax aspects that may be relevant to a
shareholder. Shareholders may also be subject to state and local taxes on
their investment. Investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
______________________________________________
NET ASSET VALUE PER SHARE
Net asset value per share (NAV) is determined each day the New York Stock
Exchange is open
Fund shares are purchased and redeemed at their net asset value per share
next determined after an order is received by the Fund's transfer agent.
The net asset value per share is determined by dividing the total value of
the Fund's investments and other assets, less any liabilities, by the
number of outstanding shares of the Fund. Net asset value per share is
calculated at the close of regular trading on the New York Stock Exchange
on each day the Exchange is open for business.
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 ACCOUNT AND PURCHASING SHARES
The Fund's shares are offered on a no-load basis. To open a new account
other than an IRA or 403(b)(7) account, either by mail, by telephone, by
<PAGE>
wire or through broker-dealers, simply complete and return the Account
Application. Separate forms must be used for opening IRA's or 403(b)(7)
accounts; please call Investor Information at 1-800-221-4268 if you need
these forms. Please indicate the amount you wish to invest. Your initial
purchase must be at least $10,000, except for IRA's and accounts
establishing an Automatic Investment Plan, which have $500 minimums. If
you need assistance with the Account Application Form or have any questions
about the Fund, please call Investor Information at 1-800-221-4268.
Subsequent investments may be made by mail ($50 minimum), telephone ($500
minimum), wire ($1,000 minimum) or Express Service (a system of electronic
funds transfer from your bank account).
___________________
Purchasing By Mail:
Complete and sign the enclosed Account Application Form
NEW ACCOUNT
Please include the amount of your initial investment on the Application
Form, make your check payable to The REvest Growth & Income Fund, and mail
to:
The Royce Funds
P.O. Box 419012
Kansas City, MO 64141-6012
For express or registered mail, send to:
The Royce Funds
c/o National Financial Data Services
1004 Baltimore, 5th Floor
Kansas City, MO 64105
ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
Additional investments should include the Invest-by-Mail remittance form
attached to your Fund confirmation statements. Please make your check
payable to The REvest Growth & Income Fund, write your account number on
your check and, using the return envelope provided, mail to the address
indicated on the Invest-by-Mail form.
All written requests should be mailed to one of the addresses indicated for
new accounts.
___________________
Purchasing By Telephone:
To open an account by telephone, you should call Investor Information (1-
800-221-4268) before 4:00 p.m., Eastern time. You will be given a
confirming order number for your purchase. This number must be placed on
your completed Application before mailing. If a completed and signed
Application is not received on an account opened by telephone, the account
may be subject to backup withholding of Federal income taxes.
Subsequent telephone purchases ($500 minimum) may also be made by calling
Investor Information. For all telephone purchases, payment is due within
three business days and may be made by wire or personal, business or bank
check, subject to collection.
___________________
Purchasing By Wire:
Before Wiring: - For a new account, please contact Investor Services at 1-
800-221-4268.
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: The REvest Growth & Income Fund
Order Number or Account Number
Account Name
To ensure proper receipt, please be sure your bank includes the name of the
Fund and your order number (for telephone purchases) or account number. If
you are opening a new account, you must call Investor Information to obtain
an order number, complete the Account Application Form and mail it to the
"New Account" address above after completing your wire arrangement. Note:
Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
<PAGE>
___________________
Purchasing By Express Service:
You can purchase shares automatically or at your discretion through the
following options:
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.
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 schedule you select.
To establish the Expedited Purchase Option and/or Automatic Investment
Plan, please provide the appropriate information on the Account Application
Form and attach a voided check. We will send you a confirmation of Express
Service activation. Please wait three weeks before using the service.
To make an Expedited Purchase, please call Shareholder Services at 1-800-
841-1180 before 4:00 p.m., Eastern time.
Payroll Direct Deposit Plan and Government Direct Deposit Plan let you have
investments ($50 minimum) made from your net payroll or government check
into your existing Royce Fund account each pay period. Your employer must
have direct deposit capabilities through ACH (Automated Clearing House)
available to its employees. You may terminate participation in these
programs by giving written notice to your employer or government agency, as
appropriate. The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial
institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for
Direct Deposit form, which may be obtained from Investor Information by
calling 1-800-221-4268.
______________________________________________
CHOOSING A DISTRIBUTION OPTION
You may select one of three distribution options:
1. Automatic Reinvestment Option--Both net investment income dividends
and capital gains distributions will be reinvested in additional Fund
shares. This option will be selected for you automatically unless you
specify one of the other options.
2. Cash Dividend Option--Your dividends will be paid in cash and your
capital gains distributions will be reinvested in additional Fund shares.
3. All Cash Option--Both dividends and capital gains distributions will
be paid in cash.
You may change your option by calling Shareholder Services at 1-800-841-
1180.
______________________________________________
IMPORTANT ACCOUNT INFORMATION
The easiest way to establish optional services on your account is to select
the options you desire when you complete your Account Application Form. If
you want to add 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 Guarantees
For our mutual protection, we may require a signature guarantee on certain
written transaction requests. A signature guarantee verifies the
authenticity of your signature and may be obtained from banks, brokerage
firms and any other guarantor that our transfer agent deems acceptable. A
signature guarantee cannot be provided by a notary public.
Certificates
Certificates for whole shares will be issued upon request. If a
certificate is lost, you may incur an expense to replace it.
<PAGE>
Broker/Dealer Purchases
If you purchase Fund shares through a registered broker-dealer or
investment adviser, the broker-dealer or adviser may charge a service fee.
Telephone Transactions
Neither the Fund nor its transfer agent will be liable for following
instructions communicated by telephone that are reasonably believed to be
genuine. The transfer agent uses certain procedures to confirm that
telephone instructions are genuine, which may include requiring some form
of personal identification prior to acting on the instructions, providing
written confirmation of the transaction and/or recording incoming calls,
and if it does not follow such procedures, the Fund or the transfer agent
may be liable for any losses due to unauthorized or fraudulent
instructions.
Nonpayment
If your check or wire does not clear, or if payment is not received for any
telephone purchase, the transaction will be cancelled and you will be
responsible for any loss the Fund incurs. If you are already a
shareholder, the Fund can redeem shares from any identically registered
account in the Fund as reimbursement for any loss incurred.
Trade Date for Purchases
Your trade date is the date on which share purchases are credited to your
account. If your purchase is made by telephone, check, Federal Funds wire
or exchange and is received by the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time), your trade date is the
date of receipt. If your purchase is received after the close of regular
trading on the Exchange, your trade date is the next business day. Your
shares are purchased at the net asset value determined on your trade date.
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 YOUR SHARES
You may redeem any portion of your account at any time. You may request a
redemption in writing or by telephone. Redemption proceeds normally will
be sent within two business days after the receipt of the request in Good
Order.
___________________
Redeeming By Mail
Requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012,
Kansas City, MO 64141-6012. (For express or registered mail, send your
request to The Royce Funds, c/o 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 has
received all required documents in Good Order.
Definition of Good Order
Good Order means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the
account.
4. Signature guarantees if the value of the shares being redeemed exceeds
$50,000 or if the payment is to be sent to an address other than the
address of record or is to be made to a payee other than the
shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the
case of retirement plans, corporations, trusts, estates and certain
other accounts.
If you have any questions about what is required as it pertains to your
request, please call Shareholder Services at 1-800-841-1180.
<PAGE>
Redeeming by Telephone
Shareholders who have not established Express Service may redeem up to
$50,000 of their Fund shares by telephone, provided the proceeds are mailed
to their address of record. 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 Transactions".
Redeeming By Express Service
If you select the Express Service Automatic Withdrawal option, 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
Form or call Shareholder Services at 1-800-841-1180 for an Express Service
application.
Important Redemption Information
If you are redeeming shares recently purchased by check, Express Service
Expedited Purchase or Automatic Investment Plan, the proceeds of the
redemption may not be sent until payment for the purchase is collected,
which may take up to fifteen calendar days. Otherwise, redemption proceeds
must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during
periods of drastic economic or market changes, your redemption request may
be made by regular or express mail. It will be processed at the net asset
value next determined after your request has been received by the Transfer
Agent in Good Order. The Trust reserves the right to revise or terminate
the telephone redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times
when the New York Stock Exchange is closed or under any emergency
circumstances as determined by the Securities and Exchange Commission.
Although redemptions have always been made in cash, the Fund may redeem in
kind under certain circumstances.
Early Redemption Fee
In order to discourage short-term trading, an early redemption fee of 1% of
the net asset value of the shares being redeemed is imposed if a
shareholder redeems shares of the Fund less than one year after becoming a
shareholder. The fee is payable to the Fund out of the redemption proceeds
otherwise payable to the shareholder and is used to offset the costs
associated with redemptions. No redemption fee will be payable on an
exchange into another Royce fund or by shareholders who are (a) employees
or representatives of the Trust or RE&A or members of their immediate
families or employee benefit plans for them, (b) participants in the
Automatic Withdrawal Plan, (c) certain Trust-approved Group Investment
Plans and charitable organizations, or (d) omnibus and other similar
account customers of certain Trust-approved broker-dealers and other
institutions.
Minimum Account Balance Requirement
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to involuntarily redeem shares in any Fund account that
falls below the minimum initial investment due to redemptions by the
<PAGE>
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 PRIVILEGE
Exchanges between series of the Trust and with other open-end Royce funds
are permitted by telephone or by mail. An exchange is treated as a
redemption and purchase; therefore, you could realize a taxable gain or
loss on the transaction. Exchanges are accepted only if the registrations
and the tax identification numbers of the two accounts are identical.
Minimum investment requirements must be met when opening a new account by
exchange, and exchanges may be made only for shares of a series or fund
then offering its shares for sale in your state of residence. The Trust
reserves the right to revise or terminate the exchange privilege at any
time.
TRANSFERRING OWNERSHIP
You may transfer the ownership of any of your Fund 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 SERVICES
For more information about any of these services, please call Investor
Information at 1-800-221-4268.
Statements and Reports
A statement will be sent to you each time you have a transaction in your
account and at year-end. Financial reports will be mailed semi-annually.
To reduce expenses, only one copy of most shareholder reports may be mailed
to a household. Please call Investor Information if you need additional
copies.
Tax-Sheltered Retirement Plans
Shares of the Fund are available for purchase in connection with certain
types of tax-sheltered 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 Fund
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
Investment Adviser
Royce, Ebright & Associates, Inc.
Thomas R. Ebright, President
50 Portland Pier
Portland, ME 04101
Distributor
Quest Distributors, 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
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Asst. Secretary
John E. Denneen, Secretary
<PAGE>
Royce, Ebright & Associates, Inc.
Investment Adviser
50 Portland Pier
Portland, ME 04101-4721
(207) 774-7455 (800) 277-5573
Fax (207) 772-7370
REvest
GROWTH & INCOME FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(800) 221-4268
A SERIES OF THE ROYCE FUND
<PAGE>
The REvest Growth & Income Fund
STATEMENT OF ADDITIONAL INFORMATION
The REvest Growth & Income Fund (the "Fund") is one of
twelve professionally-managed portfolios or series of THE ROYCE
FUND (the "Trust"), a Delaware business trust and an open-end
registered investment company. Each series has distinct
investment objectives, policies and/or bases for investing, and a
shareholder's interest is limited to the series in which the
shareholder owns shares. The twelve series are:
Pennsylvania Mutual Fund
Royce Premier Fund
Royce Micro-Cap Fund
Royce Equity Income Fund
Royce Low-Priced Stock Fund
Royce GiftShares Fund
Royce Value Fund
Royce Total Return Fund
Royce Global Services Fund
PMF II
Royce Financial Services Fund
The REvest Growth & Income Fund
This Statement of Additional Information relates only to the
Fund. The other series are covered by their own separate
Statement of Additional Information.
The Fund is designed for long-term investors, including
those who wish to use its shares as a funding vehicle for certain
tax-deferred retirement plans (including Individual Retirement
Account (IRA) plans), and not for investors who intend to
liquidate their investments after a short period of time.
This Statement of Additional Information is not a
prospectus, but should be read in conjunction with the Trust's
current Prospectus for the Fund (dated February 18, 1997).
Please retain this document for future reference. The audited
financial statements included in the Annual Report to
Shareholders of the Fund for the fiscal period ended December 31,
1996 are incorporated herein by reference. To obtain an
additional copy of the Fund's Prospectus or Annual Report or a
copy of the Prospectus or Annual Report to Shareholders for any
of the Trust's other series, please call Investor Information at
1-800-221-4268.
Investment Adviser Transfer Agent
Royce, Ebright and Associates, Inc. ("RE&A")State Street Bank and Trust Company
c/o National Financial Data Services
Distributor Custodian
Quest Distributors, Inc. ("QDI") State Street Bank and Trust Company
February 18, 1997
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS 2
RISK FACTORS AND SPECIAL CONSIDERATIONS 3
MANAGEMENT OF THE TRUST 7
PRINCIPAL HOLDERS OF SHARES 9
INVESTMENT ADVISORY SERVICES 10
DISTRIBUTOR 11
CUSTODIAN 11
INDEPENDENT ACCOUNTANTS 11
PORTFOLIO TRANSACTIONS 11
PRICING OF SHARES BEING OFFERED 12
REDEMPTIONS IN KIND 13
TAXATION 13
DESCRIPTION OF THE TRUST 16
PERFORMANCE DATA 18
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement
those set forth in the Fund's Prospectus. Unless otherwise
noted, whenever an investment policy or limitation states a
maximum percentage of the Fund's assets that may be invested in
any security or other asset or sets forth a policy regarding
quality standards, the percentage limitation or standard will be
determined immediately after giving effect to the Fund's
acquisition of the security or other asset. Accordingly, any
subsequent change in values, net assets or other circumstances
will not be considered in determining whether the investment
complies with the Fund's investment policies and limitations.
The Fund's fundamental investment policies cannot be changed
without the approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Fund. Except for the fundamental
investment restrictions set forth below, the investment policies
and limitations described in this Statement of Additional
Information are operating policies and may be changed by the
Board of Trustees without shareholder approval. However,
shareholders will be notified prior to a material change in an
operating policy affecting the Fund.
The Fund may not, as a matter of fundamental policy:
1. Issue any senior securities;
2. Purchase securities on margin or write call options on its
portfolio securities;
3. Sell securities short;
4. Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes in an amount not exceeding
5% of its total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 5% of its total assets in the securities
of foreign issuers;
7. Invest in restricted securities or in repurchase agreements
which mature in more than seven days;
8. Invest more than 10% of its assets in securities without
readily available market quotations
(i.e., illiquid securities);
9. Invest, with respect to 75% of its total assets, more than 5%
of its assets in the securities of any one issuer (except U.S.
Government securities);
10. Invest more than 25% of its assets in any one industry;
11. Acquire more than 10% of the outstanding voting securities
of any one issuer;
12. Purchase or sell real estate or real estate mortgage loans or
invest in the securities of real estate companies unless such
securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
<PAGE>
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other securities,
whether or not such purchases are made upon the original
issuance of such securities, and except that the Fund may
loan up to 5% of its assets to qualified brokers, dealers or
institutions for their use relating to short sales or other
securities transactions (provided that such loans are fully
collateralized at all times);
15. Invest in companies for the purpose of exercising control
of management;
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers, employees
or investment adviser, as principal for their own accounts;
17. Invest in the securities of other investment companies; or
18. Purchase any warrants, rights or options, except that the
Fund may, if no value is assigned thereto, acquire warrants
in units with or attached to debt securities or non-convertible
preferred stock.
The Fund may not, as a matter of operating policy:
1. Invest more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities; or
2. Enter into repurchase agreements with any party other
than the custodian of its assets or having a term of
more than seven days.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Fund's Rights as Stockholder
As noted above, the Fund may not invest in a company for the
purpose of exercising control of management. However, the Fund
may exercise its rights as a stockholder and communicate its
views on important matters of policy to management, the board of
directors and/or stockholders if RE&A or the Board of Trustees
determine that such matters could have a significant effect on
the value of the Fund's investment in the company. The
activities that the Fund may engage in, either individually or in
conjunction with others, may include, among others, supporting or
opposing proposed changes in a company's corporate structure or
business activities; seeking changes in a company's board of
directors or management; seeking changes in a company's direction
or policies; seeking the sale or reorganization of a company or a
portion of its assets; or supporting or opposing third party
takeover attempts. This area of corporate activity is
increasingly prone to litigation, and it is possible that the
Fund could be involved in lawsuits related to such activities.
RE&A will monitor such activities with a view to mitigating, to
the extent possible, the risk of litigation against the Fund and
the risk of actual liability if the Fund is involved in
litigation. However, no guarantee can be made that litigation
against the Fund will not be undertaken or liabilities incurred.
<PAGE>
The Fund may, at its expense or in conjunction with others,
pursue litigation or otherwise exercise its rights as a security
holder to seek to protect the interests of security holders if
RE&A and the Trust's Board of Trustees determine this to be in
the best interests of the Fund's shareholders.
Securities Lending
The Fund may lend up to 5% of its assets to brokers, dealers
and other financial institutions. Securities lending allows the
Fund to retain ownership of the securities loaned and, at the
same time, to earn additional income. Since there may be delays
in the recovery of loaned securities or even a loss of rights in
collateral supplied should the borrower fail financially, loans
will be made only to parties that participate in a Global
Securities Lending Program monitored by the Fund's custodian and
who are deemed by it to be of good standing. Furthermore, such
loans will be made only if, in RE&A's judgment, the consideration
to be earned from such loans would justify the risk.
RE&A understands that it is the current view of the staff of
the Securities and Exchange Commission that the Fund may engage
in such loan transactions only under the following conditions:
(i) the Fund must receive 100% collateral in the form of cash or
cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (ii) the borrower must increase the collateral whenever
the market value of the securities loaned (determined on a daily
basis) rises above the value of the collateral; (iii) after
giving notice, the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to
any dividends, interest or other distributions on the securities
loaned and to any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and
(vi) the Fund must be able to vote proxies on the securities
loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
Lower-Rated (High-Risk) Debt Securities
The Fund may invest up to 5% of its net assets in lower-
rated (high-risk) non-convertible debt securities. They may be
rated from Ba to Ca by Moody's Investors Service, Inc. or from BB
to D by Standard & Poor's Corporation or may be unrated. These
securities have poor protection with respect to the payment of
interest and repayment of principal and may be in default as to
the payment of principal or interest. These securities are often
considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay.
The market prices of lower-rated (high-risk) debt securities may
fluctuate more than those of higher-rated debt securities and may
decline significantly in periods of general economic difficulty,
which may follow periods of rising interest rates.
While the market for lower-rated (high-risk) corporate debt
securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic
increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods
of economic recession. In fact, from 1989 to 1991, the
percentage of lower-rated (high-risk) debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may
be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the
former are sold. If market quotations cease to be readily
available for a lower-rated (high-risk) debt security in which
the Fund has invested, the security will then be valued in
accordance with procedures established by the Board of Trustees.
<PAGE>
Judgment plays a greater role in valuing lower-rated (high-risk)
debt securities than is the case for securities for which more
external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions
may affect the Fund's ability to dispose of lower-rated (high-
risk) debt securities.
Since the risk of default is higher for lower-rated (high-
risk) debt securities, RE&A's research and credit analysis may
play an important part in managing securities of this type for
the Fund. In considering such investments for the Fund, RE&A
will attempt to identify those issuers of lower-rated (high-risk)
debt securities whose financial condition is adequate to meet
future obligations, has improved or is expected to improve in the
future. RE&A's analysis may focus on relative values based on
such factors as interest or dividend coverage, asset coverage,
earnings prospects and the experience and managerial strength of
the issuer.
Foreign Investments
The Fund may invest up to 5% of its total assets in the
securities of foreign issuers. Foreign investments can involve
significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in or indexed
to foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets
can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to
obtain reliable information regarding an issuer's financial
condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than
U.S. markets. Foreign issuers, brokers and securities markets
may be subject to less government supervision. Foreign security
trading practices, including those involving the release of
assets in advance of payment, may involve increased risks in the
event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.
Investing abroad also involves different political and
economic risks. Foreign investments may be affected by actions
of foreign governments adverse to the interests of U.S.
investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on
U.S. investment or on the ability to repatriate assets or convert
currency into U.S. dollars or other government intervention.
There may be a greater possibility of default by foreign
governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local
political, economic or social instability, military action or
unrest or adverse diplomatic developments. There is no assurance
that RE&A will be able to anticipate these potential events or
counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may
have relatively unstable governments, economies based on only a
few industries and securities markets that trade a small number
of securities.
American Depositary Receipts (ADRs) are certificates held in
trust by a bank or similar financial institution evidencing
ownership of 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.
<PAGE>
ADR facilities may be established as either unsponsored or
sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the
practices of market participants. A depository may establish an
unsponsored facility without participation by (or even
necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depository requests a letter
of non-objection from such issuer prior to the establishment of
the facility. Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depository usually charges fees
upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-
cash distributions and the performance of other services. The
depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities.
Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the
deposited securities enters into a deposit agreement with the
depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited
securities generally will bear some of the costs relating to the
facility (such as deposit and withdrawal fees). Under the terms
of most sponsored arrangements, depositories agree to distribute
notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the
ADR holders at the request of the issuer of the deposited
securities.
Repurchase Agreements
In a repurchase agreement, the Fund in effect makes a loan
by purchasing a security and simultaneously committing to resell
that security to the seller at an agreed upon price on an agreed
upon date within a number of days (usually not more than seven)
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the
agreed upon resale price and marked to market daily) of the
underlying security.
The Fund may engage in repurchase agreements with respect to
any U.S. Government security. While it does not presently appear
possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to the
Fund in connection with bankruptcy proceedings), it is the policy
of the Trust to enter into repurchase agreements only with its
custodian, State Street Bank and Trust Company, and having a term
of seven days or less.
Portfolio Turnover
The Fund will not trade in securities for short-term
profits, but, when circumstances warrant, securities may be sold
without regard to the length of time held. For the year ended
December 31, 1996, the year ended December 31, 1995, and the
period from August 1, 1994 (commencement of operations) through
December 31, 1994, the Fund's portfolio turnover rates were 64%,
53% and 5%, respectively. The Fund's portfolio turnover rate for
1994, its start-up period, was low because the Fund was
establishing a portfolio. Higher portfolio turnover rates will
increase the Fund's transaction costs, including brokerage
commissions.
* * *
RE&A believes that the Fund is suitable for investment only
by persons who are in a financial position to assume above-
average investment risks in search for long-term capital
appreciation.
<PAGE>
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to
each Trustee and officer of the Trust:
Position Held
Name and Address with the Trust Principal Occupations During Past 5 Years
Charles M. Royce* Trustee, President, Secretary, Treasurer,
(57) President sole director and sole voting
1414 Avenue of the and shareholder of Quest Advisory Corp.
Americas Treasurer ("Quest"), the Trust's and its
New York, NY 10019 predecessors' principal investment
adviser; Trustee, President and
Treasurer of the Trust and its
predecessors; Director, President
and Treasurer of Royce Value Trust,
Inc. ("RVT") and, since September
1993, Royce Micro-Cap Trust, Inc.
("OTCM"), closed-end diversified
management investment companies of
which Quest is the investment
adviser (the Trust, RVT and OTCM
collectively, "The Royce Funds");
Secretary and sole director and
shareholder of Quest Distributors,
Inc. ("QDI"), the distributor of
the Trust's shares; and managing
general partner of Quest Management
Company ("QMC"), a registered
investment adviser, and its
predecessor.
Thomas R. Ebright* Trustee Vice President of Quest; Trustee of
(52) and Vice The Royce Funds and one of its
50 Portland Pier President predecessors; Vice President of The
Portland, ME 04101 Royce Funds and one of its
predecessors; Director of RVT and,
since September 1993, OTCM; Vice
President since November 1995
(President until October 1995) and
Treasurer of QDI; general partner
of QMC and its predecessor until
June 1994; President, Treasurer and
a director and principal
shareholder of RE&A since June
1994; director of Atlantic Pro
Sports, Inc. and of the Strasburg
Rail Road Co. since March 1993; and
President and principal owner of
Baltimore Professional Hockey, Inc.
until May 1993.
Hubert L. Cafritz Trustee Financial Consultant.
(73)
9421 Crosby Road
Silver Spring, MD
20910
Richard M. Galkin Trustee Private investor and President of
(58) Richard M. Galkin Associates, Inc.,
5284 Boca Marina tele-communications consultants.
Boca Raton, FL
33487
Stephen L. Isaacs Trustee Director of Columbia University
(57) Development Law and Policy Program;
60 Haven Street, Professor at Columbia University;
Fl. B-2 President of Stephen L. Isaacs
New York, NY 10032 Associates, Consultants.
William L. Koke Trustee Registered investment adviser and
(62) financial planner with Shoreline
73 Pointina Road Financial Consultants.
Westport, CT 06498
<PAGE>
Position Held
Name and Address with the Trust Principal Occupations During Past 5 Years
David L. Meister Trustee Consultant to the communications
(57) industry since January 1993 and
111 Marquez Place Executive officer of Digital Planet
Pacific Palisades, Inc. from April 1991 to December
CA 90272 1992.
Jack E. Fockler, Vice Vice President (since August 1993)
Jr.* (38) President and senior associate of Quest,
1414 Avenue of the having been employed by Quest since
Americas October 1989; Vice President of The
New York, NY 10019 Royce Funds since April 1995; Vice
President of QDI since November
1995; and general partner of QMC
since July 1993.
W. Whitney George* Vice Vice President (since August 1993)
(38) President and senior analyst of Quest, having
1414 Avenue of the been employed by Quest since
Americas October 1991; Vice President of The
New York, NY 10019 Royce Funds since April 1995; and
general partner of QMC and its
predecessor since January 1992.
Daniel A. O'Byrne* Vice Vice President of Quest since May
(35) President 1994, having been employed by Quest
1414 Avenue of the and since October 1986 and Vice
Americas Assistant President of The Royce Funds since
New York, NY 10019 Secretary July 1994.
John E. Denneen* Secretary Associate General Counsel and Chief
(29) Compliance Officer of Quest since
1414 Avenue of the May 1996; Secretary of The Royce
Americas New York, Funds since June 1996; and
NY 10019 Associate of Seward & Kissel from
September 1992 to May 1996.
*An "interested person" of the Trust and/or Quest under
Section 2(a)(19) of the 1940 Act.
All of the Trust's trustees, other than Messr. Cafritz and
Koke are also directors of RVT and OTCM.
The Board of Trustees has an Audit Committee, comprised of
Hubert L. Cafritz, Richard M. Galkin, Stephen L. Isaacs, William
L. Koke and David L. Meister. The Audit Committee is responsible
for recommending the selection and nomination of independent
auditors for the Fund and for conducting post-audit reviews of
its financial condition with such auditors.
For the year ended December 31, 1996, the following trustees
and affiliated persons of the Trust received compensation from
the Trust's predecessor and/or the other funds in the group of
registered investment companies comprising The Royce Funds:
<PAGE>
Aggregate Pension or Retirment Total Compensation
Compensation Benefits Accrued as from The Royce Funds
From Trust and Part of Trust paid to
Name its Predecessor Expenses Trustees/Directors
Hubert L. Cafritz, $25,750 N/A $25,750
Trustee
Richard M. Galkin, $37,000 N/A $64,000
Trustee
Stephen L. Isaacs, $37,000 N/A $64,000
Trustee
William L. Koke, $25,750 N/A $25,750
Trustee
David L. Meister, $37,000 N/A $64,000
Trustee
John D. Diederich $107,075 $9,448 N/A
Director of Operations
Howard J. Kashner $71,491 $4,731 N/A
General Counsel
PRINCIPAL HOLDERS OF SHARES
As of February 3, 1997, the following persons were known to
the Trust to be the beneficial owners of 5% or more of the
outstanding shares of the Fund:
Number Type of Percentage of
Name and Address of Shares Ownership Outstanding Shares
Shares
Charles Schwab & Co. 643,638 Record 18.39%
Inc.
Reinvest Account
Attn: Mutual Fund
Dept.
101 Montgomery St.
San Francisco, CA 94104-
4122
The Carlisle Companies 405,831 Beneficial 11.6%
Defined Benefit
Retirement Plan
250 South Clinton
Street
Suite 201
Syracuse, NY 13202
<PAGE>
As of such date, all of the trustees and officers of the
Trust as a group owned approximately 2.5 % of the Fund's
outstanding shares, and all of the directors, officers and
employees of the Fund's investment adviser owned approximately
2.8% of the Fund's outstanding shares.
INVESTMENT ADVISORY SERVICES
As compensation for its services to the Fund, RE&A is
entitled to receive advisory fees equal to 1% per annum of the
first $50,000,000 of the Fund's average net assets and 0.75% per
annum of any additional average net assets over $50,000,000.
These fees are payable monthly from the assets of the Fund. For
1996, the fees paid to RE&A by the Fund were 1.00% of its average
net assets.
Under the Investment Advisory Agreement, RE&A (i) determines
the composition of the Fund's portfolio, the nature and timing of
the changes in it and the manner of implementing such changes,
subject to any directions it may receive from the Trust's Board
of Trustees; (ii) provides the Fund with investment advisory,
research and related services for the investment of its funds;
(iii) furnishes, without expense to the Trust, the services of
such members of its organization as may be duly elected executive
officers or Trustees of the Trust; and (iv) pays all executive
officers' salaries and executive expenses and all expenses
incurred in performing its investment advisory duties under the
Investment Advisory Agreement.
The Trust pays all administrative and other costs and
expenses attributable to its operations and transactions,
including, without limitation, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office
space and facilities; auditing; preparation, printing and
distribution of its prospectuses, proxy statements, shareholders
reports and notices; supplies and postage; Federal and state
registration fees; Federal, state and local taxes; non-affiliated
trustees' fees; and brokerage commissions.
For the year ended December 31, 1996 and December 31, 1995,
and the period from August 1, 1994 (commencement of operations)
through December 31, 1994, RE&A received advisory fees from the
Fund of $375,493, $320,761 and $34,925 (net of $19,821 waived
by RE&A), respectively.
Portfolio Management
The Trust's business and affairs are managed under the
direction of its Board of Trustees. RE&A, the Fund's investment
adviser, is responsible for the management of the Fund's
portfolio, subject to the authority of the Board of Trustees.
RE&A was organized in June 1994, and became the Fund's investment
adviser on August 1, 1994, when the Fund commenced operations.
Thomas R. Ebright is the President and Treasurer, a director and
the principal shareholder of RE&A. He is also a Vice President
of Quest, the investment adviser for the ten other series
currently offered by the Trust. Jennifer E. Goff, Mr. Ebright's
daughter, has been a Vice President, a director and a shareholder
of RE&A since RE&A's inception, June 1, 1994. Also, during the
last five years Ms. Goff has completed her undergraduate
education at Dartmouth College (BA `93), worked full-time as a
security analyst at Quest from July 1993 to August 1994, and then
completed her graduate studies in Finance at Columbia University
(MBA `96). Charles M. Royce, President, Secretary, Treasurer,
sole director and sole voting shareholder of Quest, and a trust
for various members of his family, are also shareholders of RE&A.
The Fund's portfolio is managed primarily by Mr. Ebright and
secondarily by Ms. Goff, who are solely responsible for RE&A's
investment management activities.
<PAGE>
Neither Quest nor any of its directors, officers or
employees, as such, furnishes any investment advice to the Fund
or to RE&A.
DISTRIBUTOR
QDI, which is wholly-owned by Charles M. Royce, acts as
distributor of the Fund's shares. RE&A may pay up to 25% of its
advisory fee to unaffiliated broker-dealers who introduce
investors to the Fund and provide certain administrative services
to those of their customers who are Fund shareholders. Any such
arrangements will be obligations of RE&A and not of the Fund or
QDI.
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the
custodian for the securities, cash and other assets of the Fund
and the transfer agent and dividend disbursing agent for the
Fund's shares, but it does not participate in the Fund's
investment decisions. The Trust has authorized State Street to
deposit certain domestic and foreign portfolio securities in
several central depository systems and to use foreign sub-
custodians for certain foreign portfolio securities, as allowed
by Federal law. State Street's main office is at 225 Franklin
Street, Boston, Massachusetts 02107. All mutual fund transfer,
dividend disbursing and shareholder service activities are
performed by State Street's agent, National Financial Data
Services, at 1004 Baltimore, Kansas City, Missouri 64105.
State Street is responsible for the calculation of the
Fund's daily net asset value per share and for the maintenance of
its portfolio and general accounting records and also provides
certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post Office
Square, Boston, Massachusetts 02109, are the independent
accountants of the Trust.
PORTFOLIO TRANSACTIONS
RE&A is responsible for selecting the brokers who, as agents
for the Fund, effect the purchases and sales of the Fund's
portfolio securities. No broker is selected to effect a
securities transaction for the Fund unless such broker is
believed by RE&A to be capable of obtaining the best price and
execution for the security involved in the transaction. In
addition to considering a broker's execution capability, RE&A
generally considers the brokerage and research services which the
broker has provided to it, including any research relating to the
security involved in the transaction and/or to other securities.
Such services may include general economic research, market and
statistical information, industry and technical research,
strategy and company research, and may be written or oral. RE&A
determines the overall reasonableness of brokerage commissions
paid, after considering the amount another broker might have
charged for effecting the transaction and the value placed by
RE&A upon the brokerage and/or research services provided by such
broker.
<PAGE>
RE&A is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement
for the Fund, to pay a brokerage commission in excess of that
which another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and
research services provided by the broker.
RE&A may also place the Fund's brokerage business with firms
which promote the sale of the Fund's shares, consistent with
achieving the best price and execution. In no event will the
Fund's brokerage business be placed with QDI.
RE&A's purchase and sale orders for the Fund's portfolio
securities are generally placed with broker-dealers through
Quest, and RE&A is obligated to reimburse Quest for any
additional out-of-pocket costs and expenses incurred by Quest in
rendering this service.
Even though investment decisions for the Fund are made by
RE&A independently from those made by Quest and/or QMC for their
managed accounts, securities of the same issuer may be purchased,
held or sold by more than one of such accounts. When the Fund
and one or more of the Quest and/or QMC managed accounts are
simultaneously engaged in the purchase or sale of the same
security, Quest seeks to average the transactions as to price and
allocate them as to amount in a manner believed by Quest to be
equitable to each. In some cases, this procedures may adversely
affect the price paid or received by the Fund or the size of the
position obtainable for the Fund.
For the year ended December 31, 1996 and December 31, 1995,
and the period from August 1, 1994 (commencement of operations)
through December 31, 1994, the Fund paid brokerage commissions of
$87,201, $120,862 and $64,624, respectively. For the same
periods, the aggregate amounts of brokerage transactions of the
Fund having a research component were $21,876,925, $23,404,622
and $12,725,137, respectively, and the amounts of commissions
paid by the Fund for such transactions were $66,890, $87,718
and $50,469, respectively.
The Fund did not acquire any securities of its regular
brokers and dealers, as defined in the 1940 Act, or of their
parents, during the year ended December 31, 1996.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of the Fund's shares is
based on its current net asset value per share. See "Net Asset
Value Per Share" in the Fund's Prospectus.
As set forth under "Net Asset Value Per Share," the Fund's
custodian determines the net asset value per Fund share at the
close of regular trading on the New York Stock Exchange on each
day that the Exchange is open. The Exchange is open on all
weekdays which are not holidays. Thus, it is closed on Saturdays
and Sundays and on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
<PAGE>
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which
would, in the judgment of the Board of Trustees or management,
make it undesirable for the Fund to pay for all redemptions in
cash. In such cases, payment may be made in portfolio securities
or other property of the Fund. However, the Trust has obligated
itself under the 1940 Act to redeem for cash all shares presented
for redemption by any one shareholder up to $250,000 (or 1% of
the Trust's net assets if that is less) in any 90-day period.
Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value
per share for purposes of such redemption. Shareholders
receiving such securities would incur brokerage costs when these
securities are sold.
TAXATION
The Fund has qualified and intends to remain qualified each
year for the tax treatment applicable to a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). To so qualify, the Fund must comply
with certain requirements of the Code relating to, among other
things, the source of its income and the diversification of its
assets.
By so qualifying, the Fund will not be subject to Federal
income taxes to the extent that its net investment income and
capital gain net income are distributed, so long as the Fund
distributes, as ordinary income dividends, at least 90% of its
investment company taxable income.
If the Fund were to be unable to satisfy the 90% distribu
tion requirement or otherwise were to fail to qualify as a RIC in
any year, the Fund would be subject to tax in such year on all of
its taxable income, whether or not the Fund made any distribu
tions to stockholders. To qualify again as a RIC in a subsequent
year, the Fund would be required to distribute to shareholders as
an ordinary income dividend, its earnings and profits attributa
ble to non-RIC years (less any interest charge hereinafter
described), and also would be required to pay to the Internal
Revenue Service ("IRS") an interest charge on 50% of such earn
ings and profits. In addition, if the Fund failed to qualify as
a RIC for a period greater than one taxable year, then, except as
provided in regulations to be promulgated, the Fund would be
required to recognize and pay tax on any net built-in gains (the
excess of aggregate gains, including items of income, over
aggregate losses that would have been realized if the Fund had
been liquidated) in order to qualify as a RIC in a subsequent
year.
A non-deductible 4% excise tax will be imposed on the Fund
to the extent that it does not distribute (including by
declaration of certain dividends), during each calendar year, (i)
98% of its ordinary income for such calendar year, (ii) 98% of
its capital gain net income for the one-year period ending
October 31 of such calendar year (or the Fund's actual taxable
year ending December 31, if elected) and (iii) certain other
amounts not distributed in previous years. To avoid the
application of this tax, the Fund will endeavor to distribute
substantially all of its ordinary income and capital gain net
income during the calendar year in which such income is earned
and such gains are recognized.
The Fund will maintain accounts and calculate income by
reference to the U.S. dollar for U.S. Federal income tax
purposes. Investments calculated by reference to foreign
currencies will not necessarily correspond to the Fund's
distributable income and capital gains for U.S. Federal income
tax purposes as a result of fluctuations in foreign currency
exchange rates. Furthermore, if any exchange control regulations
were to apply to the Fund's investments in foreign securities,
such regulations could restrict the Fund's ability to repatriate
<PAGE>
investment income or the proceeds of sales of securities, which
may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirement and avoid the 4% excise
tax.
Income earned or received by the Fund from investments in
foreign securities may be subject to foreign withholding taxes
unless a withholding exemption is provided under an applicable
treaty. Any such taxes would reduce the Fund's cash available for
distribution to shareholders. It is currently anticipated that
the Fund will not be eligible to elect to "pass through" such
taxes to its shareholders for purposes of enabling them to claim
foreign tax credits or other U.S. income tax benefits with
respect to such taxes.
If the Fund invests in stock of a so-called passive foreign
investment company ("PFIC"), it may be subject to Federal income
tax on a portion of any "excess distribution" with respect to, or
gain from the disposition of, such stock. The tax would be
determined by allocating such distribution or gain ratably to
each day of the Fund's holding period for the stock. The amount
so allocated to any taxable year of the Fund prior to the taxable
year in which the excess distribution or disposition occurs would
be taxed to the Fund at the highest marginal income tax rate in
effect for such years, and the tax would be further increased by
an interest charge. The amount allocated to the taxable year of
the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be
taxable to the Fund to the extent distributed by the Fund as a
dividend to shareholders.
The Fund may be able to make an election, in lieu of being
taxable in the manner described above, to include annually in
income its pro rata share of the ordinary earnings and net
capital gain (whether or not distributed) of the PFIC. In order
to make this election, the Fund would be required to obtain
annual information from the PFICs in which it invests, which in
many cases may be difficult to obtain. Alternatively, if
eligible, the Fund may be able to elect to mark to market its
PFIC stock, resulting in the stock being treated as sold at fair
market value on the last business day of each taxable year. Any
resulting gain would be reported as ordinary income, and any
resulting loss would not be recognized. The Fund may make either
of these elections with respect to its investments (if any) in
PFICs.
Investments of the Fund in securities issued at a discount
or providing for deferred interest payments or payments of
interest in kind (which investment are subject to special tax
rules under the Code) will affect the amount, timing and
character of distributions to shareholders. For example, if the
Fund were to acquire securities issued at a discount, the Fund
would be required to accrue as ordinary income each year a
portion of the discount (even though the Fund may not have
received cash interest payments equal to the amount included in
income) and to distribute such income each year in order to
maintain its qualification as a regulated investment company and
to avoid income and excise taxes. In order to generate sufficient
cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes,
the Fund may have to dispose of securities that it would
otherwise have continued to hold.
Distributions
For Federal income tax purposes, distributions by the Fund
from net investment income and from any net realized short-term
capital gain are taxable to shareholders as ordinary income,
whether received in cash or reinvested in additional shares.
Ordinary income generally cannot be offset by capital losses.
For corporate shareholders, distributions of net investment
income (but not distributions of short-term or long-term capital
gains) may qualify in part for the 70% dividends received
deduction for purposes of determining their regular taxable
income. (However, the 70% dividends received deduction is not
allowable in determining a corporate shareholder's alternative
minimum taxable income.) The amount qualifying for the dividends
<PAGE>
received deduction generally will be limited to the aggregate
dividends received by the Fund from domestic corporations and to
an amount so designated by the Fund. The dividends received
deduction for corporate shareholders may be further reduced or
eliminated if the shares with respect to which dividends are
received by the Fund are treated as debt-financed or are deemed
to have been held for fewer than 46 days, or under other
generally applicable statutory limitations.
So long as the Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement,
distributions by the Fund from net capital gains will be taxable
as long-term capital gains, whether received in cash or
reinvested in shares and regardless of how long a shareholder has
held his or its Fund shares. Such distributions are not eligible
for the dividends received deduction. Long-term capital gains of
non-corporate shareholders, although fully includible in income,
currently are taxed at a lower maximum marginal Federal income
tax rate than ordinary income.
Distributions by the Fund in excess of its current and
accumulated earnings and profits will reduce a shareholder's
basis in Fund shares (and, to that extent, will not be taxable)
and, to the extent such distributions exceed the shareholder's
basis, will be taxable as capital gain assuming the shareholder
holds Fund shares as capital assets.
A distribution will be treated as paid during a calendar
year if it is declared in October, November or December of the
year to shareholders of record in such month and paid by January
31 of the following year. Such distributions will be taxable to
such shareholders as if received by them on December 31, even if
not paid to them until January. In addition, certain other
distributions made after the close of a taxable year of the Fund
may be "spilled back" and treated as paid by the Fund (other than
for purposes of avoiding the 4% excise tax) during such year.
Such distributions would be taxable to the shareholders in the
taxable year in which they were actually made by the Fund.
The Trust will send written notices to shareholders
regarding the amount and Federal income tax status as ordinary
income or capital gain of all distributions made during each
calendar year.
Back-up Withholding/Withholding Tax
Under the Code, certain non-corporate shareholders may be
subject to 31% withholding on reportable dividends, capital gains
distributions and redemption payments ("back-up withholding").
Generally, shareholders subject to back-up withholding will be
those for whom a taxpayer identification number and certain
required certifications are not on file with the Trust or who, to
the Trust's knowledge, have furnished an incorrect number. In
addition, the Trust is required to withhold from distributions to
any shareholder who does not certify to the Trust that such
shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such
shareholder has under-reported interest or dividend income. When
establishing an account, an investor must certify under penalties
of perjury that such investor's taxpayer identification number is
correct and that such investor is not subject to or is exempt
from back-up withholding.
Ordinary income distributions paid to shareholders who are
non-resident aliens or which are foreign entities will be subject
to 30% United States withholding tax unless a reduced rate of
withholding or a withholding exemption is provided under an
applicable treaty. Non-U.S. shareholders are urged to consult
their own tax advisers concerning the United States consequences
to them of investing in the Fund.
<PAGE>
Timing of Purchases and Distributions
At the time of an investor's purchase, the Fund's net asset
value may reflect undistributed income or capital gains or net
unrealized appreciation of securities held by the Fund. A
subsequent distribution to the investor of such amounts, although
it may in effect constitute a return of his or its investment in
an economic sense, would be taxable to the shareholder as
ordinary income or capital gain as described above. Investors
should carefully consider the tax consequences of purchasing Fund
shares just prior to a distribution as they will receive a
distribution that is taxable to them.
Sales or Redemptions of Shares
Gain or loss recognized by a shareholder upon the sale,
redemption or other taxable disposition of Fund shares (provided
that such shares are held by the shareholder as a capital asset)
will be treated as capital gain or loss, measured by the
difference between the adjusted basis of the shares and the
amount realized on the sale or exchange. Such gain or loss will
be long-term capital gain or loss if the shares disposed of were
held for more than one year. A loss will be disallowed to the
extent that the shares disposed of are replaced (including by
receiving shares upon the reinvestment of distributions) within a
period of 61 days, beginning 30 days before and ending 30 days
after the sale of the shares. In such a case, the basis of the
shares acquired will be increased to reflect the disallowed loss.
A loss recognized upon the sale, redemption or other taxable
disposition of shares held for 6 months or less will be treated
as a long-term capital loss to the extent of any long-term
capital gain distributions received with respect to such shares.
* * *
The foregoing relates to Federal income taxation.
Distributions, as well as any gains from a sale, redemption or
other taxable disposition of Fund shares, also may be subject to
state and local taxes.
Investors are urged to consult their own tax advisers
regarding the application to them of Federal, state and local tax
laws.
DESCRIPTION OF THE TRUST
Trust Organization
The Trust was organized in April 1996 as a Delaware business
trust. It is the successor by mergers to The Royce Fund, a
Massachusetts business trust (the "Predecessor"), and
Pennsylvania Mutual Fund, a Delaware business trust. The mergers
were effected on June 28, 1996, under an Agreement and Plan of
Merger pursuant to which the Predecessor and Pennsylvania Mutual
Fund merged into the Trust, with each Fund of the Predecessor and
Pennsylvania Mutual Fund becoming an identical counterpart series
of the Trust, Quest and RE&A continuing as the Funds' investment
advisers under their pre-merger Investment Advisory Agreements
and QDI continuing as the Trust's distributor. A copy of the
Trust's Certificate of Trust is on file with the Secretary of
State of Delaware, and a copy of the Trust Instrument, its
principal governing document, is available for inspection by
shareholders as the Trust's offices in New York.
<PAGE>
The Trust has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited
number of series and/or classes without shareholder approval.
(Each Fund presently has only one class of shares.) These shares
are entitled to one vote per share (with proportional voting for
fractional shares). Shares vote by individual series except as
otherwise required by the 1940 Act or when the Trustees determine
that the matter affects shareholders of more than one series.
Each of the Trustees currently in office were elected by the
Trust's predecessor's shareholders. There will normally be no
meeting of shareholders for the election of Trustees until less
than a majority of such Trustees remain in office, at which time
the Trustees will call a shareholders' meeting for the election
of Trustees. In addition, Trustees may be removed from office by
written consents signed by the holders of a majority of the
outstanding shares of the Trust and filed with the Trust's
custodian or by a vote of the holders of a majority of the
outstanding shares of the Trust at a meeting duly called for this
purpose upon the written request of holders of at least 10% of
the Trust's outstanding shares. Upon the written request of 10
or more shareholders of the Trust, who have been shareholders for
at least 6 months and who hold shares constituting at least 1% of
the Trust's outstanding shares, stating that such shareholders
wish to communicate with the Trust's other shareholders for the
purpose of obtaining the necessary signatures to demand a meeting
to consider the removal of a Trustee, the Trust is required (at
the expense of the requesting shareholders) to provide a list of
shareholders or to distribute appropriate materials. Except as
provided above, the Trustees may continue to hold office and
appointing their successors.
Shares are freely transferable, are entitled to
distributions as declared by the Trustees and, in liquidation of
the Trust, are entitled to receive net assets of their series.
Shareholders have no preemptive rights. The Trust's fiscal year
ends on December 31.
Shareholder Liability
Generally, shareholders will not be personally liable for
the obligations of their Fund or of the Trust under Delaware law.
The Delaware Business Trust Act provides that a shareholder of a
Delaware business trust is entitled to the same limited liability
extended to shareholders of private corporations for profit
organized under the Delaware General Corporation Law no similar
statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the
extent that the Trust or a shareholder of the Trust is subject to
the jurisdiction of courts in those states, the courts may not
apply Delaware law and may thereby subject Trust shareholders to
liability. To guard against this possibility, the Trust
Instrument (i) requires that every written obligation of the
Trust contain a statement that such obligation may be enforced
only against the Trust's assets (however, the omission of this
disclaimer will not operate to create personal liability for any
shareholder); and (ii) provides for indemnification out of Trust
property of any Trust shareholder held personally liable for the
Trust's obligations. Thus, the risk of a Trust shareholder
incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which: (i) a
court refuses to apply Delaware law; (ii) no contractual
limitation of liability was in effect; and (iii) the Trust itself
would be unable to meet its obligations. In light of Delaware
law, the nature of the Trust's business and the nature of its
assets, management believes that the risk of personal liability
to a Trust shareholder is extremely remote.
<PAGE>
PERFORMANCE DATA
The Fund's performance may be quoted in various ways. All
performance information supplied for the Fund is historical and
is not intended to indicate future returns. The Fund's share
price and total returns fluctuate in response to market
conditions and other factors, and the value of the Fund's shares
when redeemed may be more or less than their original cost.
Total Return Calculations
Total returns quoted reflect all aspects of the Fund's
return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value
per share (NAV) over the period. Average annual total returns
are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Fund over a stated
period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period.
For example, a cumulative return of 100% over ten years would
produce an average annual total return of 7.18%, which is the
steady annual rate of return that would equal 100% growth on a
compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment
alternatives, investors should realize that the Fund's
performance is not constant over time, but changes from year to
year, and that average annual total returns represent averaged
figures as opposed to the actual year-to-year performance of the
Fund.
In addition to average annual total returns, the Fund's
unaveraged or cumulative total return, reflecting the simple
change in value of an investment over a stated period, may be
quoted. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments or a
series of redemptions, over any time period. Total returns may
be broken down into their components of income and capital
(including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their
contributions to total return. Total returns and other
performance information may be quoted numerically or in a table,
graph or similar illustration.
Historical Fund Results
The following table shows the Fund's total returns for the
periods indicated. Such total returns reflect all income earned
by the Fund, any appreciation or depreciation of its assets and
all expenses incurred by the Fund for the stated periods. The
table compares the Fund's total returns to the records of the
Russell 2000 Index (Russell 2000) and the Standard & Poor's 500
Composite Stock Price Index (S&P 500) over the same periods. The
comparison to the Russell 2000 shows how the Fund's total returns
compared to the record of a broad index of small capitalization
stocks. The S&P 500 comparison is provided to show how the
Fund's total returns compared to the record of a broad average of
common stock prices. The Fund has the ability to invest in
securities not included in the indices, and its investment
portfolio may or may not be similar in composition to the
indices. Figures for the indices are based on the prices of
unmanaged groups of stocks, and, unlike the Fund, their returns
do not include the effect of paying brokerage commissions and
other costs and expenses of investing in a mutual fund.
<PAGE>
Period Ended
December 31, Russell S&P
1996 2000 500
1 Year Total Return 22.3% 16.5% 23.0%
Average Annual Total Return 14.3% 19.7% 25.1%
since 8-1-94
(commencement of operations)
A hypothetical $10,000 initial investment in the Fund on
August 1, 1994 (commencement of operations) through December 31,
1996 would have grown to $13,798, assuming all distributions were
reinvested.
The Fund's performance may be compared in advertisements to
the performance of other mutual funds in general or to the
performance of particular types of mutual funds, especially those
with similar investment objectives. Such comparisons may be
expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. ("Lipper"), an independent service that monitors
and ranks the performance of registered investment companies.
Money market funds and municipal funds are not included in the
Lipper survey. The Lipper performance analysis ranks funds on
the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees
payable by shareholders into consideration and is prepared
without regard to tax consequences.
The Lipper Growth & Income Fund Index is an equally-weighted
index, adjusted for capital gains distributions and income
dividends, of the 30 largest qualifying funds within Lipper's
growth and income investment objective category.
The S&P 500 Composite Stock Price Index is an unmanaged list
of common stocks frequently used as a general measure of stock
market performance. The Index's performance figures reflect
changes of market prices and quarterly reinvestment of all
distributions.
The Russell 2000, prepared by the Frank Russell Company,
tracks the return of the common stocks of the 2,000 smallest out
of the 3,000 largest publicly traded U.S.-domiciled companies by
market capitalization. The Russell 2000 tracks the return based
on price appreciation or depreciation and includes dividends.
RE&A may, from time to time, compare the performance of
common stocks, especially small and medium capitalization stocks,
to the performance of other forms of investment over periods of
time.
From time to time, in reports and promotional literature,
the Fund's performance also may be compared to other mutual funds
tracked by financial or business publications and periodicals,
such as KIPLINGER's, INDIVIDUAL INVESTOR, MONEY, FORBES, BUSINESS
WEEK, BARRON's, FINANCIAL TIMES, FORTUNE, MUTUAL FUNDS MAGAZINE
and THE WALL STREET JOURNAL. In addition, financial or business
publications and periodicals, as they relate to fund management,
investment philosophy and investment techniques, may be quoted.
The Fund's performance may also be compared to those of
other compilations or indices.
Advertising for the Fund may contain examples of the effects
of periodic investment plans, including the principle of dollar
cost averaging. In such a program, an investor invests a fixed
dollar amount in a fund at periodic intervals, thereby purchasing
fewer shares when prices are high and more shares when prices are
<PAGE>
low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost
per share can be lower than if fixed numbers of shares are
purchased at the same intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing
shares during periods of low price levels.
The Fund may be available for purchase through retirement
plans or other programs offering deferral of or exemption from
income taxes, which may produce superior after-tax returns over
time. For example, a $2,000 annual investment earning a taxable
return of 8% annually would have an after-tax value of $177,887
after thirty years, assuming tax was deducted from the return
each year at a 28% rate. An equivalent tax-deferred investment
would have a value of $244,692 after thirty years.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of The Royce Fund and Shareholders
of The REvest Growth & Income Fund:
We have audited the accompanying statement of assets
and liabilities of The REvest Growth & Income Fund,
including the schedule of investments as of December 31,
1996, the related statement of operations for the year then
ended, the statement of changes in net assets for each of
the two years in the period then ended, and the financial
highlights for each of the two years in the period then
ended and for the period from August 1, 1994 (commencement
of operations) to December 31, 1994. These financial
statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial
highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the financial position of The REvest Growth &
Income Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended,
and the financial highlights for each of the two years in
the period then ended and for the period from August 1, 1994
(commencement of operations) to December 31, 1994 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 7, 1997
<PAGE>
Schedule of Investments (at 12/31/96)
Common Stocks and Bonds- 95.1%
Shares or Principal Value Cost Value
CONSUMER PRODUCTS- 12.0%
45,000 Haggar Corporation $689,756 $714,375
19,000 La-Z-Boy Chair Company 565,324 560,500
17,000 National Presto Industries, Inc. 703,774 635,375
39,000 Oxford Industries, Inc. 705,543 936,000
36,000 The Rival Company 704,136 895,500
50,500 Russ Berrie and Company, Inc. 699,088 909,000
11,000 The Toro Company 375,045 401,500
4,442,666 5,052,250
ENERGY- 9.2%
22,440 Barrett Resources Corporation* 444,167 956,505
72,500 Berry Petroleum Company Class A 701,116 1,042,187
21,000 Penn Virginia Corporation 710,287 981,750
$900,000 Snyder Oil Corporation 7% Conv.
Sub. Notes due 5/15/01 818,156 905,625
2,673,726 3,886,067
FINANCIAL- 14.9%
39,000 Donegal Group Inc. 713,315 799,500
30,337 Keystone Financial, Inc. 598,230 758,425
34,121 Keystone Heritage Group, Inc. 690,372 784,783
31,500 Mercantile Bankshares Corporation 701,890 1,008,000
45,000 Peoples Heritage Financial Group, Inc. 691,402 1,260,000
17,000 Protective Life Corporation 405,722 677,875
28,425 Susquehanna Bancshares, Inc. 702,686 984,216
4,503,617 6,272,799
HEALTH- 5.8%
10,000 Analogic Corporation 290,000 335,000
24,000 Arrow International, Inc. 690,900 690,000
12,000 Diagnostic Products Corporation 341,340 310,500
40,000 Haemonetics Corporation* 653,825 755,000
13,000 Invacare Corporation 351,000 357,500
2,327,065 2,448,000
INDUSTRIAL CYCLICALS- 16.5%
40,000 AMETEK, Inc. 694,246 890,000
16,000 Baldor Electric Company 348,445 394,000
34,500 CLARCOR Inc. 702,027 763,313
30,000 Crompton & Knowles Corporation 409,067 577,500
29,000 Greif Brothers Corporation Class A 707,330 819,250
22,000 Kennametal Inc. 702,102 855,250
27,000 Kimball International, Inc. Class B 708,254 1,117,125
26,900 Matthews International Corporation
Class A 528,120 759,925
19,500 Rayonier Inc. 690,490 748,313
5,490,081 6,924,676
<PAGE>
REAL ESTATE- 6.4%
34,000 Cousins Properties Incorporated 597,529 956,250
38,000 Manufactured Home Communities, Inc. 695,360 883,500
34,000 New Plan Realty Trust 701,292 862,750
1,994,181 2,702,500
RETAIL- 7.4%
33,000 Cracker Barrel Old Country Store, Inc. 704,617 837,375
73,000 The Dress Barn, Inc.* 702,365 1,095,000
25,000 Hannaford Brothers Company 691,438 850,000
26,000 Lillian Vernon Corporation 360,304 318,500
2,458,724 3,100,875
SERVICES- 9.2%
22,000 BHC Financial, Inc. 347,650 346,500
18,000 Chemed Corporation 703,735 657,000
78,000 Lucor, Inc. Class A* 454,375 585,000
$900,000 Richardson Electronics, Ltd. 7.25%
Conv. Sub. Deb. due 12/15/06 780,000 765,000
$700,000 Sequa Corporation 9.375% Sr. Sub.
Notes due 12/15/03 696,834 710,500
25,000 The Standard Register Company 461,485 812,500
3,444,079 3,876,500
TECHNOLOGY- 13.7%
38,500 Cirrus Logic, Inc.* 700,819 596,750
32,100 Cohu, Inc. 623,892 746,325
50,000 Exabyte Corporation* 696,375 668,750
55,000 FEI Company* 699,393 515,625
51,000 Gilbert Associates, Inc. Class A 702,012 701,250
13,000 Helix Technology Corporation 351,475 377,000
$800,000 Storage Technology Corporation 8%
Conv. Sub. Deb. due 5/31/15 750,250 1,089,000
13,500 Teleflex Incorporated 498,745 703,687
15,000 Watkins Johnson Co. 372,300 367,500
5,395,261 5,765,887
TOTAL COMMON STOCKS AND CORPORATE BONDS 32,729,400 40,029,554
U.S. TREASURY OBLIGATIONS- 4.8%
$1,000,000 U.S. Treasury Notes 6.75% due 2/28/97 982,969 1,002,340
$1,000,000 U.S. Treasury Notes 6.00% due 10/15/99 987,266 1,000,310
TOTAL U.S. TREASURY OBLIGATIONS 1,970,235 2,002,650
REPURCHASE AGREEMENT- 0.2%
State Street Bank and Trust Company, 4.90% due
1/02/97, collateralized by U. S. Treasury Notes 6.75%
due 4/30/00, valued at $ 103,372 100,000 100,000
<PAGE>
TOTAL INVESTMENTS- 100.1% $34,799,635 42,132,204
LIABILITIES LESS CASH AND OTHER ASSETS-(.1%) (33,357)
TOTAL NET ASSETS- 100.0% $42,098,847
*Non-income producing.
"Income Tax Information- The cost for federal income tax
purposes was $34,758,881. At December 31, 1996,"
"net unrealized appreciation for all securities amounted to
$7,373,323, consisting of aggregate gross"
"unrealized appreciation of $ 7,903,998 and aggregate
unrealized depreciation of $ 530,675."
"The fund designates $1,670,285 as a capital gain dividend
for the purpose of the dividend paid"
deduction.
The accompanying notes are an integral part of the financial
statements.
<PAGE>
Statement of Assets and Liabilities (at 12/31/96)
ASSETS:
Investments at value (identified cost $34,799,635) $42,132,204
Cash 37,879
Receivable for investments sold 113,330
Receivable for capital shares sold 13,850
Receivable for dividends and interest 97,813
TOTAL ASSETS 42,395,076
LIABILITIES:
Dividend payable 165,975
Payable for capital shares redeemed 67,752
Investment advisory fee payable 36,413
Accrued expenses 26,089
TOTAL LIABILITIES 296,229
NET ASSETS $42,098,847
ANALYSIS OF NET ASSETS:
Distributions in excess of net investment income ($11,703)
Distributions in excess of net realized gain on investments (14,842)
Net unrealized appreciation on investments 7,332,569
Capital shares 3,448
Additional paid-in capital 34,789,375
NET ASSETS $42,098,847
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($42,098,847 / 3,448,123 shares outstanding) $12.21
Statements of Changes in Net Assets
Years ended December 31,
1996 1995
Investment Operations:
Net investment income $670,454 $550,063
Net realized gain on investments 2,201,712 1,063,263
Net change in unrealized appreciation on investments 4,806,560 3,079,868
Net increase in net assets resulting from
investment operations 7,678,726 4,693,194
Dividends and Distributions:
Net investment income (675,154) (525,810)
Net realized gain on investments (2,223,159) (1,034,263)
(2,898,313) (1,560,073)
Capital Share Transactions:
Net increase in net assets from capital share
transactions 1,514,553 10,994,420
Net Increase in Net Assets 6,294,966 14,127,541
Net Assets:
Beginning of year 35,803,881 21,676,340
End of year (including distributions in excess
of net investment income of $ 11,703 and $6,056,
respectively) $42,098,847 $35,803,881
The accompanying notes are an integral part of the financial
statements.
<PAGE>
Statement of Operations (at 12/31/96)
INVESTMENT INCOME:
Income:
Dividends $829,917
Interest 327,767
Total Income 1,157,684
Expenses:
Investment advisory fee 375,493
Custodian and transfer agent fees 30,789
Professional fees 21,187
Administrative and office facilities 22,402
Federal and state registration fees 14,321
Trustees' fees 4,213
Other expenses 18,825
Total Expenses 487,230
Net Investment Income 670,454
REALIZED AND UNREALIZED GAIN ON INVESTMENTS :
Net realized gain on investments 2,201,712
Net change in unrealized appreciation on investments 4,806,560
Net realized and unrealized gain on investments 7,008,272
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,678,726
FINANCIAL HIGHLIGHTS
This table is presented to show selected data for a share
outstanding throughout each period, and to assist
shareholders in evaluating the Fund's performance.
Period ended
Years ended December 31, December 31,
1996 1995 1994
Net Asset Value, Beginning of Period $10.73 $9.66 $10.00
Investment Operations:
Net investment income 0.21 0.18 0.04
Net realized and unrealized gain
(loss) on investments 2.16 1.38 (0.33)
Total from investment operations 2.37 1.56 (0.29)
Dividends and Distributions:
Net investment income (0.21) (0.17) (0.05)
Net realized gain on investments (0.68) (0.32) --
Total dividends and distributions (0.89) (0.49) (0.05)
Net Asset Value, End of Period $12.21 10.73 $9.66
Total Return 22.3% 16.2% -2.9%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $42,099 $35,804 $21,676
Ratio of Expenses to Average Net Assets(a) 1.29% 1.30% 1.42%*
Ratio of Net Investment Income to Average
Net Assets 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 64% 53% 5%
Average Commission Rate Paid+ $0.0580 -- --
* Annualized.
+ For fiscal years beginning on or after October 1,
1995, the Fund is required to disclose its average"
commission rate paid per share for purchases and sales
of investments.
(a) The ratio of expenses to average net assets before
waiver of fees by the investment adviser would have
been 1.78% for the period ended December 31, 1994.
The accompanying notes are an integral part of the financial
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The REvest Growth & Income Fund (the "Fund") is a series of The
Royce Fund (the "Trust"), a diversified open-end management
investment company. The Trust, originally established as a
business trust under the laws of Massachusetts, converted to a
Delaware business trust at the close of business on June 28,
1996. The Fund commenced operations on August 1, 1994.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
a. Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market
System are valued on the basis of the last reported sale prior to
the time the valuation is made, or if no sale is reported for
such day, at their bid price for exchange-listed securities and
at the average of their bid and asked prices for Nasdaq
securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities
for which market quotations are readily available are valued at
their bid price. Securities for which market quotations are not
readily available are valued at their fair value under procedures
established and supervised by the Board of Trustees. Bonds and
other fixed income securities may be valued by reference to other
securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the trade date and
dividend income is recorded on the ex-dividend date. Interest
income is recorded on the accrual basis. Realized gains and
losses from investment transactions and unrealized appreciation
and depreciation of investments are determined on the basis of
identified cost for book and tax purposes.
c. Taxes:
As a qualified regulated investment company under Subchapter M of
the Internal Revenue Code, the Fund is not subject to income
taxes to the extent that it distributes substantially all of its
taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption
"Income Tax Information".
d. Distributions:
The Fund declares dividends on a quarterly basis and capital gain
distributions annually. These dividends and distributions are
recorded on the ex-date and are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. Permanent book and tax basis differences
relating to shareholder distributions will result in
reclassifications to paid-in capital and may affect net
investment income per share. Undistributed net investment income
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following
year.
e. Repurchase agreements:
The Fund enters into repurchase agreements with respect to its
portfolio securities solely with State Street Bank and Trust
Company ("SSB&T"), the custodian of its assets. The Fund
restricts repurchase agreements to maturities of no more than
seven days. Securities pledged as collateral for repurchase
agreements are held by SSB&T until maturity of the repurchase
agreements. Repurchase agreements could involve certain risks in
the event of default or insolvency of SSB&T, including possible
delays or restrictions upon the ability of the Fund to dispose of
the underlying securities.
2. Investment Adviser:
Under the Trust's investment advisory agreement with Royce,
Ebright & Associates, Inc. ("RE&A"), the Fund accrued and paid
RE&A fees totaling $375,493 for the year ended December 31, 1996.
The agreement provides for fees equal to 1.0% per annum of the
first $50 million of the Fund's average net assets and 0.75% per
annum of any additional average net assets over $50 million.
These fees are computed daily and are payable montly to RE&A.
3. Fund Shares:
The Board of Trustees has authority to issue an unlimited number
of shares of beneficial interest of the Fund, with a par value of
$.001. Share transactions were as follows:
For the year For the year
ended ended
December 31, 1996 December 31, 1995
Shares Amount Shares Amount
Sold 417,971 $ 4,876,471 1,147,378 $11,532,815
Issued as
reinvested
dividends 223,492 2,702,689 149,814 1,588,717
and distributions
Redeemed (528,815) (6,064,607) (204,573) (2,127,112)
Shares redeemed within one year of purchase are subject to a 1.0%
redemption fee.
4. Purchases and Sales of Securities:
For the year ended December 31, 1996, the cost of purchases and
the proceeds from sales of investment securities, other than
short-term securities, amounted to $23,112,378 and $23,817,335,
respectively.
<PAGE>
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements Included in Prospectuses (Part A):
Financial Highlights or Selected Per
Share Data and Ratios of Pennsylvania Mutual Fund
for the ten years ended December 31, 1995
(audited), of Royce Premier Fund for the four
years ended December 31, 1995 (audited), of Royce
Micro-Cap Fund for the four years ended December
31, 1995 (audited), of Royce Equity Income Fund
for the six years ended December 31, 1995
(audited), of Royce Low-Priced Stock Fund and
Royce Total Return Fund for the period from
December 15, 1993 through December 31, 1993
(audited) and for the two years ended December 31,
1995 (audited), of Royce GiftShares Fund for the
period from December 27, 1995 through December 31,
1995 (audited) and for the six months ended June
30, 1996 (unaudited), of Royce Value Fund and
Royce Value Fund, Inc., its predecessor, for the
ten years ended December 31, 1995 (audited), Royce
Global Services Fund for the period from December
15, 1994 through December 31, 1994 (audited) and
for the year ended December 31, 1995 (audited),
and of The REvest Growth & Income Fund for the
period from August 1, 1994 (commencement of
operations) through December 31, 1994 (audited),
for the year ended December 31, 1995 (audited) and
for the year ended December 31, 1996 (audited).
The following audited and unaudited financial statements of
the Registrant are included in the Registrant's Annual Reports to
Shareholders for the fiscal year or period ended December 31,
1995, in the case of Royce GiftShares Fund, in its Semi-Annual
Report to Shareholders for the six months ended June 30, 1996 and
in the case of The REvest Growth & Income Fund, for the fiscal
year ended December 31, 1996, filed with the Securities and
Exchange Commission under Section 30(b)(1) of the Investment
Company Act of 1940, and have been incorporated in Part B hereof
by reference:
Pennsylvania Mutual Fund -- Schedule of Investments at December 31, 1995;
Pennsylvania Mutual Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Pennsylvania Mutual Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994;
Pennsylvania Mutual Fund -- Statement of Operations for the year
ended December 31, 1995;
Pennsylvania Mutual Fund -- Financial Highlights for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991;
Pennsylvania Mutual Fund -- Notes to Financial Statements -- Report
of Independent Accountants dated February 7, 1996;
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Premier Fund -- Schedule of Investments at December 31, 1995;
Royce Premier Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Premier Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994;
Royce Premier Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Premier Fund -- Financial Highlights for the years ended
December 31, 1995, 1994 and 1993;
Royce Premier Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Micro-Cap Fund -- Schedule of Investments at December 31, 1995;
Royce Micro-Cap Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Micro-Cap Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994;
Royce Micro-Cap Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Micro-Cap Fund -- Financial Highlights for the years ended
December 31, 1995, 1994 and 1993;
Royce Micro-Cap Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Equity Income Fund -- Schedule of Investments at December 31, 1995;
Royce Equity Income Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Equity Income Fund -- Statement of Changes in Net Assets for the
years ended December 31, 1995 and 1994;
Royce Equity Income Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Equity Income Fund -- Financial Highlights for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991;
Royce Equity Income Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Low-Priced Stock Fund -- Schedule of Investments at
December 31, 1995;
Royce Low-Priced Stock Fund -- Statement of Assets and Liabilities
at December 31, 1995;
Royce Low-Priced Stock Fund -- Statement of Changes in Net Assets for
the years ended December 31, 1995 and 1994;
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Low-Priced Stock Fund -- Statement of Operations for the year
ended December 31, 1995;
Royce Low-Priced Stock Fund -- Financial Highlights for the years
ended December 31, 1995 and 1994 and the period from December 15,
1993 through December 31, 1993;
Royce Low-Priced Stock Fund -- Notes to Financial Statements -- Report
of Independent Accountants dated February 7, 1996;
Royce Total Return Fund -- Schedule of Investments at December 31, 1995;
Royce Total Return Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Total Return Fund -- Statement of Changes in Net Assets for the
year ended December 31, 1995 and 1994;
Royce Total Return Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Total Return Fund -- Financial Highlights for the years ended
December 31, 1995 and 1994 and the period from December 15, 1993
through December 31, 1993;
Royce Total Return Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce GiftShares Fund -- Schedule of Investments at December 31, 1995;
Royce GiftShares Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce GiftShares Fund -- Statement of Changes in Net Assets for the
period from December 27, 1995 through December 31, 1995;
Royce GiftShares Fund -- Statement of Operations for the period from
December 27, 1995 through December 31, 1995;
Royce GiftShares Fund -- Financial Highlights for the period from
December 27, 1995 through December 31, 1995;
Royce GiftShares Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996.
Royce GiftShares Fund -- Schedule of Investments at June 30, 1996
(unaudited);
Royce GiftShares Fund -- Statement of Assets and Liabilities at June 30,
1996 (unaudited);
Royce GiftShares Fund -- Statement of Changes in Net Assets for the
six months ended June 30, 1996 (unaudited);
Royce GiftShares Fund -- Statement of Operations for the six months
ended June 30, 1996 (unaudited);
Royce GiftShares Fund -- Financial Highlights for the six months
ended June 30, 1996 (unaudited);
Royce GiftShares Fund -- Notes to Financial Statements (unaudited);
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
Royce Value Fund -- Schedule of Investments at December 31, 1995;
Royce Value Fund -- Statement of Assets and Liabilities at
December 31, 1995;
Royce Value Fund -- Statement of Changes in Net Assets for the years
ended December 31, 1995 and 1994;
Royce Value Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Value Fund -- Financial Highlights for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991;
Royce Value Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 7, 1996;
Royce Global Services Fund -- Schedule of Investments at December 31, 1995;
Royce Global Services Fund -- Statement of Assets and Liabilities
at December 31, 1995;
Royce Global Services Fund -- Statement of Changes in Net Assets for the
year ended December 31, 1995 and the period from December 15, 1994
through December 31, 1994;
Royce Global Services Fund -- Statement of Operations for the year ended
December 31, 1995;
Royce Global Services Fund -- Financial Highlights for the year ended
December 31, 1995 and the period from December 15, 1994 through
December 31, 1994;
Royce Global Services Fund -- Notes to Financial Statements -- Report
of Independent Accountants dated February 7, 1996;
The REvest Growth & Income Fund -- Schedule of Investments at
December 31, 1996;
The REvest Growth & Income Fund -- Statement of Assets and Liabilities
at December 31, 1996;
The REvest Growth & Income Fund -- Statement of Changes in Net Assets
for the years ended December 31, 1996, December 31, 1995 and the
period from December 15, 1994 through December 31, 1994;
The REvest Growth & Income Fund -- Statement of Operations for the year
ended December 31, 1996;
The REvest Growth & Income Fund -- Financial Highlights for the years
ended December 31, 1996, December 31, 1995 and the period from
December 15, 1994 through December 31, 1994;
The REvest Growth & Income Fund -- Notes to Financial Statements --
Report of Independent Accountants dated February 7, 1997;
Financial statements, schedules and historical information other than those
listed above have been omitted since they are either inapplicable or are not
required.
<PAGE>
Item 24. Financial Statements and Exhibits (Continued)
b. Exhibits:
The exhibits required by Items (1) through (3),
(6), (7), (9) through (12) and (14) through (16), to
the extent applicable to the Registrant, have been
filed with Registrant's initial Registration Statement
(No. 2-80348) and Post-Effective Amendment Nos. 4, 5,
6, 8, 9, 11, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23,
24, 26, 27, 28, 29, 30, 31, 32, 33, 34 and 35 thereto
and, with respect to Pennsylvania Mutual Fund, its
initial Registration Statement (No. 2-19995) and Post-
Effective Amendment Nos. 43, 45, 46, 47, 48, 49, 51,
52, 53, 56, and 58, and are incorporated by reference
herein.
(5) Amendment to Investment Advisory Agreement between
Quest Advisory Corp. and The Royce Fund on behalf of
The REvest Growth & Income Fund dated December 31,
1996.
(11) Consent of Coopers & Lybrand L.L.P. relating to
The REvest Growth & Income Fund.
(16) Schedule For Computation Of Performance Quotations
Provided in Item 22.
(17) Financial Data Schedule.
Item 25. Persons Controlled by or Under Common Control With
Registrant
There are no persons directly or indirectly controlled
by or under common control with the Registrant.
Item 26. Number of Holders of Securities
As of January 31, 1997, the number of record holders of
shares of each Fund of the Registrant was as follows:
Title of Fund Number of Record Holders
Pennsylvania Mutual Fund 17,450
PMF II 1,068
Royce Value Fund 6,645
Royce Premier Fund 10,405
Royce Equity Income Fund 1,581
Royce Micro-Cap Fund 7,103
Royce Low-Priced Stock Fund 1,170
Royce Total Return Fund 1,109
Royce Global Services Fund 74
The REvest Growth and Income Fund 544
Royce GiftShares Fund 58
Royce Financial Services Fund 1
<PAGE>
Item 27. Indemnification
(a) Article XI of the Declaration of Trust of the
Registrant provides as follows:
"ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Section l. Provided they have exercised
reasonable care and have acted under the belief that
their actions are in the best interest of the Trust,
the Trustees shall not be responsible for or liable in
any event for neglect or wrongdoing of any other
Trustee or any officer, employee, agent or Investment
Adviser, Principal Underwriter, transfer agent,
custodian or other independent contractor of the Trust,
but nothing contained herein shall protect any Trustee
against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith,
gross negligence in the performance of his duties or
reckless disregard of the obligations and duties
involved in the conduct of his office.
Every note, bond, contract, instrument,
certificate or undertaking and every other act or thing
whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with
the Trust shall be conclusively deemed to have been
executed or done only in or with respect to their or
his capacity as Trustees or Trustee, and such Trustees
or Trustee shall not be personally liable thereon.
INDEMNIFICATION
Section 2.
(a) Subject to the exceptions and
limitations contained in Section 2(b) below:
(i) Every person who is, or has been,
a Trustee or officer of the Trust (including persons
who serve at the Trust's request as directors, officers
or trustees of another entity in which the Trust has
any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") shall
be indemnified by the appropriate Fund to the fullest
extent not prohibited by law against liability and
against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred
by him in the settlement thereof; and
<PAGE>
Item 27. Indemnification (Continued)
(ii) The words "claim", "action", "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative, investigatory or other, including
appeals), actual or threatened, while in office or thereafter,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided
hereunder to a Covered Person:
(i) Who shall, in respect of the
matter or matters involved, have been adjudicated by a
court or body before which the proceeding
was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad
faith, gross negligence in the performance of his
duties or reckless disregard of the obligations and
duties involved in the conduct of his office or (B) not
to have acted in the belief that his action was in the
best interest of the Trust; or
(ii) In the event of a settlement,
unless there has been a determination that such Trustee
or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office,
(A) By the court or other body
approving the settlement;
(B) By a majority of those
Trustees who are neither Interested Persons of the
Trust nor are parties to the matter, based upon a
review of readily available facts (as opposed to a full
trial-type inquiry); or
(C) By written opinion of
independent legal counsel, based upon a review of
readily available facts (as opposed to a full
trial-type inquiry).
(c) The rights of indemnification herein
provided may be insured against by policies maintained
by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any
Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of
the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel,
other than Trustees and officers, and other persons may
be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation
and presentation of a
<PAGE>
Item 27. Indemnification (Continued)
defense to any claim, action, suit or proceeding of the type
described in subsection (a) of this Section 2 may be paid by the
applicable Fund from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him to the
applicable Fund if and when it is ultimately determined that he
is not entitled to indemnification under this Section 2;
provided, however, that either (i) such Covered Person shall have
provided appropriate security for such undertaking, (ii) the
Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are
neither Interested Persons of the Trust nor parties to the
matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts
(as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found
entitled to indemnification under this Section 2."
(b)(1) Paragraph 8 of the Investment Advisory
Agreements by and between the Registrant and Quest Advisory Corp.
provides as follows:
"8. Protection of the Adviser. The Adviser shall
not be liable to the Fund or to any portfolio series thereof for
any action taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment
adviser of the Fund or such series, and the Fund or each
portfolio series thereof involved, as the case may be, shall
indemnify the Adviser and hold it harmless from and against all
damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement)
incurred by the Adviser in or by reason of any pending,
threatened or completed action, suit, investigation or other
proceeding (including an action or suit by or in the right of the
Fund or any portfolio series thereof or its security holders)
arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment
adviser of the Fund or such series. Notwithstanding the
preceding sentence of this Paragraph 8 to the contrary, nothing
contained herein shall protect or be deemed to protect the
Adviser against or entitle or be deemed to entitle the Adviser to
indemnification in respect of, any liability to the Fund or to
any portfolio series thereof or its security holders to which the
Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of its reckless disregard of its duties
and obligations under this Agreement.
Determinations of whether and the extent to which the
Adviser is entitled to indemnification hereunder shall be made by
reasonable and fair means, including (a) a final decision on the
merits by a court or other body before whom the action, suit or
other proceeding was brought that the Adviser was not liable by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties or (b) in the absence of such a
decision, a reasonable determination, based upon a review of the
facts, that the Adviser was not liable by reason of such
misconduct by (i) the vote of a majority of a quorum of the
Trustees of the Fund who are neither "interested persons" of the
Fund (as defined in Section 2(a)(19) of the Investment Company
Act of 1940) nor parties to the action, suit or other proceeding
or (ii) an independent legal counsel in a written opinion."
<PAGE>
Item 27. Indemnification (Continued)
(b)(2) Paragraph 8 of the Investment Advisory
Agreement by and between the Registrant and Royce, Ebright &
Associates, Inc. provides as follows:
"8. Protection of the Adviser. The Adviser
shall not be liable to the Fund or to any portfolio
series thereof for any action taken or omitted to be
taken by the Adviser in connection with the performance
of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the
Fund or such series, and the Fund or each portfolio
series thereof involved, as the case may be, shall
indemnify the Adviser and hold it harmless from and
against
all damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid
in settlement) incurred by the Adviser in or by reason
of any pending, threatened or completed action, suit,
investigation or other proceeding (including an action
or suit by or in the right of the Fund or any portfolio
series thereof or its security holders) arising out of
or otherwise based upon any action actually or
allegedly taken or omitted to be taken by the Adviser
in connection with the performance of any of its duties
or obligations under this Agreement or otherwise as an
investment adviser of the Fund or such series.
Notwithstanding the preceding sentence of this
Paragraph 8 to the contrary, nothing contained herein
shall protect or be deemed to protect the Adviser
against or entitle or be deemed to entitle the Adviser
to indemnification in respect of, any liability to the
Fund or to any portfolio series thereof or its security
holders to which the Adviser would otherwise be subject
by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its
duties and obligations under this Agreement.
Determinations of whether and the extent to which
the Adviser is entitled to indemnification hereunder
shall be made by reasonable and fair means, including
(a) a final decision on the merits by a court or other
body before whom the action, suit or other proceeding
was brought that the Adviser was not liable by reason
of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties or (b) in the absence
of such a decision, a reasonable determination, based
upon a review of the facts, that the Adviser was not
liable by reason of such misconduct by (i) the vote of
a majority of a quorum of the Trustees of the Fund who
are neither "interested persons" of the Fund (as
defined in Section 2(a)(19) of the Investment Company
Act of 1940) nor parties to the action, suit or other
proceeding or (ii) an independent legal counsel in a
written opinion."
<PAGE>
Item 27. Indemnification (Continued)
(c) Paragraph 9 of the Distribution Agreement made
October 31, 1985 by and between the Registrant and Quest
Distributors, Inc. provides as follows:
"9. Protection of the Distributor. The
Distributor shall not be liable to the Fund or to any series
thereof for any action taken or omitted to be taken by the
Distributor in connection with the performance of any of its
duties or obligations under this Agreement or otherwise as an
underwriter of the Shares, and the Fund or each portfolio series
thereof involved, as the case may be, shall indemnify the
Distributor and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys'
fees and amounts reasonably paid in settlement) incurred by the
Distributor in or by reason of any pending, threatened or
completed action, suit, investigation or other proceeding
(including an action or suit by or in the right of the Fund or
any series thereof or its security holders) arising out of or
otherwise based upon any action actually or allegedly taken or
omitted to be taken by the Distributor in connection with the
performance of any of its duties or obligations under this
Agreement or otherwise as an underwriter of the Shares.
Notwithstanding the preceding sentences of this Paragraph 9 to
the contrary, nothing contained herein shall protect or be deemed
to protect the Distributor against, or entitle or be deemed to
entitle the Distributor to indemnification in respect of, any
liability to the Fund or to any portfolio series thereof or its
security holders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its
reckless disregard of its duties and obligations under this
Agreement. Determinations of whether and to the extent to which
the Distributor is entitled to indemnification hereunder shall be
made by reasonable and fair means, including (a) a final decision
on the merits by a court or other body before whom the action,
suit or other proceeding was brought that the Distributor was not
liable by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or (b) in the
absence of such a decision, a reasonable determination, based
upon a review of the facts, that the Distributor was not liable
by reason of such misconduct by (a) the vote of a majority of a
quorum of the Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of the 1940
Act) nor parties to the action, suit or other proceeding or (b)
an independent legal counsel in a written opinion."
Item 28. Business and Other Connections of Investment Advisers
Reference is made to the filings on Schedule D to the
Applications on Form ADV, as amended, of Quest Advisory Corp. and
Royce, Ebright & Associates, Inc. for Registration as Investment
Advisers under the Investment Advisers Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any
principal underwriters.
<PAGE>
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company
Act of 1940, are maintained at the following locations:
The Royce Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts
trust company ("State Street"), provides certain
management-related services to the Registrant pursuant to a
Custodian Contract made as of December 31, 1985 between the
Registrant and State Street. Under such Custodian Contract,
State Street, among other things, has contracted with the
Registrant to keep books of accounts and render such statements
as agreed to in the then current mutually-executed Fee Schedule
or copies thereof from time to time as requested by the
Registrant, and to assist generally in the preparation of reports
to holders of shares of the Registrant, to the Securities and
Exchange Commission and to others, in the auditing of accounts
and in other ministerial matters of like nature as agreed to
between the Registrant and State Street. All of these services
are rendered pursuant to instructions received by State Street
from the Registrant in the ordinary course of business.
Registrant paid the following fees to State Street for
services rendered pursuant to the Custodian Contract, as amended,
for each of the three (3) fiscal years ended December 31:
1996: $468,735
1995: $335,180
1994: $309,492
<PAGE>
Item 32. Undertakings
Registrant hereby undertakes to furnish each person to
whom a prospectus for any series of the Registrant is delivered
with a copy of the latest annual report to shareholders of such
series upon request and without charge.
Registrant hereby undertakes to call a special meeting
of the Registrant's shareholders upon the written request of
shareholders owning at least 10% of the outstanding shares of the
Registrant for the purpose of voting upon the question of the
removal of a trustee or trustees and, upon the written request of
10 or more shareholders of the Registrant who have been such for
at least 6 months and who own at least 1% of the outstanding
shares of the Registrant, to provide a list of shareholders or to
disseminate appropriate materials at the expense of the
requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment to
the Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
New York, and State of New York, on the 14th day of February, 1997.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of
Rule 485 under the Securities Act of 1933 and that no material event
requiring disclosure in the prospectus, other than on listed in paragraph
(b)(1) of such Rule or one for which the Commission has approved a filing
under paragraph (b)(1)(ix) of the Rule, has occurred since the latest of
the following three dates: (i) the effective date of the Registrant's
Registration Statement; (ii) the effective date of the Registrant's most
recent Post-Effective Amendment to its Registration Statement which
included a prospectus; or (iii) the filing date of a post-effective
amendment filed under paragraph (a) of Rule 485 which has not become
effective.
THE ROYCE FUND
By: S/CHARLES M. ROYCE
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-Effective Amendment to the
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
S/CHARLES M. ROYCE President, Treasurer 2/14/97
Charles M. Royce and Trustee
(Principal Executive,
Accounting
and Financial Officer)
S/HUBERT L. CAFRITZ
Hubert L. Cafritz Trustee 2/14/97
S/THOMAS R. EBRIGHT
Thomas R. Ebright Trustee 2/14/97
S/RICHARD M. GALKIN
Richard M. Galkin Trustee 2/14/97
S/STEPHEN L. ISAACS
Stephen L. Isaacs Trustee 2/14/97
S/WILLIAM L. KOKE
William L. Koke Trustee 2/14/97
S/DAVID L. MEISTER
David L. Meister Trustee 2/14/97
NOTICE
A copy of the Declaration of Trust of The Royce Fund is on file with
the Secretary of State of the State of Delaware, and notice is hereby given
that this instrument is executed on behalf of the Registrant by an officer
of the Registrant as an officer and not individually and that the
obligations of or arising out of this instrument are not binding upon any
of the Trustees or shareholders individually but are binding only upon the
assets and property of the Registrant.
<PAGE>
THE ROYCE FUND
(THE REvest GROWTH & INCOME FUND)
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT for The
REvest Growth & Income Fund (the "Series") made this 31st
day of December, 1996, by and between The Royce Fund (the
"Fund") and Royce, Ebright & Associates, Inc., (the
"Adviser").
The Fund and the Adviser hereby agree that Section 4 of
the Investment Advisory Agreement for the Series is hereby
amended, effective as of and from January 1, 1997, to read
as follows:
"Compensation of the Adviser. The Fund agrees to
cause the Series to pay to the Adviser, and the Adviser
agrees to accept, as compensation for the services provided
by the Adviser hereunder, advisory fees equal to 1% per
annum of the first $50,000,000 of the Series' average net
assets plus 0.75% per annum of any additional average net
assets of the series over $50,000,000. For purposes of
calculating these fees, average net assets will mean the
average net assets of the Series at the close of business on
each day that the value of its net assets is computed during
the year. However, the Fund and the Adviser may agree in
writing to temporarily or permanently reduce such fee. Such
compensation shall be accrued on the Series' books at the
close of business on each day that the value of its net
assets is computed during each year and shall be payable to
the Adviser monthly, on the last day of each month, and
adjusted as of year-end if required."
All other terms of such Investment Advisory Agreement
shall remain the same.
Dated this 31st day of December, 1996.
ROYCE, EBRIGHT & ASSOCIATES, INC.
By: S/THOMAS R. EBRIGHT
President
Title
THE ROYCE FUND
By: S/CHARLES M. ROYCE
President
Title
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To The Board of Trustees of The Royce Fund and
Shareholders of The REvest Growth & Income Fund:
We consent to the reference to our Firm in Post-Effective
Amendment No. 40 to the Registration Statement of The REvest
Growth & Income Fund a series of The Royce Fund on Form N-1A
(File No. 2-80348) under the Securities Act of 1933 and Post-
Effective Amendment No. 42 (File No. 811-3599) under the
Investment Company Act of 1940. We further consent to the
reference to our Firm under the heading "Independent
Accountants" in the Statement of Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 14, 1997
<PAGE>
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial
investment in The REvest Growth & Income Fund of the Trust by
applying the "Annual Total Return" and the "Average Annual Total
Return" percentages set forth in Item 22 of this Registration
Statement to the following total return formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 investment made at the
beginning of the 1, 5 or 10 year or other
periods at the end of the 1, 5 or 10 year or
other periods.
The REvest Growth & Income Fund
(a) 1 Year Ending Redeemable Value
("ERV") of a $1,000 investment for the one
year period ended December 31, 1996:
$1,000 (1+ .2227)1 = $1,222.70 ERV
(b) ERV of a $1,000 investment for
the period from the Fund's inception on
August 1, 1994 through December 31, 1996:
$1,000 (1+ 14.25)2.4167 = $1,379.82 ERV
<PAGE>
[ARTICLE] 6
[CIK] 0000709364
[NAME] THE ROYCE FUND
[SERIES]
[NUMBER] 9
[NAME] THE REVEST GROWTH & INCOME FUND
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 34799635
[INVESTMENTS-AT-VALUE] 42132204
[RECEIVABLES] 224993
[ASSETS-OTHER] 37879
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 42395076
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 296229
[TOTAL-LIABILITIES] 296229
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 34789375
[SHARES-COMMON-STOCK] 3448
[SHARES-COMMON-PRIOR] 3336
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 11703
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 14842
[ACCUM-APPREC-OR-DEPREC] 7332569
[NET-ASSETS] 42098847
[DIVIDEND-INCOME] 829917
[INTEREST-INCOME] 327767
[OTHER-INCOME] 0
[EXPENSES-NET] 487230
[NET-INVESTMENT-INCOME] 670454
[REALIZED-GAINS-CURRENT] 2201712
[APPREC-INCREASE-CURRENT] 4806560
[NET-CHANGE-FROM-OPS] 7008272
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 675154
[DISTRIBUTIONS-OF-GAINS] 2223159
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4876471
[NUMBER-OF-SHARES-REDEEMED] 6064607
[SHARES-REINVESTED] 2702689
[NET-CHANGE-IN-ASSETS] 6294966
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 6589
[OVERDISTRIB-NII-PRIOR] 6056
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 375493
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 487230
[AVERAGE-NET-ASSETS] 37761784
[PER-SHARE-NAV-BEGIN] 10.73
[PER-SHARE-NII] .21
[PER-SHARE-GAIN-APPREC] 2.16
[PER-SHARE-DIVIDEND] .21
[PER-SHARE-DISTRIBUTIONS] .68
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.21
[EXPENSE-RATIO] 1.29
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
THE ROYCE FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
February 14, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Royce Fund
Registration No. 2-80348
File No. 811-3599
Gentlemen:
I have reviewed Post-Effective Amendment No. 40 to the
Registration Statement on Form N-1A of The Royce Fund (the
"Fund") under the Securities Act of 1933, as amended (the "Act"),
which is to be filed by the Fund with the Commission pursuant to
paragraph (b) of Rule 485 under the Act. This is to advise you
that it is my judgment that such Post-Effective Amendment does
not contain disclosures which would render it ineligible to
become effective pursuant to paragraph (b) of said Rule.
Sincerely,
S/JOHN E. DENNEEN
John E. Denneen
Associate General Counsel
