As filed with the Securities and Exchange Commission on April 22, 1997
Registration Nos. 2-80348 and 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. 41 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 43 /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)
/ / immediately upon filing pursuant to paragraph (b)
/x/ on April 30, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Royce Fund has registered an indefinite number of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Its 24f-2 Notice for its most
recent fiscal year was filed on February 27, 1997.
Total number of pages:
Index to Exhibits is located on 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 Proceeding .......... *
CAPTION or Location in
Item of Form N-1A Statement 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>
THE ROYCE FUNDS
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<TABLE>
<S> <C>
ROYCE PREMIER FUND ROYCE GIFTSHARES FUND
ROYCE MICRO-CAP FUND ROYCE TOTAL RETURN FUND
PENNSYLVANIA MUTUAL FUND -- ROYCE LOW-PRICED STOCK FUND
INVESTMENT CLASS ROYCE GLOBAL SERVICES FUND
PMF II
</TABLE>
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PROSPECTUS -- APRIL 30, 1997
- --------------------------------------------------------------------------------
NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-221-4268
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR
SERVICES -- 1-800-33-ROYCE
- --------------------------------------------------------------------------------
The Funds listed above are series of The Royce Fund (the 'Trust'), a
diversified open-end management investment company. The Funds share an
investment focus on small capitalization companies that are selected on a
value basis. The Trust is currently offering shares of eleven series. This
Prospectus relates to the above Funds and Classes only. Shares of other Fund
classes are generally offered only through certain broker-dealers.
Please call Investor Information at 1-800-221-4268 for information on such
classes.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Fund Expenses..................................... 2
Financial Highlights.............................. 3
Investment Performance and Volatility............. 6
Investment Objectives............................. 7
Investment Policies............................... 8
Investment Risks.................................. 11
Investment Limitations............................ 14
Management of the Trust........................... 16
General Information............................... 17
Royce GiftShares Fund Investors................... 17
Dividends, Distributions and Taxes................ 19
Net Asset Value Per Share......................... 20
SHAREHOLDER GUIDE
Opening an Account and Purchasing Shares.......... 21
Choosing a Distribution Option.................... 23
Important Account Information..................... 23
Redeeming Shares.................................. 25
Exchange Privilege................................ 27
Transferring Ownership............................ 27
Statements and Reports............................ 27
</TABLE>
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<TABLE>
<S> <C>
ABOUT THIS PROSPECTUS This Prospectus sets forth concisely the information that you should know about a Fund before
you invest. It should be retained for future reference. A Statement of Additional Information
dated April 30, 1997, containing further information about the Funds and the Trust, has been
filed with the Securities and Exchange Commission and incorporated by reference into this
Prospectus. A copy may be obtained without charge by writing to the Trust or calling Investor
Information.
If you are viewing the electronic version of this Prospectus through an online computer
service, you may request a printed version free of charge by calling Investor Information.
The E-mail address for The Royce Funds is [email protected], and the Internet Home Page is
http://www.roycefunds.com
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<PAGE>
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<TABLE>
<S> <C> <C>
FUND EXPENSES The following table summarizes all expenses and fees that you would incur as a shareholder of
the Funds.
Shareholder Transaction Expenses and Other Costs
The Funds are Sales Load Imposed on Purchases...................................................... None
no-load, and no Sales Load Imposed on Reinvested Dividends........................................... None
12b-1 fees are Deferred Sales Load.................................................................. None
being charged Redemption Fee -- on purchases held for 1 year or more............................... None
Early Redemption Fee -- on purchases held for less than 1 year....................... 1%*
Annual Trustee's Fee (Royce GiftShares Fund only).................................... $50
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
--------------------------------------------------------------------------------------
Management
Fees** 12b-1 Fees** Total Operating
(after (after Other Expenses**
waivers) waivers) Expenses (after waivers)
---------- ------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
Royce Premier Fund................ .97% None .28% 1.25%
Royce Micro-Cap Fund.............. 1.33 None .36 1.69
Pennsylvania Mutual Fund --
Investment Class................ .80 None .23 1.03
PMF II............................ .34 None .65 .99
Royce GiftShares Fund............. .00 None 1.50 1.50
Royce Total Return Fund........... .30 .00% .95 1.25
Royce Low-Priced Stock Fund....... .88 .00 .81 1.69
Royce Global Services Fund........ .13 .00 1.56 1.69
The purpose of the above tables is to assist you in understanding the various costs
and expenses that you would bear directly or indirectly as an investor in the Funds.
The following examples illustrate the expenses that you would incur on a $1,000
investment over various periods, assuming a 5% annual rate of return and redemption at
the end of each period. THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN
THOSE SHOWN.
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Royce Premier Fund.................................... $ 13 $40 $69 $151
Royce Micro-Cap Fund.................................. 17 53 92 200
Pennsylvania Mutual Fund -- Investment Class.......... 10 32 55 121
PMF II................................................ 10 32 55 121
Royce GiftShares Fund***.............................. 15 47 82 179
Royce Total Return Fund............................... 13 40 69 151
Royce Low-Priced Stock Fund........................... 17 53 92 200
Royce Global Services Fund............................ 17 53 92 200
---------------------
* Early redemption fee does not apply to Royce GiftShares Fund.
** Management Fees would have been 1.00%, 1.50%, 1.00%, 1.25%, 1.00%, 1.50% and 1.50% for
Royce Premier, Micro-Cap, PMF II, GiftShares, Total Return, Low-Priced Stock and Global
Services Funds, respectively; 12b-1 Fees would have been .25% for Royce Total Return,
Low-Priced Stock and Global Services Funds; and Total Operating Expenses would have been
1.28%, 1.87%, 1.97%, 6.53%, 2.23%, 2.59%, and 3.31% for Royce Premier, Micro-Cap, PMF II,
GiftShares, Total Return, Low-Priced Stock and Global Services Fund, respectively, without
waivers of management fees and, for Royce GiftShares Fund, expense reimbursement by Quest
Advisory Corp. ('Quest'), the Funds' investment adviser, and of 12b-1 fees by Quest
Distributors, Inc. ('QDI'), the Funds' distributor. For more information on GiftShares -- see
'General Information.' Quest and QDI have committed to waive their fees to the extent
necessary to maintain Total Operating Expenses of the Funds other than Pennsylvania Mutual at
or below the percentages set forth in the above table through December 31, 1997.
*** Exclusive of Royce GiftShares Fund's $50 annual trustee's fee per account. For trust
accounts opened during 1997, Quest will pay that portion of the currently effective annual
trustee's fee in excess of $50 per account and the trustee's fees for establishing and
terminating the accounts.
</TABLE>
2
<PAGE>
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<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS The following financial highlights are part of the Funds' financial statements and have been
audited by Coopers & Lybrand L.L.P., independent accountants. The Funds' financial statements
and Coopers & Lybrand L.L.P.'s reports on them are included in the Funds' Annual Reports to
Shareholders and are incorporated by reference into the Statement of Additional Information
and this Prospectus. Further information about the Funds' performance is contained elsewhere
in this Prospectus and in the Funds' Annual Reports to Shareholders for 1996, which may be
obtained without charge by calling Investor Information.
</TABLE>
<TABLE>
<CAPTION>
ROYCE PREMIER ROYCE MICRO-CAP
---------------------------------------------------- -----------------------------
Year ended December 31, Year ended December 31,
---------------------------------------------------- -----------------------------
1996 1995 1994 1993 1992 1996 1995 1994
------ ------ ------ ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR. $7.12 $6.48 $6.41 $5.52 $5.00 $7.53 $6.48 $6.47
------ ------ ------ ------- ------- ------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss)(1)... 0.10 0.10 0.06 0.02 0.02 (0.01) 0.00 0.00
Net realized and unrealized gain
(loss) on investments........... 1.18 1.05 0.15 1.03 0.77 1.17 1.24 0.23
------ ------ ------ ------- ------- ------ ------- ------
Total from Investment
Operations.................. 1.28 1.15 0.21 1.05 0.79 1.16 1.24 0.23
------ ------ ------ ------- ------- ------ ------- ------
LESS DISTRIBUTIONS
Dividends paid from net investment
income.......................... (0.10) (0.09) (0.05) (0.02) (0.02) (0.00) (0.00) (0.00)
Distributions paid from capital
gains........................... (0.49) (0.42) (0.09) (0.14) (0.25) (0.55) (0.19) (0.22)
------ ------ ------ ------- ------- ------ ------- ------
Total Distributions........... (0.59) (0.51) (0.14) (0.16) (0.27) (0.55) (0.19) (0.22)
------ ------ ------ ------- ------- ------ ------- ------
NET ASSET VALUE, END OF YEAR.......... $7.81 $7.12 $6.48 $6.41 $5.52 $8.14 $7.53 $6.48
====== ====== ====== ======= ======= ====== ======= =======
TOTAL RETURN.......................... 18.1% 17.8% 3.3% 19.0% 15.8% 15.5% 19.1% 3.6%
====== ====== ====== ======= ======= ====== ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(millions)...................... $317 $302 $202 $47 $2 $141 $98 $27
Ratio of Expenses to Average Net
Assets(1)....................... 1.25% 1.25% 1.38% 1.50% 1.77% 1.79% 1.94% 1.99%
Ratio of Net Investment Income
(Loss) to Average Net
Assets(1)....................... 1.25% 1.48% 1.19% 0.68% 0.53% (0.20%) 0.10% 0.02%
Portfolio Turnover Rate........... 34% 39% 38% 85% 116% 70% 25% 54%
Average Commission Rate Paid`D'... $.0621 $.0476
<CAPTION>
ROYCE MICRO-CAP
------------------
Year ended December 31,
-----------------------
1993 1992
------- ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.... $5.83 $5.00
------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss)(1)... 0.00 (0.01)
Net realized and unrealized gain
(loss) on investments........... 1.38 1.48
------- ------
Total from Investment
Operations.................. 1.38 1.47
------- ------
LESS DISTRIBUTIONS
Dividends paid from net investment
income.......................... (0.00) (0.00)
Distributions paid from capital
gains........................... (0.74) (0.64)
------- ------
Total Distributions........... (0.74) (0.64)
------- ------
NET ASSET VALUE, END OF YEAR.......... $6.47 $5.83
======= ======
TOTAL RETURN.......................... 23.7% 29.4%
======= ======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(millions)...................... $10 $3
Ratio of Expenses to Average Net
Assets(1)....................... 1.99% 1.69%
Ratio of Net Investment Income
(Loss) to Average Net
Assets(1)....................... (0.09%) (0.21%)
Portfolio Turnover Rate........... 116% 171%
Average Commission Rate Paid`D'...
</TABLE>
- ---------------------
(1)Net investment income and expense ratios are shown after waiver of fees by
the investment adviser and distributor. Expense ratios before fee waivers would
have been 1.28%, 1.68% and 4.17% for 1996, 1993 and 1992, respectively, for
Royce Premier Fund, and 1.87%, 1.97%, 2.34%, 2.49% and 3.77% for 1996, 1995,
1994, 1993 and 1992, respectively, for Royce Micro-Cap Fund.
`D'Beginning in 1996, the Funds are required to disclose average commission
rates paid per share for purchases and sales of investments.
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA MUTUAL FUND -- INVESTMENT CLASS
----------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $7.71 $7.41 $8.31 $8.00 $7.29 $5.78 $6.85 $6.41 $5.47 $6.98
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......... 0.11 0.11 0.12 0.11 0.11 0.12 0.17 0.21 0.14 0.14
Net realized and unrealized
gain (loss) on investments... 0.84 1.27 (0.18) 0.79 1.07 1.72 (0.96) 0.86 1.20 (0.02)
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
Total from Investment
Operations............... 0.95 1.38 (0.06) 0.90 1.18 1.84 (0.79) 1.07 1.34 0.12
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
LESS DISTRIBUTIONS
Dividends paid from net
investment income............ (0.11) (0.11) (0.11) (0.11) (0.10) (0.12) (0.16) (0.22) (0.12) (0.33)
Distributions paid from capital
gains........................ (1.44) (0.97) (0.73) (0.48) (0.37) (0.21) (0.12) (0.41) (0.28) (1.30)
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
Total Distributions........ (1.55) (1.08) (0.84) (0.59) (0.47) (0.33) (0.28) (0.63) (0.40) (1.63)
------ ------ ------ ------ ------ ------ ------- ------ ------ ------
NET ASSET VALUE, END OF YEAR....... $7.11 $7.71 $7.41 $8.31 $8.00 $7.29 $5.78 $6.85 $6.41 $5.47
====== ====== ====== ====== ====== ====== ======= ====== ====== ======
TOTAL RETURN....................... 12.8% 18.7% -0.7% 11.3% 16.2% 31.8% -11.5% 16.7% 24.6% 1.4%
====== ====== ====== ====== ====== ====== ======= ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(millions)................... $457 $630 $771 $1,022 $1,102 $789 $549 $550 $444 $277
Ratio of Expenses to
Average Net Assets(1)........ .99% .98% .98% .98% .91% .95% .96% .97% 1.01% .99%
Ratio of Net Investment Income
to Average Net Assets........ 1.05% 1.18% 1.33% 1.23% 1.48% 1.73% 2.62% 2.93% 2.35% 2.02%
Portfolio Turnover Rate........ 29% 10% 17% 24% 22% 29% 15% 23% 24% 23%
Average Commission Rate
Paid`D'...................... $.0588
<CAPTION>
PMF II
------------
Period ended
December 31,
------------
1996
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF
YEAR............................. $5.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.......... 0.00
Net realized and unrealized
gain (loss) on investments... 0.26
------
Total from Investment
Operations............... 0.26
------
LESS DISTRIBUTIONS
Dividends paid from net
investment income............ (0.00)
Distributions paid from capital
gains........................ (0.00)
------
Total Distributions........ (0.00)
------
NET ASSET VALUE, END OF YEAR....... $5.26
======
TOTAL RETURN....................... 5.2%
======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year
(millions)................... $18
Ratio of Expenses to
Average Net Assets(1)........ .97%*
Ratio of Net Investment Income
to Average Net Assets........ .83%*
Portfolio Turnover Rate........ 1%
Average Commission Rate
Paid`D'...................... $.0586
</TABLE>
- ---------------------
(1) Expense ratios before waivers of fees by the investment adviser would have
been 1.03% and .99% for 1996 and 1995, respectively, for Pennsylvania Mutual
Fund and 1.97% for the period ended December 31, 1996 for PMF II (inception date
November 19, 1996).
* Annualized.
`D'Beginning in 1996, the Funds are required to disclose average commission
rates paid per share for purchases and sales of investments.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ROYCE GIFTSHARES ROYCE TOTAL RETURN
----------------------------- ---------------------------------------------
Year ended Period ended Year ended December 31, Period ended
December 31, December 31, December 31,
------------ ------------ ---------------------------- ------------
1996 1995(2) 1996 1995 1994 1993(3)
------------ ------------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
$5.01 $5.00 $5.76 $5.12 $5.00 $5.00
------ ------ ------ ------ ------ ------
0.00 0.00 0.14 0.13 0.02 0.00
1.27 0.01 1.28 1.24 0.24 0.00
------ ------ ------ ------ ------ ------
1.27 0.01 1.42 1.37 0.26 0.00
------ ------ ------ ------ ------ ------
(0.00) (0.00) (0.16) (0.13) (0.02) (0.00)
(0.45) (0.00) (0.73) (0.60) (0.12) (0.00)
------ ------ ------ ------ ------ ------
(0.45) (0.00) (0.89) (0.73) (0.14) (0.00)
------ ------ ------ ------ ------ ------
$5.83 $5.01 $6.29 $5.76 $5.12 $5.00
====== ====== ====== ====== ====== ======
25.6% 0.2% 25.5% 26.9% 5.2% 0.00%
====== ====== ====== ====== ====== ======
$1 $.5 $6 $3 $2 $.5
1.49% .70%* 1.25% 1.67% 1.96% .29%*
(0.05%) 0%* 2.50% 2.42% 0.49% (0.29%)
93% 0% 111% 68% 88% 0%
$.0566 $.0605
<CAPTION>
ROYCE LOW-PRICED STOCK ROYCE GLOBAL SERVICES
------------------------------------------ ----------------------------------
Year ended Period ended Year ended Period ended
December 31, December 31, December 31, December 31,
------------------------- ------------ ----------------- ------------
1996 1995 1994 1993(3) 1996 1995 1994(4)
---- ------ ------ ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$5.62 $5.07 $5.01 $5.00 $5.68 $5.06 $5.00
----- ----- ------ ------ ------ ------ ------
(0.03) (0.00) (0.03) 0.00 0.01 0.00 0.00
1.31 1.14 0.18 0.01 0.81 1.07 0.06
----- ----- ------ ------ ------ ------ ------
1.28 1.14 0.15 0.01 0.82 1.07 0.06
----- ----- ------ ------ ------ ------ ------
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
(0.60) (0.59) (0.09) (0.00) (0.47) (0.45) (0.00)
----- ----- ------ ------ ------ ------ ------
(0.60) (0.59) (0.09) (0.00) (0.47) (0.45) (0.00)
----- ----- ------ ------ ------ ------ ------
$6.30 $5.62 $5.07 $5.01 $6.03 $5.68 $5.06
===== ===== ====== ====== ====== ====== ======
22.8% 22.5% 3.0% 0.2% 14.6% 21.2% 1.2%
===== ===== ====== ====== ====== ====== ======
$16 $4 $2 $.5 $2 $2 $.5
1.88% 1.97% 1.89% 0.29%* 1.56% 1.97% 1.78%*
(0.67%) (1.11%) (1.11%) (0.29%)* 0.17% (0.58%) 0.00%*
137% 114% 95% 0% 81% 106% 0%
$.0464 $.0591
</TABLE>
- ---------------------
(1)Expense ratios before waivers of fees and reimbursement of expenses by the
investment adviser and distributor would have been 6.53% and 1.95% for 1996 and
1995, respectively, for Royce GiftShares Fund; 2.23%, 2.38%, 3.21% and 2.04% for
1996, 1995, 1994 and 1993, respectively, for Royce Total Return Fund; 2.59%,
3.47%, 3.63% and 2.04% for 1996, 1995, 1994 and 1993, respectively, for Royce
Low-Priced Stock Fund; and 3.31%, 3.72% and 3.69% for 1996, 1995 and 1994,
respectively, for Royce Global Services Fund.
(2)From inception of the Fund on December 27, 1995.
(3)From inception of the Fund on December 15, 1993.
(4)From inception of the Fund on December 15, 1994.
* Annualized.
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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INVESTMENT The Funds may include in communications to current or prospective shareholders figures
PERFORMANCE reflecting total return over various time periods. 'Total return' is the rate of return on an
AND VOLATILITY amount invested in a Fund from the beginning to the end of the stated period. 'Average annual
total return' is the annual compounded percentage change in the value of an amount invested
Total return is the in a Fund from the beginning until the end of the stated period. Total returns are historical
change in value measures of past performance and are not intended to indicate future performance. Total
over a given time returns assume the reinvestment of all net investment income dividends and capital gains
period, assuming distributions. The figures do not reflect a Fund's early redemption fee because this fee
reinvestment of any applies only to redemptions of share purchases held for less than one year.
dividends and
capital gains Additionally, the performance of the Fund may be compared to (i) the performance of various
distributions indices and investments for which reliable performance data is available and (ii) averages,
performance rankings or other information prepared by recognized mutual fund statistical
services.
The Funds' average annual total returns for the periods ended December 31, 1996 were:
</TABLE>
<TABLE>
<CAPTION>
ONE THREE FIVE TEN TWENTY SINCE
YEAR YEAR YEAR YEAR YEAR INCEPTION INCEPTION DATE
---- ----- ---- ---- ------ --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Royce Premier......... 18.1% 12.9 % 14.7% -- -- 14.7% December 31, 1991
Royce Micro-Cap....... 15.5 12.5 17.9 -- -- 17.9 December 31, 1991
Pennsylvania Mutual... 12.8 10.0 11.5 11.4% 16.1% -- --
Royce GiftShares...... 25.6 -- -- -- -- 25.4 December 27, 1995
Royce Total Return.... 25.5 18.7 -- -- -- 18.4 December 15, 1993
Royce Low-Priced
Stock............... 22.8 15.7 -- -- -- 15.5 December 15, 1993
Royce Global
Services............ 14.6 -- -- -- -- 18.1 December 15, 1994
</TABLE>
<TABLE>
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'Risk' may be The relative risk of investing in a particular fund should be considered in addition to the
viewed as the total returns of the fund. Risk, in terms of how volatile an investor's returns have been,
volatility of a can be measured in a number of ways, including standard deviation and beta.
Fund's total returns
over time Standard deviation measures the range of performance within which a fund's total returns
have fallen. The lower the standard deviation of the fund the less volatile and more
consistent the fund's monthly total returns have been over that period. When the
standard deviation of a fund is lower than the standard deviation of an index such as
the S&P 500, the fund has been less volatile than the index.
Beta measures a fund's sensitivity to market movements. The beta for the index generally
chosen to represent the market (the S&P 500) is 1.00. If the fund has a beta greater
than 1.00, it has been more volatile than the index; if its beta is less than 1.00, it
has been less volatile than the index.
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These measures of risk, which are historical in nature and not necessarily predictive of
future volatility, are more fully described in the Statement of Additional Information. For
the three year period ended December 31, 1996, standard deviation and beta for the Funds, the
Russell 2000, an index representative of small capitalization company stocks, and the S&P 500
were:
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STANDARD
DEVIATION BETA
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Royce Premier....................... 7.46 .45
Royce Micro-Cap..................... 9.89 .46
Pennsylvania Mutual................. 8.07 .52
Royce Total Return.................. 6.90 .30
Royce Low-Priced Stock.............. 13.87 .51
Russell 2000........................ 12.10 .94
S&P 500............................. 9.72 1.00
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Investors evaluating these and other quantitative measures of risk should understand that the
risk profiles of the Funds' portfolios may change over time. The investment risks associated
with the types of securities in which the Funds may invest are described below -- see
'Investment Risks'.
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INVESTMENT Each Fund has different investment objectives and/or its own method of achieving its
OBJECTIVES objectives and is designed to meet different investor needs. Since certain risks are inherent
in owning any security, there can be no assurance that any of the Funds will achieve their
objectives.
ROYCE PREMIER FUND'S investment objectives are primarily long-term growth and secondarily
current income. It seeks to achieve these objectives through investments in a limited
portfolio of common stocks and convertible securities of companies viewed by Quest as having
superior financial characteristics and/or unusually attractive business prospects.
ROYCE MICRO-CAP FUND seeks long-term capital appreciation, primarily through investments in
common stocks and convertible securities of micro-cap companies. Production of income is
incidental to this objective.
PENNSYLVANIA MUTUAL FUND AND PMF II seek long-term capital appreciation. They do so primarily
through investments in common stocks and convertible securities of small and micro-cap
companies. Production of income is incidental to this objective.
ROYCE GIFTSHARES FUND, a special purpose fund, seeks long-term capital appreciation,
primarily through investments in a limited portfolio of common stocks and convertible
securities of small and micro-cap companies.
ROYCE TOTAL RETURN FUND'S investment objective is an equal focus on both long-term growth of
capital and current income. It seeks to achieve this objective through investments in a
broadly diversified portfolio of dividend-paying common stocks.
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ROYCE LOW-PRICED STOCK FUND's investment objective is long-term capital appreciation. It
seeks to achieve this objective primarily through investments in common stocks and
convertible securities of companies with shares that trade at prices below $15 per share.
ROYCE GLOBAL SERVICES FUND seeks long-term capital appreciation by investing primarily in
common stocks and convertible securities of domestic and foreign companies in service
industries.
These investment objectives are fundamental and may not be changed without the approval of a
majority of the Fund's outstanding voting shares.
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INVESTMENT Quest uses a 'value' method in managing the Funds' assets. In its selection process, Quest
POLICIES puts primary emphasis on the understanding of various internal returns indicative of
The Funds invest profitability, balance sheet quality, cash flows and the relationships that these factors
on a value basis have to the price of a given security.
The Funds invest Quest's value method is based on its belief that the securities of certain small companies
primarily in small may sell at a discount from its estimate of such companies' 'private worth,' that is, what a
and micro-cap knowledgeable buyer would pay for the entire company. Quest attempts to identify and invest
companies in these securities for each of the Funds, with the expectation that this 'value discount'
will narrow over time and thus provide capital appreciation for the Funds.
ROYCE PREMIER FUND
Normally, Royce Premier Fund will invest at least 80% of its assets in a limited number of
common stocks, convertible preferred stocks and convertible bonds. At least 65% of these
securities will be income-producing and/or issued by companies with stock market
capitalizations under $1 billion at the time of investment. The remainder of its assets may
be invested in securities of companies with higher stock market capitalizations,
non-dividend-paying common stocks and non-convertible preferred stocks and debt securities.
In its selection process for the Fund, Quest puts primary emphasis on companies with market
capitalizations between $300 million and $1 billion which have unusually strong returns on
assets, cash flows and balance sheets or unusual business strengths and/or prospects. Other
characteristics, such as a company's growth potential and valuation considerations, are also
used in selecting the Fund's investments.
ROYCE MICRO-CAP FUND
At least 80% of the assets of Royce Micro-Cap Fund will normally be invested in common stocks
and securities convertible into common stocks of small and micro-cap companies, and at least
65% of these securities will be issued by companies with stock market capitalizations under
$300 million at the time of investment. The remainder of its assets may be invested in
securities of companies with higher stock market capitalizations and non-convertible
preferred stocks and debt securities.
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PENNSYLVANIA MUTUAL FUND AND PMF II
Each of these Funds normally invests at least 65% of its assets in common stocks and
securities convertible into common stocks. Approximately equal weightings of small and
micro-cap companies (stock market capitalizations below $1 billion) are included in the
Funds' portfolios. In the upper end of this range, $300 million to $1 billion in stock market
capitalization, the Funds focus on a limited number of companies with superior financial
characteristics and/or unusually attractive business prospects, companies Quest classifies as
'premier.' The Funds also focus on companies at the lower end of the range, below $300
million, the sector known as 'micro-cap.'
ROYCE GIFTSHARES FUND
Royce GiftShares Fund will normally invest at least 80% of its assets in a limited number of
common stocks and convertible securities. At least 75% of these securities will be issued by
small (under $1 billion in market capitalization) and micro-cap (under $300 million)
companies. The remainder of its assets may be invested in securities of companies with higher
market capitalizations and non-convertible preferred stocks and debt securities.
Investments in Royce GiftShares Fund are suitable for making long-term gifts which may
qualify for the Federal annual gift tax exclusion and which may also be designed to help fund
the beneficiary's college and post-graduate education. See 'Royce GiftShares Fund Investors'
below for further information.
ROYCE TOTAL RETURN FUND
In accordance with its dual objective of capital appreciation (realized and unrealized) and
current income, Royce Total Return Fund will normally invest at least 80% of its assets in
common stocks. At least 90% of these securities will be dividend-paying, and at least 65% of
these securities will be issued by companies with stock market capitalizations under $1
billion at the time of investment. The remainder of the Fund's assets may be invested in
securities with higher stock market capitalizations, non-dividend-paying common stocks and
convertible and non-convertible securities. While most of the Fund's securities will be
income-producing, the composite yield of the Fund will vary and may be either higher or lower
than the composite yield of the stocks in the S&P 500.
ROYCE LOW-PRICED STOCK FUND
Normally, Royce Low-Priced Stock Fund will invest at least 65% of its assets in common stocks
and convertible securities of companies with shares that trade at prices below $15 at the
time of investment. In addition, at least 65% of these securities will be issued by companies
with market capitalizations under $1 billion at the time of investment. In determining
whether a convertible security is low-priced, Quest may consider either the price of the
convertible security itself or the price of the security into which it is convertible. The
remainder of its assets may be invested in stocks of companies with higher prices or higher
market capitalizations and non-convertible preferred stocks and debt securities.
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ROYCE GLOBAL SERVICES FUND
Royce Global Services Fund normally invests at least 65% of its assets in the common stocks,
convertible securities and warrants of domestic and foreign companies 'principally' engaged
in service industries. Service industries may include: banking, insurance, securities,
investment management, advertising, communication, consulting, distribution, engineering,
environmental, health, leisure, security services, printing and publishing, retail, food
services, software and computer services, transportation services and such other industries
as Quest may from time to time determine to be service industries. For these purposes, a
company is deemed to be 'principally' engaged in a service industry if, as of the end of or
for its most recent fiscal year, at least 50% of its consolidated assets, revenues or net
income are committed to, or are derived from, service related activities.
Royce Global Services Fund normally invests more than 65% of its assets in securities of
companies from at least three countries, which may include the United States. In most
instances, investments are made in companies principally based in the United States or the
other developed countries of North America, Europe, Asia and Australia and not in emerging
market countries.
Royce Global Services Fund may also indirectly invest in the securites of domestic and
foreign service and non-service companies by investing up to 20% of its assets in the
securites of other investment companies that invest primarily in such companies. The other
investment companies in which the Fund may invest may be domestic companies registered under
the 1940 Act or foreign companies that are not so registered or otherwise regulated. They
usually have their own management fees and expenses, and Quest will also earn its fee on Fund
assets invested in such other companies, which would result in a duplication of fees to the
extent of any such investment. However, Quest will waive its management fee on any Fund
assests invested in other open-end investment companies, and no sales charge will be borne by
the Fund in connection with such an investment.
The assets of the Fund that are not required to be invested in the equity securities of
companies engaged in service industries may be invested in the common stocks, convertible
securities and warrants of companies engaged in non-service industries and/or in
non-convertible preferred stocks and debt securities.
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INVESTMENT As mutual funds investing primarily in common stocks and/or securities convertible into
RISKS common stocks, the Funds are subject to market risk, that is, the possibility that common
stock prices will decline over short or even extended periods. The Funds invest substantial
The Funds are portions of their assets in securities of small and/or micro-cap companies. Such companies
subject to certain may not be well-known to the investing public, may not have significant institutional
investment risks ownership and may have cyclical, static or only moderate growth prospects. In addition, the
securities of such companies may be more volatile in price, have wider spreads between their
bid and ask prices and have significantly lower trading volumes than larger capitalization
stocks. Thus, purchases and sales of such securities may have a greater impact on their
market prices than would be the case with larger capitalization stocks. Accordingly, Quest's
investment focus requires a long-term horizon, and the Funds should not be used to play
short-term swings in the market.
Although ROYCE PREMIER and GIFTSHARES FUNDS are diversified within the meaning of the
Investment Company Act of 1940 (the '1940 Act'), they will normally be invested in a limited
number of securities. The Funds' relatively limited portfolios may involve more risk than
investing in other Royce Funds or in a broadly diversified portfolio of common stocks of
large and well-known companies. To the extent that the Funds invest in a limited number of
securities, they may be more susceptible to any single corporate, economic, political or
regulatory occurrence than a more widely diversified fund.
PENNSYLVANIA MUTUAL FUND, PMF II, ROYCE MICRO-CAP, LOW-PRICED STOCK and GIFTSHARES FUNDS
invest substantially in micro-cap and/or low-priced securities that are followed by
relatively few securities analysts, with the result that there tends to be less publicly
available information concerning the securities. The securities of these companies may have
more limited trading volumes and be subject to more abrupt or erratic market movements than
the securities of small-cap companies, higher priced securities and/or the market averages in
general, and Quest may be required to deal with only a few market-makers when purchasing and
selling these securities. Companies in which these Funds are likely to invest also may have
limited product lines, markets or financial resources, may lack management depth and may be
more vulnerable to adverse business or market developments. Thus, these Funds may involve
considerably more risk than a mutual fund investing in more liquid equity securities.
ROYCE LOW-PRICED STOCK FUND may invest in securities of issuers of low-priced stocks which
are financially distressed or involved in bankruptcy, liquidation, reorganization or
recapitalization proceedings. Specifically because of their lower prices relative to other
companies, low-priced securities may be subject to even more abrupt or erratic market
movements.
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ROYCE GLOBAL SERVICES FUND does not concentrate its investments by investing more than 25% of
its assets in the securities of companies principally engaged in any one industry, including
banking, insurance, securities and investment management. However, because more than 25% of
its assets may be invested in companies engaged collectively in the banking, insurance,
securities and investment management industries, the Fund may, to that extent, be deemed to
be concentrating its investments in a group consisting of such industries. Financial service
companies are subject to extensive governmental regulation. This may limit both the amounts
and types of loans and other financial commitments that such companies are permitted to make,
and, in the case of banks and insurance companies, the interest, fees and premiums they are
permitted to charge. Insurance companies are particularly subject to rate setting, potential
anti-trust and tax law changes and industry-wide pricing and competition cycles and may be
affected by catastrophes and/or reinsurance carrier failures. Also, the profitability of many
types of financial service companies is largely dependent on the availability and cost of
capital funds and may fluctuate significantly when interest rates change.
General economic conditions are important to the operation of most financial service
companies, and credit losses resulting from financial difficulties of borrowers may
negatively impact some of them. Changes in regulations, broker commission structure and
securities market activities, together with the leverage and trading strategies employed by
broker-dealers and investment banks, may produce erratic returns for them over time. Finally,
most types of financial service companies are subject to substantial price and other
competition. Prices of the securities of domestic and foreign financial service companies may
be more volatile than those of more broadly diversified investments, and the Fund's
performance may be tied to the financial services industries and the United States and world
economies as a whole. The securities of financial service companies may react similarly to
market conditions and may move together.
FOREIGN SECURITIES Royce Global Services Fund has no restrictions on the amount of its assets that may be
invested in foreign securities. PMF II may invest up to 25% of its assets in foreign
securities, and each of the other Funds may invest up to 10% of its assets in foreign
securities, measured at the time of purchase.
The Funds may purchase securities of foreign companies in the form of American Depositary
Receipts ('ADRs'). ADRs are certificates held in trust by a bank or similar financial
institution evidencing ownership of shares of a foreign-based issuer. Designed for use in
U.S. securities markets, ADRs are alternatives to the purchase of the underlying foreign
securities in their national markets and currencies.
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The Funds do not expect to purchase or sell foreign currencies to hedge against declines in
the U.S. dollar or to lock in the value of the foreign securities they purchase, and their
foreign investments may be adversely affected by changes in foreign currency rates.
Consequently, the risks associated with such investments may be greater than if the Funds did
engage in foreign currency transactions for hedging purposes. Foreign investments may also be
adversely affected by exchange control regulations, if any, in such foreign markets, and the
Funds' ability to make certain distributions necessary to maintain eligibility as a regulated
investment company and avoid the imposition of income and excise taxes may to that extent be
limited.
There may be less information available about a foreign company than a domestic company;
foreign companies may not be subject to accounting, auditing and reporting standards and
requirements comparable to those applicable to domestic companies; and foreign markets,
brokers and issuers are generally subject to less extensive government regulation than their
domestic counterparts. Foreign securities may be less liquid and may be subject to greater
price volatility than domestic securities. Foreign brokerage commissions and custodial fees
are generally higher than those in the United States. Foreign markets also have different
clearance and settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities transactions, thereby
making it difficult to conduct such transactions. Delays or problems with settlements might
afect the liquidity of the Fund's portfolio. Foreign investments may also be subject to local
economic and political risks, political instability and possible nationalization of issuers
or expropriation of their assets, which might adversely affect the Fund's ability to realize
on its investment in such securities. Furthermore, some foreign securities are subject to
brokerage taxes levied by foreign governments, which have the effect of increasing the cost
of such investment and reducing the realized gain or increasing the realized loss on such
securities at the time of sale.
Income earned or received by the Funds from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Any such taxes paid by the Funds
will reduce their cash available for distribution to shareholders. The Funds are required to
calculate their distributable income and capital gains for U.S. Federal income tax purposes
by reference to the U.S. dollar. Fluctuations in applicable foreign currency exchange rates
may cause a Fund's distributable income and capital gains for U.S. Federal income tax
purposes to differ from the value of its investments calculated by reference to foreign
currencies. If a Fund invests in stock of a so-called passive foreign investment company, the
Fund may make certain elections that will affect the calculation of its net investment income
and capital gains.
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INVESTMENT Each of the Funds has adopted certain fundamental limitations, designed to reduce its
LIMITATIONS exposure to specific situations, which may not be changed without the approval of a majority
of its outstanding voting shares, as that term is defined in the 1940 Act. These limitations
The Funds have are set forth in the Statement of Additional Information and provide, among other things,
adopted certain that no Fund will:
fundamental
limitations (a) as to not less than 75% of its assets, invest more than 5% of its assets in the
securities of any one issuer, excluding U.S. Government obligations;
(b) invest more than 25% of its assets in any one industry; or
(c) invest in companies for the purpose of exercising control of management.
OTHER INVESTMENT In addition to investing primarily in the equity and fixed income securities described above,
PRACTICES: the Funds may follow a number of additional investment practices.
Short-term fixed The Funds may invest in short-term fixed income securities for temporary defensive purposes,
income securities to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions.
These securities consist of United States Treasury bills, domestic bank certificates of
deposit, high-quality commercial paper and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a bank sells a security to the Fund at one
price and agrees to repurchase it at the Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which are, in effect, secured loans by the
Fund, the securities purchased by the Fund will have a value equal to or in excess of the
value of the repurchase agreement and will be held by the Fund's custodian bank until
repurchased. Should a Fund implement a temporary investment policy, its investment objective
may not be achieved.
Securities lending The Funds may lend up to 25% of their assets to qualified institutional investors for the
purpose of realizing additional income. Loans of securities of the Funds will be
collateralized by cash or securities issued or guaranteed by the United States Government or
its agencies or instrumentalities. The collateral will equal at least 100% of the current
market value of the loaned securities. The risks of securities lending include possible
delays in receiving additional collateral or in recovery of loaned securities or loss of
rights in the collateral if the borrower defaults or becomes insolvent.
Warrants, rights and Each of the Funds other than Pennsylvania Mutual Fund may invest up to 5% of its total assets
options in warrants, rights and options.
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Lower-rated debt Up to 20% of Royce Total Return Fund's assets may be invested in debt securities in the
securities lowest category of investment grade debt. These bonds may have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with higher grade
bonds. Each of the Funds may invest no more than 5% of its net assets in lower-rated
(high-risk) non-convertible debt securities, which are below investment grade. The Funds do
not expect to invest in non-convertible debt securities that are rated lower than Caa by
Moody's Investors Service, Inc. or CCC by Standard & Poor's Corp. or, if unrated, determined
to be of comparable quality.
Restricted and ROYCE GLOBAL SERVICES FUND and PMF II may invest up to 15% of their net assets in illiquid
illiquid securities securities, including those restricted securities that are illiquid. Restricted securities
are securities which, if publicly sold, might cause the Fund to be deemed an 'underwriter'
under the Securities Act of 1933 (the '1933 Act') or which are subject to contractual
restrictions on resale. Restricted securities which the Fund may purchase include securities
which have not been registered under the 1933 Act, but are eligible for purchase and sale
pursuant to Rule 144A under the 1933 Act. This Rule permits certain qualified institutional
buyers to trade in privately placed securities even though such securities are not registered
under the 1933 Act. Quest, under criteria established by the Trust's Board of Trustees, will
consider whether securities purchased under Rule 144A are illiquid and thus subject to the
15% limitation. In making this determination, Quest will consider the frequency of trades and
quotes, the number of dealers and potential purchasers, dealer undertakings to make a market
and the nature of the security and the market place trades (for example, the time needed to
dispose of the security, the method of soliciting offers and the mechanics of transfer). The
liquidity of Rule 144A securities will also be monitored by Quest, and if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer liquid, the
Fund's holding of illiquid securities will be reviewed to determine what, if any, action is
required in light of the 15% limitation. Investing in Rule 144A securities could have the
effect of increasing the amount of investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
Portfolio turnover Quest may employ a more aggressive approach to investing for PMF II, Royce Micro-Cap,
Low-Priced Stock and GiftShares Funds that involves substantially higher than average
portfolio turnover rates. For 1997, these rates may exceed 100%. Rates which exceed 100% are
higher than those of other funds. A 100% turnover rate occurs, for example, if all of a
Fund's portfolio securities are replaced in one year. High portfolio activity increases the
Fund's transaction costs, including brokerage commissions.
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MANAGEMENT OF THE TRUST The Trust's business and affairs are managed under the direction of its Board of Trustees.
Quest, the Funds' investment adviser, is responsible for the management of their assets,
Quest Advisory subject to the authority of the Board. Charles M. Royce, Quest's President, Chief Investment
Corp. is responsible Officer and sole voting shareholder since 1972, is primarily responsible for managing the
for the investment Funds' portfolios. He is assisted by Quest's investment staff, including W. Whitney George,
management of the Portfolio Manager and Managing Director, and by Jack E. Fockler, Jr., Managing Director.
Funds' assets
As compensation for its services to the Funds, Quest is entitled to receive the following
annual advisory fees: (i) 1% of the first $50 million of Pennsylvania Mutual Fund's average
net assets, .875% of the next $50 million of its average net assets and .75% of its average
net assets in excess of $100 million; (ii) 1% of the average net assets of PMF II, Royce
Premier and Total Return Funds; (iii) 1.5% of the average net assets of Royce Micro-Cap,
Low-Priced Stock and Global Services Funds; and (iv) 1.25% of the average net assets of Royce
GiftShares Fund. For 1996, the fees paid to Quest on average net assets were .97%, 1.43%,
.76%, .30% and 1.07% (net of voluntary waivers) for Royce Premier, Micro-Cap, Pennsylvania
Mutual, Total Return and Low-Priced Stock Funds, respectively. The fees for PMF II, Royce
GiftShares and Global Services Funds were voluntarily waived by Quest.
Quest selects the brokers who execute the purchases and sales of the Funds' portfolio
securities and may place orders with brokers who provide brokerage and research services to
Quest. Quest is authorized, in recognition of the value of brokerage and research services
provided, to pay commissions to a broker in excess of the amount which another broker might
have charged for the same transaction.
Quest Distributors, Inc. ('QDI'), which is wholly-owned by Charles M. Royce, acts as
distributor of the Funds' shares. The Trust has adopted a distribution plan for Royce Total
Return, Low-Priced Stock and Global Services Funds pursuant to Rule 12b-1. The plan provides
for payment to QDI of .25% per annum of the average net assets of the Funds, which may be
used for payment of sales commissions and other fees to those broker-dealers who introduce
investors to the Fund and for various other promotional, sales-related and servicing costs
and expenses. QDI has committed to waive its fees through April 1998.
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GENERAL The Royce Fund (the 'Trust') is a Delaware business trust, registered with the Securities and
INFORMATION Exchange Commission as a diversified open-end management investment company. It is the
successor to a Massachusetts business trust established in October 1985 and merged into the
Trust in June 1996, when Pennsylvania Mutual Fund was also merged into the Trust as a
separate series. Pennsylvania Mutual Fund previously operated for more than 20 years as a
Quest-advised diversified open-end management investment company. The Trustees have the
authority to issue an unlimited number of shares of beneficial interest, without shareholder
approval, and these shares may be divided into an unlimited number of series or classes.
Shareholders are entitled to one vote per share. Shares vote by individual series on all
matters, except that shares are voted in the aggregate and not by individual series when
required by the 1940 Act and that if the Trustees determine that a matter affects only one
series or class, then only shareholders of that series or class are entitled to vote on that
matter.
The Trust's Board of Trustees has approved a plan creating two classes of shares for Royce
GiftShares Fund, an Investment Class and a Consultant Class. In connection with this plan,
the Trust has called a special meeting of the Fund's shareholders to be held on May 28, for
the purpose of approving a 12b-1 plan and .25% per annum distribution fee for the Fund's
existing shares, which would be offset by reducing the Fund's management fee from 1.25% to
1.00% per annum of the Fund's average net assets. When these plans are implemented, the
Fund's existing shares would be designated as the Investment Class, and Consultant Class
shares would be offered to customers of certain broker-dealers by separate prospectus.
Meetings of shareholders will not be held except as required by the 1940 Act or other
applicable law. A meeting will be held to vote on the removal of a Trustee or Trustees of the
Trust if requested in writing by the holders of not less than 10% of the outstanding shares
of the Trust.
The custodian for securities, cash and other assets of the Funds is State Street Bank and
Trust Company. State Street, through its agent National Financial Data Services ('NFDS'),
also serves as the Funds' Transfer Agent. Coopers & Lybrand L.L.P. serves as independent
accountants for the Funds.
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ROYCE A Royce GiftShares Fund investment is a unique way to make a gift to a child (minor or adult)
GIFTSHARES or another individual. (You may not open an account in GiftShares Fund for yourself or your
FUND spouse.) A GiftShares Fund investment is suitable for making a long-term gift which may
INVESTORS qualify in whole or in part for the Federal annual gift tax exclusion and which may also be
designed to help fund the beneficiary's college and post-graduate education. To open a
GiftShares Fund account, call Investor Information (1-800-221-4268) for a GiftShares
Information Packet. (A GiftShares Fund account may also be opened by a trustee for an
individual or organization if the trust has a long-term duration, the provisions of the trust
instrument are acceptable to the Trust and the trustee has his, her or its own tax adviser.)
The minimum initial investment in GiftShares Fund is $5,000. Additional investments may be
made in amounts of $50 or more at any time during the existence of the trust.
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The shares in a GiftShares Fund account are held in trust for the beneficiary by State Street
Bank and Trust Company, as independent trustee, until the termination date you specify. The
duration of the trust may be as long as you wish, but generally must be at least 10 years
from the time you make the first contribution to the GiftShares Fund trust or until the
beneficiary reaches the age of majority, whichever is later. The GiftShares Fund trust is
irrevocable, and neither you nor the beneficiary may amend its terms in any way. When the
trust terminates, the beneficiary will receive the shares in the account. The beneficiary may
then continue to own the shares, but, except for reinvestment of distributions, may not
purchase additional shares.
Options available to a donor under the Royce GiftShares Fund trust adoption agreement are:
WITHDRAWAL OPTION:
This option will be used primarily by a donor to make a gift that may qualify for the Federal
annual gift tax exclusion or when the donor wants to allow the beneficiary to make
withdrawals from the trust to pay for higher education and related costs.
The full amount of the gift may qualify for the Federal annual gift tax exclusion
The trust may be designed to permit withdrawals to help fund the beneficiary's college or
post-graduate education
The beneficiary will be taxed on all of the trust's income and capital gains, and the trustee
will, if requested by the beneficiary, redeem Fund shares in order to allow for withdrawals
in order for the beneficiary to pay these taxes
The trustee will send an information statement to the beneficiary each year, showing the
amount of income and capital gains to be reported on his or her income tax returns for that
year
ACCUMULATION OPTION:
This option should generally be used by a donor who is not concerned about the Federal annual
gift tax exclusion and who does not want the beneficiary to be required to pay the taxes on
the trust's income or capital gains or to file tax returns.
No part of the gift qualifies for the Federal annual gift tax exclusion
The trust will be taxed on all income and capital gains in excess of $100 per year
The trustee of the trust will prepare and file all Federal and state income tax returns that
are required each year, and will pay the taxes from the assets of the trust by redeeming
Fund shares
SPLIT OPTION:
This option generally is for a donor who wants to use a portion of the Federal annual gift
tax exclusion and wants the trust to pay the taxes on its capital gains.
A portion of the gift may qualify for the Federal annual gift tax exclusion
The trust will be taxed on its capital gains, and the trustee will pay the taxes from the
assets of the trust by redeeming Fund shares; the beneficiary will be taxed on the trust's
ordinary income, which will be distributed to the beneficiary annually
The trustee will send an information statement to the beneficiary each year, showing the
amount of income to be reported on his or her income tax returns for that year
See 'Dividends, Distributions and Taxes -- Royce GiftShares Fund' below for further
information. A donor should consider consulting with an attorney or qualified tax adviser
before investing in Royce GiftShares Fund.
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DIVIDENDS, Each of the Funds pays dividends from net investment income (if any) and distributes its net
DISTRIBUTIONS realized capital gains annually in December. Dividends and distributions will be
AND TAXES automatically reinvested in additional shares of the Fund unless the shareholder chooses
otherwise.
Shareholders receive information annually as to the tax status of distributions made by each
Fund for the calendar year. For Federal income tax purposes, all distributions by a Fund are
taxable to shareholders when declared, whether received in cash or reinvested in shares.
Distributions paid from a Fund's net investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends. A portion of a Fund's dividends may
qualify for the corporate dividends-received deduction, subject to certain limitations. The
portion of a Fund's dividends qualifying for such deduction is generally limited to the
aggregate taxable dividends received by the Fund from domestic corporations. Distributions
paid from long-term capital gains of a Fund are treated by a shareholder for Federal income
tax purposes as long-term capital gains, regardless of how long a shareholder has held Fund
shares.
If a shareholder disposes of shares held for six months or less at a loss, such loss will be
treated as a long-term capital loss to the extent of any long-term capital gains reported by
the shareholder with respect to such shares. A loss realized on a taxable disposition of Fund
shares may be disallowed to the extent that additional Fund shares are purchased (including
by reinvestment of distributions) within 30 days before or after such distribution.
The redemption of shares is a taxable event, and a shareholder may realize a capital gain or
capital loss. Each Fund will report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a redemption will also depend on the
shareholder's basis in the redeemed shares for tax purposes, shareholders should retain their
account statements for use in determining their tax liability on a redemption.
At the time of a shareholder's purchase, a Fund's net asset value may reflect undistributed
income or capital gains. A subsequent distribution of these amounts by a Fund will be taxable
to the shareholder even though the distribution economically is a return of part of the
shareholder's investment.
The Funds are required to withhold 31% of taxable dividends, capital gain distributions and
redemptions paid to non-corporate shareholders who have not complied with Internal Revenue
Service taxpayer identification regulations. Shareholders may avoid this withholding
requirement by certifying on the Account Application Form their proper Social Security or
Taxpayer Identification Number and certifying that they are not subject to backup
withholding.
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The discussion of Federal income taxes above is for general information only. Shareholders
may also be subject to state and local taxes on income and gains from their investment.
Investors should consult their own tax advisers concerning the tax consequences of an
investment in the Funds. The Statement of Additional Information includes a more detailed
description of Federal income tax aspects that may be relevant to a shareholder.
Royce GiftShares Fund The creation of a Royce GiftShares Fund trust account for a beneficiary and any addition to
an existing account will be subject to the reporting requirements of Federal gift tax law,
which requires, in general, that a Federal gift tax return be filed reporting all gifts made
by an individual during any calendar year, other than gifts of present interests in property
that qualify for, and do not exceed, the amount of the Federal annual gift tax exclusion
(currently, $10,000). Whether a particular gift of Fund shares qualifies for the annual
exclusion will depend on the option selected by the donor in the adoption agreement. A gift
of Fund shares may also be subject to state gift tax reporting requirements under the laws of
the state in which the donor of the gift resides.
See 'Royce GiftShares Fund Investors' above and 'Taxation -- Royce GiftShares Fund' in the
Statement of Additional Information for more detailed information about these and other tax
matters applicable to an investment in Royce GiftShares Fund. Due to the complexity of
Federal and state laws pertaining to all gifts in trust, prospective donors should consider
consulting with an attorney or other qualified tax adviser before investing in Royce
GiftShares Fund.
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Fund shares are purchased and redeemed at their net asset value per share next determined
PER SHARE after an order is received by the Funds' transfer agent or an authorized service agent or
sub-agent. Net asset value per share is determined by dividing the total value of the Fund's
Net asset value per investments plus cash and other assets, less any liabilities, by the number of outstanding
share (NAV) is shares of the Fund. Net asset value per share is calculated at the close of regular trading
determined each on the New York Stock Exchange on each day the Exchange is open for business.
day the New York
Stock Exchange In determining net asset value, securities listed on an exchange or the Nasdaq National
is open Market System are valued on the basis of the last reported sale price prior to the time the
valuation is made or, if no sale is reported for that day, at their bid price for
exchange-listed securities and at the average of their bid and ask prices for Nasdaq
securities. Quotations are taken from the market where the security is primarily traded.
Other over-the-counter securities for which market quotations are readily available are
valued at their bid price. Securities for which market quotations are not readily available
are valued at their fair value under procedures established and supervised by the Board of
Trustees. Bonds and other fixed income securities may be valued by reference to other
securities with comparable ratings, interest rates and maturities, using established
independent pricing services.
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SHAREHOLDER GUIDE
OPENING AN Each Fund's shares are offered on a no-load basis. To open a new account other than an IRA or
ACCOUNT AND 403(b)(7) account or a Royce GiftShares Fund account, either by mail, by telephone or by
PURCHASING wire, simply complete and return an Account Application. If you need assistance with the
SHARES Account Application or have any questions about the Funds, please call Investor Information
at 1-800-221-4268. NOTE: For certain types of account registrations (e.g., corporations,
partnerships, foundations, associations, other organizations, trusts or powers of attorney),
please call Investor Information to determine if you need to provide additional forms with
your application.
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Minimum Initial TYPE OF ACCOUNT MINIMUM
Investments --------------- -------
Regular Accounts $2,000
IRAs* $ 500
Accounts established with Automatic Investment Plan or
Direct Deposit Plan $ 500
401(k) and 403(b)(7) accounts* None
Royce GiftShares Fund accounts $5,000
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Additional Subsequent investments may be made by mail ($50 minimum), telephone ($500 minimum), wire
Investments ($1,000 minimum) or Express Service (a system of electronic funds transfer from your bank
account).
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY MAIL Please include the amount of your initial Additional investments should include the
Complete and sign the investment on the Account Application, make Invest-by-Mail remittance form attached to
enclosed Account your check payable to The Royce Fund, and your Fund account confirmation statements.
Application mail to: Please make your check payable to The Royce
The Royce Funds Fund, write your account number on your check
P.O. Box 419012 and, using the return envelope provided, mail
Kansas City, MO 64141-6012 to the address indicated on the
Invest-by-Mail form.
For express or The Royce Funds All written requests should be mailed to one
registered mail, c/o National Financial Data Services of the addresses indicated for new accounts.
send to: 1004 Baltimore, 5th Floor
Kansas City, MO 64105
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* Separate forms must be used for opening IRAs or
403(b)(7) accounts and Royce GiftShares Fund
accounts; please call Investor Information at
1-800-221-4268 if you need these forms.
21
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ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY To open an account by telephone, you should Subsequent telephone purchases ($500 minimum)
TELEPHONE call Investor Information (1-800-221-4268) may also be made by calling Investor
before 4:00 p.m., Eastern time. You will be Information. For all telephone purchases,
given a confirming order number for your payment is due within three business days and
purchase. This number must be placed on your may be made by wire or personal, business or
completed Application before mailing. If a bank check, subject to collection.
completed and signed Application is not
received on an account opened by telephone,
the account may be subject to backup
withholding of Federal income taxes.
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PURCHASING BY WIRE Money should be wired to:
BEFORE WIRING State Street Bank and Trust Company
For a new account, ABA 011000028 DDA 9904-712-8
please contact Ref: (Name of Fund)
Investor Information Order Number or Account Number __________
at 1-800-221-4268 Account Name ____________________________
To ensure proper receipt, please be sure your bank includes the name of the Fund and your
order number (for telephone purchases) or account number. If you are opening a new account,
you must call Investor Information to obtain an order number, and complete the Account
Application and mail it to the 'New Account' address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be accepted only when the Fund and
Custodian are open for business.
---------------------------------------------------------------------------------------------
PURCHASING BY You can purchase shares automatically or at your discretion through the following options:
EXPRESS
SERVICE EXPEDITED PURCHASE OPTION permits you, at your discretion, to transfer funds ($100 minimum
and $200,000 maximum) from your bank account to purchase shares in your Royce Fund account by
telephone or computer online access.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or the Automatic Investment Plan, please
provide the appropriate information on the Account Application Form and ATTACH A VOIDED
CHECK. We will send you a confirmation of Express Service activation. Please wait three weeks
before using the service.
To make an Expedited Purchase, other than through computer online access, please call
Shareholder Services at 1-800-841-1180 before 4:00 p.m., Eastern time.
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PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT PLAN let you have investments ($50
minimum) made from your net payroll or government check into your existing Royce Fund account
each pay period. Your employer must have direct deposit capabilities through ACH (Automated
Clearing House) available to its employees. You may terminate participation in these programs
by giving written notice to your employer or government agency, as appropriate. The Fund is
not responsible for the efficiency of the employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete an Authorization for Direct Deposit
form, which may be obtained from Investor Information by calling 1-800-221-4268.
- -----------------------------------------------------------------------------------------------------------------------
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option -- Both net investment income dividends and capital gains
distributions will be reinvested in additional Fund shares. This option will be selected
for you automatically unless you specify one of the other options.
2. Cash Dividend Option -- Your dividends will be paid in cash and your capital gains
distributions will be reinvested in additional Fund shares.
3. All Cash Option -- Both dividends and capital gains distributions will be paid in cash.
You may change your option by calling Shareholder Services at 1-800-841-1180. Distribution
options available for Royce GiftShares Fund trust accounts are dependent on the trust option
selected by the donor.
- -----------------------------------------------------------------------------------------------------------------------
IMPORTANT The easiest way to establish optional services on your account is to select the options you
ACCOUNT desire when you complete your Account Application. If you want to add or change shareholder
INFORMATION options later, you may need to provide additional information and a signature guarantee.
Please call Shareholder Services at 1-800-841-1180 for further assistance.
Signature Guarantees For our mutual protection, we may require a signature guarantee on certain written
transaction requests. A signature guarantee verifies the authenticity of your signature and
may be obtained from banks, brokerage firms and any other guarantor that our transfer agent
deems acceptable. A signature guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon request. If a certificate is lost, stolen
or destroyed, you may incur an expense to replace it.
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Purchases Through If you purchase shares of a Fund through a program of services offered or administered by a
Service Providers broker-dealer, financial institution or other service provider, you should read the program
materials provided by the service provider, including information regarding fees which may be
charged, in conjunction with this Prospectus. Certain shareholder servicing features of a
Fund may not be available or may be modified in connection with the program of services
offered. When shares of a Fund are purchased in this way, the service provider, rather than
the customer, may be the shareholder of record of the shares. QDI, Quest and/or the Funds may
pay fees to unaffiliated broker-dealers, financial institutions or other service providers
who introduce investors to the Funds and/or provide certain administrative services to those
of their customers who are Fund shareholders.
Telephone and Neither the Funds nor their transfer agent will be liable for following instructions
Online Access communicated by telephone or computer online access that are reasonably believed to be
Transactions genuine. The transfer agent uses certain procedures designed to confirm that telephone and
computer online access instructions are genuine, which may include requiring some form of
personal identification prior to acting on the instructions, providing written confirmation
of the transaction and/or recording incoming calls, and if it does not follow such
procedures, the Fund or the transfer agent may be liable for any losses due to unauthorized
or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment is not received for any telephone or
computer online access purchase, the transaction will be cancelled and you will be
responsible for any loss the Fund incurs. If you are already a shareholder, the Fund can
redeem shares from any identically registered account in the Fund as reimbursement for any
loss incurred.
Trade Date for Your TRADE DATE is the date on which share purchases are credited to your account. If your
Purchases purchase is made by telephone, computer online access, check, Federal Funds wire or exchange
and is received by the close of regular trading on the New York Stock Exchange (generally
4:00 p.m., Eastern time), your trade date is the date of receipt. If your purchase is
received after the close of regular trading on the Exchange, your trade date is the next
business day. Your shares are purchased at the net asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the clearing of foreign checks, the
Funds will accept only a foreign check which has been drawn in U.S. dollars and has been
issued by a foreign bank with a United States correspondent bank.
The Trust reserves the right to suspend the offering of Fund shares to new investors. The
Trust also reserves the right to reject any specific purchase request.
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REDEEMING You may redeem any portion of your account at any time. You may request a redemption in
YOUR writing or by telephone. Redemption proceeds normally will be sent within two business days
SHARES after the receipt of the request in Good Order.
REDEEMING BY MAIL Requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. (For express or registered mail, send your request to The Royce Funds, c/o NFDS,
1004 Baltimore, 5th Floor, Kansas City, MO 64105.)
The redemption price of shares will be their net asset value next determined after NFDS or an
authorized service agent or sub-agent has received all required documents in Good Order.
Definition of Good GOOD ORDER means that the request includes the following:
Order 1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or shares).
3. Signatures of all owners exactly as they are registered on the account.
4. Signature guarantees if the value of the shares being redeemed exceeds $50,000 or if the
payment is to be sent to an address other than the address of record or is to be made to a
payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be required, in the case of retirement
plans, corporations, trusts, estates and certain other accounts.
If you have any questions about what is required as it pertains to your request, please call
Shareholder Services at 1-800-841-1180.
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REDEEMING BY Shareholders who have not established Express Service may redeem up to $50,000 of their Fund
TELEPHONE shares by telephone, provided the proceeds are mailed to their address of record. If
preapproved, higher minimums may apply for institutional accounts. To redeem shares by
telephone, you or your pre-authorized representative may call Shareholder Services at
1-800-841-1180. Redemption requests received by telephone prior to the close of regular
trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time) are processed on
the day of receipt; redemption requests received by telephone after the close of regular
trading on the Exchange are processed on the business day following receipt. Telephone
redemption service is not available for Trust-sponsored retirement plan accounts or if
certificates are held. Telephone redemptions will not be permitted for a period of sixty days
after a change in the address of record. See also 'Important Account Information -- Telephone
and Online Access Transactions'.
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REDEEMING BY If you select the Express Service AUTOMATIC WITHDRAWAL option, shares will be automatically
EXPRESS redeemed from your Fund account and the proceeds transferred to your bank account according
SERVICE to the schedule you have selected. You must have at least $25,000 in your Fund account to
establish the Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up to $50,000 of shares from your Fund
account by telephone and transfer the proceeds directly to your bank account. You may elect
Express Service on the Account Application Form or call Shareholder Services at
1-800-841-1180 for an Express Service application.
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IMPORTANT REDEMPTION If you are redeeming shares recently purchased by check, Express Service Expedited Purchase
INFORMATION or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment
for the purchase is collected, which may take up to fifteen calendar days. Otherwise,
redemption proceeds must be sent to you within seven days of receipt of your request in Good
Order.
If you experience difficulty in making a telephone redemption during periods of drastic
economic or market changes, your redemption request may be made by regular or express mail.
It will be processed at the net asset value next determined after your request has been
received by the transfer agent in Good Order. The Trust reserves the right to revise or
terminate the telephone redemption privilege at any time.
The Trust may suspend the redemption right or postpone payment at times when the New York
Stock Exchange is closed or under any emergency circumstances as determined by the Securities
and Exchange Commission.
Although the Trust will normally make redemptions in cash, it may cause the Funds to redeem
in kind under certain circumstances.
Early Redemption In order to discourage short-term trading, the Funds assess an early redemption fee of 1% on
Fee redemptions of share purchases held for less than one year. Purchases of Fund shares prior to
July 1, 1996 are exempt from the fee. Redemption fees will be paid to the Fund, out of the
redemption proceeds otherwise payable to the shareholder, to help offset transaction costs.
The Funds will use the 'first-in, first-out' (FIFO) method to determine the one-year holding
period. Under this method, the date of the redemption will be compared with the earliest
purchase date of the share purchases held in the account. If this holding period is less than
one year, the fee will be assessed. In determining 'one year', the Funds will use the
anniversary month of a transaction. Thus, shares purchased in August 1997, for example, will
be subject to the fee if they are redeemed prior to August 1998. If they are redeemed on or
after August 1, 1998, they will not be subject to the fee.
No redemption fee will be payable on shares acquired through reinvestment, on an exchange
into another Royce Fund or by shareholders who are (a) employees of the Trust or Quest or
members of their immediate families or employee benefit plans for them, (b) current
participants in an Automatic Investment Plan or an Automatic Withdrawal Plan, (c) certain
Trust-approved Group Investment Plans and charitable organizations, (d) profit-sharing
trusts, corporations or other institutional investors who are investment advisory clients of
Quest, (e) omnibus or similar account customers of certain Trust-approved broker-dealers and
other institutions or (f) shareholders of Royce GiftShares Fund.
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Minimum Account Due to the relatively high cost of maintaining smaller accounts, the Trust reserves the right
Balance to involuntarily redeem shares in any Fund (except Royce GiftShares Fund) account that falls
Requirement below the minimum initial investment due to redemptions by the shareholder. If at any time
the balance in an account does not have a value at least equal to the minimum initial
investment or, if an Automatic Investment Plan is discontinued before an account reaches the
minimum initial investment that would otherwise be required, you may be notified that the
value of your account is below the Fund's minimum account balance requirement. You would then
have sixty days to increase your account balance before the account is liquidated. Proceeds
would be promptly paid to the shareholder.
Royce GiftShares Until a Royce GiftShares Fund trust terminates, only the independent trustee, as the legal
Fund owner of the shares, may redeem them. The ability of the trustee to redeem shares, and of the
beneficiary to compel redemption, is subject to the terms and conditions of the Royce
GiftShares Fund Trust Instrument.
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE Exchanges between series of the Trust (except Royce GiftShares Fund), and with other open-end
PRIVILEGE Royce funds are permitted by telephone, computer online access or by mail. An exchange is
treated as a redemption and purchase; therefore, you could realize a taxable gain or loss on
the transaction. Exchanges are accepted only if the registrations and the tax identification
numbers of the two accounts are identical. Minimum investment requirements must be met when
opening a new account by exchange, and exchanges may be made only for shares of a series or
fund then offering its shares for sale in your state of residence. The Trust reserves the
right to revise or terminate the exchange privilege at any time.
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TRANSFERRING You may transfer the ownership of any of your Fund shares to another person by writing to:
OWNERSHIP The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO 64141-6012. The request must be
in Good Order (see 'Redeeming Your Shares -- Definition of Good Order'). Before mailing your
request, please contact Shareholder Services (1-800-841-1180) for full instructions.
- -----------------------------------------------------------------------------------------------------------------------
STATEMENTS AND A confirmation statement will be sent to you each time you have a transaction in your
REPORTS account, and an account statement is sent semi-annually. Shareholder reports are mailed
semi-annually. To reduce expenses, only one copy of most shareholder reports may be mailed to
a household. Please call Investor Information if you need additional copies.
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__________________________________ __________________________________
- ---------------------------------- ----------------------------------
THE ROYCE FUNDS THE ROYCE FUNDS
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected]
ROYCE PREMIER FUND
INVESTMENT ADVISER
Quest Advisory Corp. ROYCE MICRO-CAP FUND
1414 Avenue of the Americas
New York, NY 10019 PENNSYLVANIA MUTUAL FUND --
INVESTMENT CLASS
DISTRIBUTOR
Quest Distributors, Inc. PMF II
1414 Avenue of the Americas
New York, NY 10019 ROYCE GIFTSHARES FUND
TRANSFER AGENT ROYCE TOTAL RETURN FUND
State Street Bank and Trust Company
c/o NFDS ROYCE LOW-PRICED
P.O. Box 419012 STOCK FUND
Kansas City, MO 64141-6012
1-800-841-1180 ROYCE GLOBAL SERVICES FUND
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President
and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President PROSPECTUS
and Asst. Secretary
John E. Denneen, Secretary APRIL 30, 1997
__________________________________ __________________________________
- ---------------------------------- ----------------------------------
[Recycled Logo]
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as .....................'D'
THE ROYCE FUNDS
PENNSYLVANIA MUTUAL FUND - CONSULTANT CLASS
PROSPECTUS -- April 30, 1997
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
SHAREHOLDER SERVICES -- 1-800-841-1180 FINANCIAL CONSULTANT SERVICES --
1-800-33-ROYCE
INVESTMENT PENNSYLVANIA MUTUAL FUND (the "Fund") seeks long-term
OBJECTIVE AND capital appreciation by investing primarily in common
POLICIES stocks and securities convertible into common stocks
of small and micro-cap companies. The Fund's securities
are selected on a value basis. There can be no
assurance that the Fund will achieve its objective.
The Fund is a series of The Royce Fund (the "Trust"),
a diversified open-end management investment company.
The Trust is currently offering shares of 11 series,
and the Fund is currently offering two classes of its
shares. This Prospectus relates only to the Fund's
Consultant Class.
ABOUT THIS This Prospectus sets forth concisely the information
PROSPECTUS that you should know about the Consultant Class of
Pennsylvania Mutual Fund before you invest. It
should be retained for future reference. A
"Statement of Additional Information," containing
further information about the Fund and the Trust, has
been filed with the Securities and Exchange
Commission. The Statement is dated April 30, 1997
and has been incorporated by reference into this
Prospectus. A copy may be obtained without charge by
writing to the Trust or calling Investor Information.
TABLE OF CONTENTS Page Page
Fund Expenses 2 SHAREHOLDER GUIDE
Financial Highlights 3 Opening an Account and Purchasing
Investment Performance and Shares 9
Volatility 4 Choosing a Distribution Option 11
Investment Objective 4 Important Account Information 11
Investment Policies 5 Redeeming Your Shares 12
Investment Risks 5 Exchange Privilege 13
Investment Limitations 5 Transferring Ownership 14
Management of the Trust 6 Other Services 14
General Information 7
Dividends, Distributions and
Taxes 7
Net Asset Value Per Share 8
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
FUND EXPENSES The following tables summarize the maximum
transaction costs and estimated expenses and fees
that you would incur as a Consultant Class
shareholder of the Fund. The Fund offers one other
class of shares, generally not available through
broker-dealers offering Consultant Class shares to
their customers, which has a different expense
structure than the Consultant Class, resulting in
different performance for that class.
Shareholder Transaction Expenses
--------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee -- on share purchases held for 1
year or more None
Early Redemption Fee -- on share purchases held
for less than 1 year 1%
Annual Fund Operating Expenses
------------------------------
Management Fees 0.74%
12b-1 Fees (after waiver) 0.67%
Other Expenses 0.24%
-----
Total Operating Expenses 1.65%
-----
The purpose of the above tables is to assist you in
understanding the various costs and expenses that you
would bear directly or indirectly as an investor in
shares of the Consultant Class of the Fund. 12b-1
Fees would be 1.00% and Total Operating Expenses
would be 1.98% without the waiver of 12b-1 fees by
Quest Distributors, Inc. ("QDI"), the Fund's
distributor. See "Management of the Trust--Distribution."
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
------ ------- ------- --------
$17 $52 $90 $195
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.
Long-term Consultant Class shareholders may pay more
than the economic equivalent of the maximum front-end
sales charge of 6.25% of the amount invested
permitted by the Rules of Fair Practice of NASD
Regulation, Inc.
FINANCIAL The Consultant Class of the Fund was established on
HIGHLIGHTS _______ __, 1997. The financial information in these
tables regarding selected per share data reflects the
(For a share performance of the Fund's Investment Class of shares,
outstanding which does not incur 12b-1 fees. The following
throughout financial highlights are part of the Fund's financial
each year) statements and have been audited by Coopers & Lybrand
L.L.P., independent accountants. The Fund's
financial statements and Coopers & Lybrand L.L.P.'s
reports on them are included in the Fund's Annual
Reports to Shareholders 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.
<TABLE>
Year ended December 31,
-----------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGGINING OF YEAR $7.71 $7.41 $8.31 $8.00 $7.29 $5.78 $6.85 $6.41 $5.47 $6.98
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.11 0.11 0.12 0.11 0.11 0.12 0.17 0.21 0.14 0.14
Net realized and unrealized
gain (loss) on investments 0.84 1.27 (0.18) 0.79 1.07 1.72 (0.96) 0.86 1.20 (0.02)
---- ---- ------ ---- ---- ---- ------ ---- ---- ------
Total from Investment
Operations 0.95 1.38 (0.06) 0.90 1.18 1.84 (0.79) 1.07 1.34 0.12
---- ---- ------ ---- ---- ---- ------ ---- ---- ----
LESS DISTRIBUTIONS
Dividends paid from net
investment income (0.11) (0.11) (0.11) (0.11) (0.10) (0.12) (0.16) (0.22) (0.12) (0.33)
Distributions paid from capital
gains (1.44) (0.97) (0.73) (0.48) (0.37) (0.21) (0.12) (0.41) (0.28) (1.30)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (1.55) (1.08) (0.84) (0.59) (0.47) (0.33) (0.28) (0.63) (0.40) (1.63)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR $7.11 $7.71 $7.41 $8.31 $8.00 $7.29 $5.78 $6.85 $6.41 $5.47
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN 12.8% 18.7% -0.7% 11.3% 16.2% 31.8% -11.5% 16.7% 24.6% 1.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (millions) $457 $630 $771 $1,022 $1,102 $789 $549 $551 $444 $276
Ratio of Expenses to
Average Net Assets (a) .99% .98% 0.98% .98% .91% .95% .96% .97% 1.01% .99%
Ratio of Net Investment Income
to Average Net Assets 1.05% 1.18% 1.33% 1.23% 1.48% 1.73% 2.62% 2.93% 2.35% 2.02%
Portfolio Turnover Rate 29% 10% 17% 24% 22% 29% 15% 23% 24% 23%
Average Commission Rate Paid* $0.0588 --- --- --- --- --- --- --- --- ---
(a) Expense ratio before waiver of fees by the investment adviser would have
been 1.03% and .99% for the years ended December 31, 1996 and 1995,
respectively.
*Beginning in 1996, the Fund is required to disclose average commission rates
paid per share for purchases and sales of investments.
</TABLE>
INVESTMENT The Fund may include in communications to current or
PERFORMANCE prospective shareholders figures reflecting total
AND return over various time periods. "Total return" is
VOLATILITY the rate of return on an amount invested in the Fund
from the beginning to the end of the stated period.
Total return "Average annual total return" is the annual
is the compounded percentage change in the value of an
change in amount invested in the Fund from the beginning until
value over the end of the stated period. Total returns are
a given time historical measures of past performance and are not
period, intended to indicate future performance. Total
assuming returns assume the reinvestment of all net investment
reinvestment income dividends and capital gains distributions.
of dividends The figures do not reflect the Fund's early
and capital redemption fee because this fee applies only to
gains redemptions of share purchases held for less than
distributions one year. Additionally, the performance of the Fund
may be compared in publications to (i) the
performance of various indices and investments for
which reliable performance data is available and (ii)
averages, performance rankings or other information
prepared by recognized mutual fund statistical
services.
"Risk" may be The relative risk of investing in a particular fund
viewed should be considered in addition to the total returns
as the of a fund. Risk, in terms of how volatile an
volatility of investor's returns have been, can be measured in a
a fund's total number of ways, including standard deviation and
returns over time beta.
Standard deviation measures the range of
performance within which a fund's total returns
have fallen. The lower the standard deviation of
the fund, the less volatile and more consistent
the fund's monthly total returns have been over
that period. When the standard deviation of a
fund is lower than the standard deviation of an
index such as the S&P 500, the fund has been less
volatile than the index.
Beta measures a fund's sensitivity to market
movements. The beta for the index chosen to
represent the stock market (the S&P 500) is 1.00.
If the fund has a beta greater than 1.00, it has
been more volatile than the index; if its beta is
less than 1.00, it has been less volatile than
the index.
These measures of risk, which are historical in
nature and not necessarily predictive of future
volatility, are more fully described in the Statement
of Additional Information. For the three year period
ended December 31, 1996, standard deviation and beta
for the Fund, the Russell 2000, an index
representative of small company stocks, and the S&P
500 were:
Standard
Deviation Beta
--------- ----
Pennsylvania Mutual Fund 8.07 0.52
Russell 2000 12.10 0.94
S&P 500 9.72 1.00
Investors evaluating these and other quantitative
measures of risk should understand that the risk
profiles of the Fund's portfolio may change over
time. The investment risks associated with the types
of securities in which the Fund may invest are
described below -- see "Investment Risks".
INVESTMENT
OBJECTIVE The investment objective of the Fund is long-term
capital appreciation. It seeks to achieve this
objective primarily through investments in common
stocks and securities convertible into common stocks
of small companies. There can be no assurance that
the Fund will achieve its investment objective.
The Fund's investment objective is fundamental and
may not be changed without the approval of a majority
of its outstanding voting shares.
INVESTMENT Quest uses a "value" method in managing the Fund's
POLICIES assets. In its selection process, Quest puts primary
emphasis on the understanding of various internal
The Fund returns indicative of profitability, balance sheet
invests quality, cash flows and the relationships that these
on a value factors have to the price of a given security.
basis
Quest's value method is based on its belief that the
The Fund securities of certain companies may sell at a
invests discount from its estimate of such companies'
primarily in "private worth," that is, what a knowledgeable buyer
small and would pay for the entire company. Quest attempts to
micro-cap identify and invest in these securities for the Fund,
companies with the expectation that this "value discount" will
narrow over time and thus provide capital
appreciation for the Fund.
The Fund normally invests at least 65% of its assets
in the common stocks and securities convertible into
common stocks of small and micro-cap companies
(stock market capitalizations below $1 billion).
Such companies represent Quest's core investment
focus.
In selecting securities for the Fund, Quest generally
gives approximately equal weightings to both small
and micro-cap companies. In the upper end of this
range, $300 million to $1 billion in stock market
capitalization, the Fund invests in a limited number
of companies with superior financial characteristics
and/or unusually attractive business prospects,
companies Quest classifies as "premier." The Fund
uses a more diversified approach to investments in
the lower end of the range, below $300 million, the
sector known as "micro-cap."
Other
securities The assets of the Fund that are not invested in the
equity securities of small and micro-cap companies
may be invested in securities of companies with
higher stock market capitalizations and in non-convertible
preferred stocks and debt securities.
INVESTMENT As a mutual fund investing primarily in common stocks
RISKS and/or securities convertible into common stocks, the
Fund is subject to market risk, that is, the
The Fund is possibility that common stock prices will decline
subject over short or even extended periods. The Fund
to certain invests substantial portions of its assets in
investment securities of small and/or micro-cap companies. Such
risks companies may not be well-known to the investing
public, may not have significant institutional
ownership and may have cyclical, static or only
moderate growth prospects. In addition, the
securities of such companies may be more volatile in
price, have wider spreads between their bid and ask
prices and have significantly lower trading volumes
than larger capitalization stocks. Accordingly,
Quest's investment focus requires a long-term
horizon, and the Fund should not be used to play
short-term swings in the market.
In addition, the Fund invests in micro-cap securities
that are followed by relatively few securities
analysts, with the result that there tends to be less
publicly available information concerning the
securities. The securities of these companies may
have more limited trading volumes and be subject to
more abrupt or erratic market movements than the
securities of small-cap companies, and Quest may be
required to deal with only a few market-makers when
purchasing and selling these securities. Such
companies also may have limited product lines,
markets or financial resources, may lack management
depth and may be more vulnerable to adverse business
or market developments. Thus, the Fund may involve
considerably more risk than a mutual fund investing
in the more liquid equity securities of companies
traded on the New York or American Stock Exchanges.
INVESTMENT The Fund has adopted certain fundamental limitations,
LIMITATIONS designed to reduce its exposure to specific
situations, which may not be changed without the
The Fund has approval of a majority of its outstanding voting
adopted shares, as that term is defined in the 1940 Act.
certain These limitations are set forth in the Statement of
fundamental Additional Information and provide, among other
limitations things, that the Fund will not:
(a) as 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 In addition to investing primarily in the equity and
INVESTMENT fixed income securities described above, the Fund may
PRACTICES follow a number of additional investment practices.
Short-term The Fund may invest in short-term fixed income
fixed income securities for temporary defensive purposes, to
securities invest uncommitted cash balances or to maintain
liquidity to meet shareholder redemptions. These
securities consist of United States Treasury bills,
domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements
collateralized by U.S. Government securities. In a
repurchase agreement, a bank sells a security to the
Fund at one price and agrees to repurchase it at the
Fund's cost plus interest within a specified period
of seven or fewer days. In these transactions, which
are, in effect, secured loans by the Fund, the
securities purchased by the Fund will have a value
equal to or in excess of the value of the repurchase
agreement and will be held by the Fund's custodian
bank until repurchased. Should the Fund implement a
temporary investment policy, its investment objective
may not be achieved.
Securities
lending The Fund may lend up to 25% of its assets to
qualified institutional investors for the purpose of
realizing additional income. Loans of securities of
the Fund will be collateralized by cash or securities
issued or guaranteed by the United States Government
or its agencies or instrumentalities. The collateral
will equal at least 100% of the current market value
of the loaned securities. The risks of securities
lending include possible delays in receiving
additional collateral or in recovery of loaned
securities or loss of rights in the collateral if the
borrower defaults or becomes insolvent.
Lower-rated The Fund may invest no more than 5% of its net assets
debt securities in lower-rated (high-risk) non-convertible debt
securities, which are below investment grade. The
Fund does not expect to invest in debt securities
that are rated lower than Caa by Moody's Investors
Service, Inc. or CCC by Standard & Poor's Corp. or,
if unrated, determined to be of comparable quality.
Foreign
securities The Fund may invest up to 10% of its assets in debt
and/or equity securities of foreign issuers. Foreign
investments involve certain risks, such as political
or economic instability of the issuer or of the
country of issue, fluctuating exchange rates and the
possibility of imposition of exchange controls.
These securities may also be subject to greater
fluctuations in price than the securities of U.S.
corporations, and there may be less publicly
available information about their operations.
Foreign companies may not be subject to accounting
standards or governmental supervision comparable to
U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may
offer less protection to investors such as the Fund.
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. The
Fund's annual portfolio turnover rates are shown in
the "Financial Highlights."
MANAGEMENT OF The Trust's business and affairs are managed under
THE TRUST the direction of its Board of Trustees. Quest, the
Fund's investment adviser, is responsible for the
Quest Advisory investment of their assets, subject to the authority
Corp. is of the Board. Charles M. Royce, Quest's President,
responsible for Chief Investment Officer and sole voting shareholder
management of since 1972, is primarily responsible for managing the
the Fund's Funds' portfolios. He is assisted by Quest's
portfolio investment staff, including W. Whitney George,
Portfolio Manager and Managing Director, and by Jack
E. Fockler, Jr., Managing Director. Quest is also
the investment adviser to PMF II, Royce Premier,
Micro-Cap, Equity Income, Low-Priced Stock, Total
Return, Global Services and GiftShares Funds, which
are other series of the Trust, and to other
investment and non-investment company accounts.
As compensation for its services to the Fund, Quest
is entitled to receive annual advisory fees as
follows: (i) 1.0% of the first $50 million of the
average net assets of the Fund, (ii) 0.875% of the
next $50 million of average net assets and (iii)
0.75% of average net assets in excess of $100
million. The fees paid by the Fund to Quest for 1996
amounted to 0.76% of average net assets (net of
voluntary waiver).
Quest 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 Quest. Quest is authorized, in
recognition of the value of brokerage and research
services provided, to pay commissions to a broker in
excess of the amount which another broker might have
charged for the same transaction.
Quest Distributors, Inc. ("QDI"), which is wholly-owned
by Charles M. Royce, acts as distributor of the
Fund's shares. Shares of the Consultant Class of the
Fund are available for new investors only through
certain broker-dealers having agreements with QDI.
The Trust has adopted a distribution plan for the
Fund's Consultant Class pursuant to Rule 12b-1. The
plan provides for payment to QDI of fees not to
exceed 1% per annum of the Class's average net
assets, which may be used for payment of sales
commissions and other fees to those broker-dealers
who introduce investors to the Fund and various other
promotional, sales-related and servicing costs and
expenses. The fees payable by the Class to QDI have
been allocated between personal service and/or
account maintenance fees and asset-based sales
charges, so that not more than .25% per annum is
payable as a personal service and/or account
maintenance fee and not more than .75% per annum is
payable as an asset-based sales charge. For 1996,
the fees paid to QDI by Royce Value Fund, the
predecessor to the Consultant Class of the Fund, were
.67% of its average net assets.
GENERAL The Royce Fund (the "Trust") is a Delaware business
INFORMATION trust, registered with the Securities and Exchange
Commission as a diversified open-end management
investment company. It is the successor to a
Massachusetts business trust established in October
1985 and merged into the Trust in June 1996. The
Trustees have the authority to issue an unlimited
number of shares of beneficial interest, without
shareholder approval, and these shares may be divided
into an unlimited number of series and classes.
Shareholders are entitled to one vote per share.
Shares vote by individual series on all matters,
except that shares are voted in the aggregate and not
by individual series or class when required by the
1940 Act and that if the Trustees determine that a
matter affects only one series or class, then only
shareholders of that series or class are entitled to
vote on that matter.
Meetings of shareholders will not be held except as
required by the 1940 Act or other applicable law. A
meeting will be held to vote on the removal of a
Trustee or Trustees of the Trust if requested in
writing by the holders of not less than 10% of the
outstanding shares of the Trust.
The custodian for the securities, cash and other
assets of the Fund is State Street Bank and Trust
Company. State Street, through its agent National
Financial Data Services ("NFDS"), also serves as the
Fund's transfer agent. Coopers & Lybrand, L.L.P.
serves as independent accountants for the Fund.
DIVIDENDS, The Fund pays dividends from net investment income
DISTRIBUTIONS (if any) and distributes its net realized capital
AND TAXES gains annually in December. Dividends and
distributions will be automatically reinvested in
The Fund pays additional shares of the Class unless the shareholder
dividends and chooses otherwise.
capital gains
annually in Shareholders receive information annually as to the
December tax status of distributions made by the Fund for the
calendar year. For Federal income tax purposes, all
distributions by the Fund are taxable to shareholders
when declared, whether received in cash or reinvested
in shares. Distributions paid from the Fund's net
investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends.
A portion of the Fund's dividends may qualify for the
corporate dividends received deduction, subject to
certain limitations. The portion of the Fund's
dividends qualifying for such deduction is generally
limited to the aggregate taxable dividends received
by the Fund from domestic corporations.
Distributions paid from long-term capital gains of
the Fund are treated by a shareholder for Federal
income tax purposes as long-term capital gains,
regardless of how long the shareholder has held Fund
shares.
If a shareholder disposes of shares held for six
months or less at a loss, such loss is treated as a
long-term capital loss to the extent of any long-term
capital gains reported by the shareholder with
respect to such shares. A loss realized on a taxable
disposition of Fund shares may be disallowed to the
extent that additional Fund shares are purchased
(including by reinvestment of distributions) within
30 days before or after such disposition.
The redemption of shares is a taxable event, and a
shareholder may realize a capital gain or capital
loss. The Fund will report to redeeming shareholders
the proceeds of their redemptions. However, because
the tax consequences of a redemption will also depend
on the shareholder's basis in the redeemed shares for
tax purposes, shareholders should retain their
account statements for use in determining their tax
liability on a redemption.
At the time of a shareholder's purchase, the Fund's
net asset value may reflect undistributed income or
capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the
shareholder even though the distribution economically
is a return of part of the shareholder's investment.
The Fund is required to withhold 31% of taxable
dividends, capital gains distributions and
redemptions paid to non-corporate shareholders who
have not complied with Internal Revenue Service
taxpayer identification regulations. Shareholders
may avoid this withholding requirement by certifying
on the Account Application their proper Social
Security or Taxpayer Identification Number and that
they are not subject to backup withholding.
The discussion of Federal income taxes above is for
general information only. The Statement of Additional
Information includes a more detailed description of
Federal income tax aspects that may be relevant to a
shareholder. Shareholders may also be subject to
state and local taxes on income and any gains from
their investment. Investors should consult their own
tax advisers concerning the tax consequences of an
investment in the Fund.
NET ASSET Shares are purchased and redeemed at their net asset
VALUE value per share next determined after an order is
PER SHARE received by the Fund's transfer agent or an
authorized service agent or sub-agent. Net asset
Net asset value per share is determined by dividing the total
value per value of the Fund's investments plus cash and other
share (NAV) assets, less any liabilities, by the number of
is determined outstanding shares of the Fund. Net asset value per
each day the share is calculated at the close of regular trading
New York Stock on the New York Stock Exchange on each day the
Exchange is Exchange is open for business.
open
In determining net asset value, securities listed on
an exchange or the Nasdaq National Market System are
valued on the basis of the last reported sale price
prior to the time the valuation is made or, if no
sale is reported for that day, at their bid price for
exchange-listed securities and at the average of
their bid and ask prices for Nasdaq securities.
Quotations are taken from the market where the
security is primarily traded. Other over-the-counter
securities for which market quotations are readily
available are valued at their bid price. Securities
for which market quotations are not readily available
are valued at their fair value under procedures
established and supervised by the Board of Trustees.
Bonds and other fixed income securities may be valued
by reference to other securities with comparable
ratings, interest rates and maturities, using
established independent pricing services. <PAGE>
<PAGE>
SHAREHOLDER GUIDE
OPENING AN New accounts can be opened by completing an Account
ACCOUNT AND Application and returning it to a broker-dealer
PURCHASING having an agreement with QDI. If you need
SHARES assistance with the Account Application or have any
questions about the Fund, please call your financial
consultant or call Investor Information at 1-800-221-4268.
Note: For certain types of account
registrations (e.g., corporations, partnerships,
foundations, associations, other organizations,
trusts or powers of attorney), please call Investor
Information to determine if you need to provide
additional forms with your application.
Type of Account Minimum
--------------- -------
Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
401(k) and 403(b)(7) accounts * None
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor Information
if you need these forms.
Subsequent 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).
ADDITIONAL INVESTMENTS
PURCHASING BY NEW ACCOUNT TO EXISTING ACCOUNTS
MAIL Please include the amount Additional investments
Complete and of your initial should include the
sign the investment on the Account Invest-by-Mail remittance
enclosed Application, make your form attached to your
Account check payable to The Fund account confirmation
Application Royce Fund, and forward statements. Please make
through your financial your check payable to The
consultant to: Royce Fund, write your
The Royce Funds account number on your
P.O. Box 419012 check and, using the
Kansas City, MO return envelope provided,
64141-6012 mail to the address
indicated on the Invest
-by-Mail form.
For express or
registered mail,
send to: The Royce Funds All written requests
c/o National Financial should be mailed to one
Data Services of the addresses
1004 Baltimore, 5th Floor indicated for new
Kansas City, MO 64105 accounts.
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Purchasing By To open an account by Subsequent telephone
Telephone telephone, your financial purchases ($500 minimum)
consultant should call may also be made by
Investor Information calling Investor
(1-800-221-4268) before Information. For all
4:00 p.m., Eastern time. telephone purchases,
A confirming order number payment is due within
for the purchase will be three business days and
provided. This number may be made by wire or
must be placed on the personal, business or
completed Account bank check, subject to
Application before collection.
mailing. If a completed
and signed Account
Application is not
received on an account
opened by telephone, the
account may be subject to
backup withholding of
Federal income taxes.
PURCHASING BY Money should be wired to:
WIRE State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
BEFORE WIRING: Ref: Pennsylvania Mutual Fund - Consultant Class
For a new Order Number or Account Number____________________
account, Account Name________________________________
please contact
Investor To ensure proper receipt, please be sure your bank
Information includes the name of the Fund and your order number
at 1-800-221-4268 (for telephone purchases) or account number. If you
are opening a new account, your financial consultant
must call Investor Information to obtain an order
number, and complete the Account Application and mail
it to the "New Account" address above after
completing the wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when
the Fund and its custodian are open for business.
PURCHASING BY Additional shares can be purchased automatically or
EXPRESS at your discretion through the following options:
SERVICE
EXPEDITED PURCHASE OPTION permits you, at your
discretion, to transfer funds ($100 minimum and
$200,000 maximum) from your bank account to purchase
shares in your Royce Fund account by telephone or
computer online access.
AUTOMATIC INVESTMENT PLAN allows you to make regular,
automatic transfers ($50 minimum) from your bank
account to purchase shares in your Royce Fund account
on the monthly or quarterly schedule you select.
To establish the Expedited Purchase Option and/or
Automatic Investment Plan, please provide the
appropriate information on the Account Application
and attach a voided check. We will send you a
confirmation of Express Service activation. Please
wait three weeks before using the service.
To make an Expedited Purchase, other than through
computer online access, please call Shareholder
Services at 1-800-841-1180 before 4:00 p.m., Eastern
time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT
DEPOSIT PLAN let you have investments ($50 minimum)
made from your net payroll or government check into
your existing Royce Fund account each pay period.
Your employer must have direct deposit capabilities
through ACH (Automated Clearing House) available to
its employees. You may terminate participation in
these programs by giving written notice to your
employer or government agency, as appropriate. The
Fund is not responsible for the efficiency of the
employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must complete
an Authorization for Direct Deposit form which may be
obtained from Investor Information by calling
1-800-221-4268.
Purchasing
through
a Broker If you purchase shares of the Fund through a program
of services offered or administered by a broker-dealer,
financial institution or other service
provider, you should read the program materials
provided by the service provider, including
information regarding fees which may be charged, in
conjunction with this Prospectus. Certain
shareholder servicing features of the Fund may not be
available or may be modified in connection with the
program of services offered. When shares of the Fund
are purchased in this way, the service provider,
rather than the customer, may be the shareholder of
record of the shares. Certain broker-dealers and
other service providers receive compensation from
the Fund, QDI and/or Quest for providing such
services.
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option--Both net
investment income dividends and capital gains
distributions will be reinvested in additional
Fund shares. This option will be selected for
you automatically unless you specify one of
the other options.
2. Cash Dividend Option--Your dividends will be
paid in cash and your capital gains
distributions will be reinvested in additional
Consultant Class shares.
3. All Cash Option--Both dividends and capital
gains distributions will be paid in cash.
You may change your option by calling Shareholder
Services at 1-800-841-1180.
IMPORTANT The easiest way to establish optional services on
ACCOUNT your account is to select the options you desire when
INFORMATION you complete your Account Application. If you want
to add or change shareholder options later, you may
need to provide additional information and a
signature guarantee. Please call Shareholder
Services at 1-800-841-1180 for further assistance.
Signature For our mutual protection, we may require a signature
Guarantees guarantee on certain written transaction requests.
A signature guarantee verifies the authenticity of
your signature and may be obtained from banks,
brokerage firms and any other guarantor that our
transfer agent deems acceptable. A signature
guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon
request. If a certificate is lost, stolen or
destroyed, you may incur an expense to replace it.
Telephone and Neither the Fund nor its transfer agent will be
Online Access liable for following instructions communicated by
Transactions telephone or computer online access that are
reasonably believed to be genuine. The transfer
agent uses certain procedures designed to confirm
that telephone and computer online access
instructions are genuine, which may include requiring
some form of personal identification prior to acting
on the instructions, providing written confirmation
of the transaction and/or recording incoming
telephone calls, and if it does not follow such
procedures, the Fund or the transfer agent may be
liable for any losses due to unauthorized or
fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment
is not received for any telephone or computer online
access purchase, the transaction will be canceled and
you will be responsible for any loss the Fund incurs.
If you are already a shareholder, the Fund can redeem
shares from any identically registered account in the
Fund as reimbursement for any loss incurred.
Trade Date Your TRADE DATE is the date on which share purchases
for Purchases are credited to your account. If your purchase is
made by check, Federal Funds wire, telephone,
computer online access or exchange and is received by
the close of regular trading on the New York Stock
Exchange (generally 4:00 p.m., Eastern time), your
trade date is the date of receipt. If your purchase
is received after the close of regular trading on the
Exchange, your trade date is the next business day.
Your shares are purchased at the net asset value
determined on your trade date.
In order to prevent lengthy processing delays caused
by the clearing of foreign checks, the Fund will
accept only a foreign check which has been drawn in
U.S. dollars and has been issued by a foreign bank
with a United States correspondent bank.
The Trust reserves the right to suspend the offering
of Fund shares to new investors. The Trust also
reserves the right to reject any specific purchase
request.
REDEEMING You may redeem any portion of your account at any
YOUR time. You may request a redemption in writing or by
SHARES telephone. Redemption proceeds normally will be sent
within two business days after the receipt of the
request in Good Order.
REDEEMING BY Redemption requests should be mailed to The Royce
MAIL 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 or an
authorized service agent or sub-agent has received
all required documents in Good Order.
Definition of
Good Order Good Order means that the request includes the
following:
1. The account number and Fund name.
2. The amount of the transaction (specified in
dollars or shares).
3. Signatures of all owners exactly as they are
registered on the account.
4. Signature guarantees if the value of the shares
being redeemed exceeds $50,000 or if the
payment is to be sent to an address other than
the address of record or is to be made to a
payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might
be required, in the case of retirement plans,
corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as
it pertains to your request, please call Shareholder
Services at 1-800-841-1180.
REDEEMING BY Shareholders who have not established Express Service
TELEPHONE may redeem up to $50,000 of their shares by
telephone, provided the proceeds are mailed to their
address of record. If pre-approved, higher minimums
may apply for institutional accounts. To redeem
shares by telephone, you or your pre-authorized
representative may call Shareholder Services at
1-800-841-1180. Redemption requests received by
telephone prior to the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m.,
Eastern time) are processed on the day of receipt;
redemption requests received by telephone after the
close of regular trading on the Exchange are
processed on the business day following receipt.
Telephone redemption service is not available for
Trust-sponsored retirement plan accounts or if
certificates are held. TELEPHONE REDEMPTIONS WILL
NOT BE PERMITTED FOR A PERIOD OF SIXTY DAYS AFTER A
CHANGE IN THE ADDRESS OF RECORD. See also "Important
Account Information - Telephone and Online Access
Transactions".
REDEEMING BY If you select the Express Service Automatic
EXPRESS SERVICE 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 or call Shareholder Services at
1-800-841-1180 for an Express Service application.
IMPORTANT If you are redeeming shares recently purchased by
REDEMPTION check, Express Service Expedited Purchase or
INFORMATION Automatic Investment Plan, the proceeds of the
redemption may not be sent until payment for the
purchase is collected, which may take up to fifteen
calendar days. Otherwise, redemption proceeds must
be sent to you within seven days of receipt of your
request in Good Order.
If you experience difficulty in making a telephone
redemption during periods of drastic economic or
market changes, your redemption request may be made
by regular or express mail. It will be processed at
the net asset value next determined after your
request has been received by the transfer agent in
Good Order. The Trust reserves the right to revise
or terminate the telephone redemption privilege at
any time.
The Trust may suspend the redemption right or
postpone payment at times when the New York Stock
Exchange is closed or under any emergency
circumstances as determined by the Securities and
Exchange Commission.
Although the Trust will normally make redemptions in
cash, it may cause the Fund to redeem in kind under
certain circumstances.
EARLY In order to discourage short-term trading, the Fund
REDEMPTION assesses an early redemption fee of 1% on redemptions
FEE of share purchases held for less than one year.
Purchases of shares of Royce Value Fund, predecessor
to the Consultant Class, prior to July 1, 1996 are
exempt from the fee. Redemption fees will be paid to
the Fund, out of the redemption proceeds otherwise
payable to the shareholder, to help offset
transaction costs.
The Fund will use the "first-in, first-out" (FIFO)
method to determine the one-year holding period.
Under this method, the date of the redemption will be
compared with the earliest purchase date of the share
purchases held in the account. If this holding
period is less than one year, the fee will be
assessed. In determining "one year," the Fund will
use the anniversary month of a transaction. Thus,
shares purchased in October 1996, for example, will
be subject to the fee if they are redeemed prior to
October 1997. If they are redeemed on or after
October 1, 1997, they will not be subject to the fee.
No redemption fee will be payable on shares acquired
through reinvestment, on an exchange into another
Royce Fund or by shareholders who are (a) employees
of the Trust, Quest, QDI or employees or
representatives of broker-dealers having agreements
with QDI, members of their immediate families or
employee benefit plans for such individuals or
entities; (b) current participants in an Automatic
Investment Plan or an Automatic Withdrawal Plan; (c)
certain Trust-approved Group Investment Plans and
charitable organizations; (d) profit-sharing trusts,
corporations or other institutional investors who are
investment advisory clients of Quest; or (e) omnibus
and other similar account customers of certain
Trust-approved broker-dealers and other institutions.
MINIMUM ACCOUNT Due to the relatively high cost of maintaining
BALANCE smaller accounts, the Trust reserves the right to
REQUIREMENT involuntarily redeem shares in any Fund account that
falls below the minimum initial investment due to
redemptions by the shareholder. If at any time the
balance in an account does not have a value at least
equal to the minimum initial investment or, if an
Automatic Investment Plan is discontinued before an
account reaches the minimum initial investment that
would otherwise be required, you may be notified that
the value of your account is below the Fund's minimum
account balance requirement. You would then have
sixty days to increase your account balance before
the account is liquidated. Proceeds would be
promptly paid to the shareholder.
EXCHANGE Exchanges between series of the Trust are permitted
PRIVILEGE by telephone, computer online access or mail. An
exchange is treated as a redemption and purchase;
therefore, you could realize a taxable gain or loss
on the transaction. Exchanges are accepted only if
the registrations and the tax identification numbers
of the two accounts are identical. Minimum
investment requirements must be met when opening a
new account by exchange, and exchanges may be made
only for shares of a series then offering its shares
for sale in your state of residence. The Trust
reserves the right to revise or terminate the
exchange privilege at any time.
TRANSFERRING You may transfer the ownership of any of your Fund
OWNERSHIP shares to another person by writing to: The Royce
Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. The request must be in Good Order (see
"Redeeming Your Shares - Definition of Good Order").
Before mailing your request, please contact
Shareholder Services (1-800-841-1180) for full
instructions.
OTHER SERVICES For more information about any of these services,
please call Investor Information at 1-800-221-4268.
Statements A confirmation statement will be sent to you each
and Reports time you have a transaction in your account, and an
account statement is sent semi-annually. Shareholder
reports are mailed semi-annually. To reduce
expenses, only one copy of most shareholder reports
may be mailed to a household. Please call Investor
Information if you need additional copies.
Tax-sheltered Shares of the Fund are available for purchase in
Retirement connection with certain types of tax-sheltered
Plans retirement plans, including Individual Retirement
Accounts (IRA's) for individuals and 403(b)(7) Plans
for employees of certain tax-exempt organizations.
These plans should be established with the Trust only
after an investor has consulted with a tax adviser or
attorney. Information about the plans and the
appropriate forms may be obtained from Investor
Information at 1-800-221-4268.
The Royce Funds
1414 Avenue of the Americas THE ROYCE FUNDS
New York, NY 10019 ----------------
1-800-221-4268
[email protected]
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas PENNSYLVANIA MUTUAL
New York, NY 10019 FUND
CONSULTANT CLASS
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 PROSPECTUS
Kansas City, MO 64141-6012 APRIL 30, 1997
1-800-841-1180
Custodian
State Street Bank and Trust
Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and
Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice
President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and
Assistant Secretary
John E. Denneen, Secretary
THE ROYCE FUNDS
ROYCE EQUITY INCOME FUND
PROSPECTUS -- April 30, 1997
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR SERVICES
- -- 1-800-33-ROYCE
INVESTMENT Royce Equity Income Fund's investment objective is reasonable
OBJECTIVE AND income. The potential for capital appreciation will also be
POLICIES considered when selecting the Fund's securities. It seeks to
achieve this objective by investing primarily in dividend
-paying common and preferred stocks and debt securities
convertible into common stocks. There can be no assurance
that the Fund will achieve its objective.
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 Royce Equity Income Fund only.
ABOUT THIS This Prospectus sets forth concisely the information that you
PROSPECTUS 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 April 30, 1997 and has been
incorporated by reference into this Prospectus. A copy may be
obtained without charge by writing to the Trust or calling
Investor Information.
The Trust's Board of Trustees has recommended that shareholders
of Royce Equity Income Fund approve the acquisition of all of
the Fund's assets and liabilities by Royce Total Return Fund,
another series of the Trust, in exchange for shares of Royce
Total Return Fund. The proposed combination will be voted on
at a Special Meeting of Royce Equity Income Fund's shareholders
to be held on or before June 27, 1997.
TABLE OF CONTENTS
Page Page
Fund Expenses 2 Dividends, Distributions and Taxes 7
Financial Highlights 3 Net Asset Value Per Share 8
Investment Performance and SHAREHOLDER GUIDE
Volatility 4 Opening an Account and Purchasing
Investment Objective 4 Shares 8
Investment Policies 5 Choosing a Distribution Option 10
Investment Risks 5 Important Account Information 10
Investment Limitations 5 Redeeming Your Shares 11
Management of the Trust 6 Exchange Privilege 13
General Information 7 Transferring Ownership 13
Other Services 14
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FUND EXPENSES The following table summarizes all expenses and fees that you
would incur as a shareholder of the Fund.
The Fund is
no-load and has
no 12b-1 fees Shareholder Transaction Expenses
--------------------------------
Sales Load Imposed on Purchases . None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fee -- on purchases held for 1 year
or more None
Early Redemption Fee -- on purchases held for
less than 1 year 1%
Annual Fund Operating Expenses
------------------------------
Management Fees (after waivers) 0.93%
Other Expenses 0.44%
Total Operating Expenses 1.37%
_____
The purpose of the above tables is to assist you in
understanding the various costs and expenses that you would
bear directly or indirectly as an investor in the Fund.
Management Fees would have been 1.00% and Total Operating
Expenses would have been 1.44% without the waiver of management
fees by Quest Advisory Corp. ("Quest"), the Fund's investment
adviser.
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
------ ------- ------- --------
$14 $43 $75 $165
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
FINANCIAL The following financial highlights are part of the Fund's
HIGHLIGHTS financial statements and have been audited by Coopers & Lybrand
L.L.P., independent accountants. The Fund's financial
(For a share statements and Coopers & Lybrand L.L.P.'s reports on them are
outstanding included in the Fund's Annual Reports to Shareholders and are
throughout incorporated by reference into the Statement of Additional
each period) 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.
<TABLE>
Year ended December 31,
------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $5.70 $5.12 $5.58 $5.49 $4.93 $4.03 $5.00
----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1) 0.18 0.21 0.19 0.21 0.22 0.22 0.23
Net realized and unrealized
gain (loss) on investments 0.73 0.62 (0.37) 0.50 0.72 0.99 (0.98)
---- ---- ------ ---- ---- ---- ------
Total from Investment
Operations 0.91 0.83 (0.18) 0.71 0.94 1.21 (0.75)
---- ---- ------ ---- ---- ---- ------
LESS DISTRIBUTIONS
Dividends paid from net
investment income (0.20) (0.21) (0.18) (0.21) (0.22) (0.22) (0.22)
Distributions paid from
capital gains (0.70) (0.04) (0.10) (0.41) (0.16) (0.09) (0.00)
------ ------ ------ ------ ------ ------ ------
Total Distributions (0.90) (0.25) (0.28) (0.62) (0.38) (0.31) (0.22)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR $5.71 $5.70 $5.12 $5.58 $5.49 $4.93 $4.03
----- ----- ----- ----- ----- ----- -----
TOTAL RETURN 16.5% 16.4% -3.3% 13.1% 19.4% 30.3% -15.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets,
End of Year (millions) $36 $56 $77 $85 $54 $41 $19
Ratio of Expenses to
Average Net Assets (1) 1.37% 1.24% 1.27% 1.00% 0.99% 0.99% 1.00%
Ratio of Net Investment Income
to Average Net Assets 2.91% 3.49% 3.43% 3.79% 4.31% 4.58% 4.74%
Portfolio Turnover Rate 36% 29% 47% 100% 59% 72% 28%
Average Commission Rate Paid* $.0607 --- --- --- --- --- ---
</TABLE>
(1) Expenses are shown after waivers of fees by the investment adviser and
distributor. Absent such waivers, the ratio of expenses to average net
assets would have been 1.44%, 1.33%, 1.33%, 1.39%, 1.30%, 1.30% and
1.34% for the years ended December 31, 1996, 1995, 1994, 1993, 1992,
1991 and 1990.
*Beginning in 1996, the Fund is required to disclose average commission
rates paid per share for purchases and sales of investments.
INVESTMENT The Fund may include in communications to current or
PERFORMANCE prospective shareholders figures reflecting Total Return
AND VOLATILITY over various time periods. "Total Return" is the rate of
return on an amount invested in the Fund from the
Total Return is Fund from the beginning to the end of
the change in the stated period. "Average annual Total Return" is the
value over annual compounded percentage change in the value of an
a given time amount invested in the Fund from the beginning until the end
period, of the stated period. Total Returns are historical
assuming measures of past performance and are not intended to
reinvestment indicate future performance. Total Returns assume the
of dividends and reinvestment of all net investment income dividends and
capital gains capital gains distributions. The figures do not reflect the
distributions Fund's early redemption fee because this fee applies only to
redemptions of share purchases held for less than one year.
Additionally, the performance of the Fund may be compared to
(i) the performance of various indices and investments for
which reliable performance data is available and (ii) averages,
performance rankings or other information prepared by
recognized mutual fund statistical services.
The Fund's average annual total returns for the periods ended
December 31, 1996 were:
One Five Since Jan 2, 1990
Year Years Inception
---- ----- ---------
16.5% 12.1% 10.0%
The relative risk of investing in a particular fund should be
considered in addition to the total returns of a fund. Risk,
in terms of how volatile an investor's returns have been, can
be measured in a number of ways, including standard deviation
and beta.
Standard deviation measures the range of
performance within which a fund's total returns
have fallen. The lower the standard deviation of
the fund, the less volatile and more consistent
the fund's monthly total returns have been over
that period. When the standard deviation of a
fund is lower than the standard deviation of the
S&P 500, the fund has been less volatile than the
index.
Beta measures a fund's sensitivity to market
movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If
the fund has a beta greater than 1.00, it has been
more volatile than the index; if its beta is less
than 1.00, it has been less volatile than the
index.
These measures of risk, which are historical in nature and not
necessarily predictive of future volatility are more fully
described in the Statement of Additional Information. For the
three year period ended December 31, 1996, standard deviation
and beta for the Fund, the Russell 2000, an index
representative of small company stocks, and the S&P 500 were:
Std. Dev. Beta
--------- ----
Royce Equity Income 6.36 .43
Russell 2000 12.10 .94
S&P 500 9.72 1.00
Investors evaluating these and other quantitative measures of
risk should understand that the risk profiles of the Fund's
portfolio may change over time. The investment risks
associated with the types of securities in which the Funds may
invest are described below, see "Investment Risks."
INVESTMENT
OBJECTIVE ROYCE EQUITY INCOME FUND'S investment objective is reasonable
income. It seeks to achieve this objective by investing
primarily in dividend-paying common and preferred stocks and
debt securities convertible into common stocks. The composite
yield on these securities is intended to be higher than that of
the stocks in the Standard & Poor's 500 Index. The potential
for capital appreciation will also be considered when selecting
the Fund's securities. Since certain risks are inherent in
owning any security, there can be no assurance that the Fund
will achieve its objective.
This investment objective is fundamental and may not be changed
without the approval of a majority of the Fund's outstanding
voting shares, as that term is defined in the Investment
Company Act of 1940 (the "1940 Act").
INVESTMENT Quest uses a "value" method in managing the Fund's assets.
POLICIES In its selection process, Quest puts primary emphasis on the
understanding of various internal returns indicative of
The Fund invests profitability, balance sheet quality, cash flows and the
on a value basis relationships that these factors have to the price of a
given security. This is in contrast to other methods that
The Fund invests focus on high growth or emerging growth companies.
primarily in
small Quest's value method is based on its belief that the
companies securities of certain companies may sell at a discount from
its estimate of such companies' "private worth", that is,
what a knowledgeable buyer would pay for the entire company.
Quest attempts to identify and invest in these securities
for the Fund, with the expectation that this "value
discount" will narrow over time and thus provide capital
appreciation for the Fund.
In accordance with its objective of seeking reasonable income,
the Fund will normally invest at least 80% of its assets in
common stocks, convertible preferred stocks and convertible
bonds. At least 90% of these securities will be income-producing, and
at least 65% of these securities will be issued
by companies with stock market capitalizations under
$1,000,000,000 at the time of investment. The remainder of the
Fund's assets may be invested in securities of companies with
higher stock market capitalizations, non-dividend-paying common
stocks and non-convertible preferred stocks and debt
securities. Quest seeks to invest the Fund's portfolio in a
manner that produces a composite yield which is higher than the
composite yield of the stocks in the Standard & Poor's 500
Index and considers the capital appreciation potential of the
securities it selects for the Fund's portfolio.
INVESTMENT As a mutual fund investing primarily in common stocks
RISKS and/or securities convertible into common stocks, the
Fund is subject to market risk, that is, the possibility that
The Fund is common stock prices will decline over short or even extended
subject periods. The Fund invests a substantial portion of its
to certain assets in securities of small and /or micro-cap companies.
investment Such companies may not be well-known to the investing public,
risks may not have significant institutional ownership and may have
cyclical, static or only moderate growth prospects.
In addition, the securities of such companies may be more
volatile in price, have wider spreads between their bid and
ask prices and have significantly lower trading volumes than
the larger capitalization stocks included in the S&P 500
Index. Thus, the Fund's purchases and sales of such securities
may have a greater impact on their market prices than would be
the case with larger capitalization stocks. Accordingly,
Quest's investment focus requires a long-term investment
horizon, and the Fund should not be used to play short-term
swings in the market.
INVESTMENT
LIMITATIONS
The Fund has
adopted
certain
fundamental
limitations
The Fund has adopted certain fundamental limitations,
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 limitations 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 the value of the repurchase agreement and will
be held by the Fund's custodian bank until repurchased. Should
the Fund implement a temporary investment policy, its
investment objective may not be achieved.
Securities
lending The Fund may lend up to 25% of its assets to qualified
institutional investors for the purpose of realizing additional
income. Loans of securities of the Fund will be collateralized
by cash or securities issued or guaranteed by the United States
Government or its agencies or instrumentalities. The
collateral will equal at least 100% of the current market value
of the loaned securities. The risks of securities lending
include possible delays in receiving additional collateral or
in recovery of loaned securities or loss of rights in the
collateral if the borrower defaults or becomes insolvent.
Foreign
securities
The Fund may invest up to 10% of its assets in debt and/or
equity securities of foreign issuers. Foreign investments
involve certain risks, such as political or economic
instability of the issuer or of the country of issue,
fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to
greater fluctuations in price than the securities of U.S.
corporations, and there may be less publicly available
information about their operations. Foreign companies may not
be subject to accounting standards or governmental supervision
comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less
protection to investors such as the Fund.
Warrants, rights
and options
The Fund may invest up to 5% of its total assets in warrants,
rights and options.
Lower-rated
debt securities
The Fund may invest no more than 5% of its net assets in
lower-rated (high-risk) non-convertible debt securities,
which are below investment grade. The Funds do not expect
to invest in non-convertible debt securities that are rated
lower than Caa by Moody's Investors Service, Inc. or CCC by
Standard & Poor's Corp. or, if unrated, determined to be of
comparable quality.
MANAGEMENT OF
THE TRUST
Quest Advisory
Corp. is
responsible for
management of
the Fund's
portfolio The Trust's business and affairs are managed under the
direction of its Board of Trustees. Quest, the Fund's
investment adviser, is responsible for the investment of their
assets, subject to the authority of the Board. Charles M.
Royce, Quest's President, Chief Investment Officer and sole
voting shareholder since 1972, is primarily responsible for
managing the Funds' portfolios. He is assisted by Quest's
investment staff, including W. Whitney George, Portfolio
Manager and Managing Director, and by Jack E. Fockler, Jr.,
Managing Director. Quest is also the investment adviser to
Pennsylvania Mutual Fund, PMF II, Royce Premier, Micro-Cap,
Total Return, Low-Priced Stock, Global Services, Value and
GiftShares Funds, which are other series of the Trust, and to
other investment and non-investment company accounts.
As compensation for its services to the Fund, Quest is entitled
to receive annual advisory fees of 1.00% of the average net
assets of the Fund. For 1996, the fees paid to Quest on
average net assets were 0.93% (net of voluntary waivers).
Quest 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 Quest.
Quest is authorized, in recognition of the value of brokerage
and research services provided, to pay commissions to a broker
in excess of the amount which another broker might have charged
for the same transaction.
Quest Distributors, Inc. ("QDI"), which is wholly-owned by
Charles M. Royce, acts as distributor of the Fund's shares.
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. It is the
successor to a Massachusetts business trust established in
October 1985 and merged into the Trust in June 1996. The
Trustees have the authority to issue an unlimited number of
shares of beneficial interest, without shareholder approval,
and these shares may be divided into an unlimited number of
series and classes. Shareholders are entitled to one vote per
share. Shares vote by individual series on all matters, except
that shares are voted in the aggregate and not by individual
series when required by the 1940 Act and that if the Trustees
determine that a matter affects only one series, then only
shareholders of that series are entitled to vote on that
matter.
Meetings of shareholders will not be held except as required by
the 1940 Act or other applicable law. A meeting will be held
to vote on the removal of a Trustee or Trustees of the Trust if
requested in writing by the holders of not less than 10% of the
outstanding shares of the Trust.
The custodian for securities, cash and other assets of the 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.<PAGE>
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
The Fund pays
dividends and
capital gains
annually in
December The Fund pays quarterly dividends from net investment income
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 receive information annually as to the tax status
of distributions made by the Fund for the calendar year. For
Federal income tax purposes, all distributions by the Fund are
taxable to shareholders when declared, whether received in cash
or reinvested in shares. Distributions paid from the Fund's
net investment income and short-term capital gains are taxable
to shareholders as ordinary income dividends. A portion of the
Fund's dividends may qualify for the corporate dividends
received deduction, subject to certain limitations. The
portion of the Fund's dividends qualifying for such deduction
is generally limited to the aggregate taxable dividends
received by the Fund from domestic corporations. Distributions
paid from long-term capital gains of the Fund are treated by a
shareholder for Federal income tax purposes as long-term
capital gains, regardless of how long the shareholder has held
Fund shares.
If a shareholder disposes of shares held for six months or less
at a loss, such loss is treated as a long-term capital loss to
the extent of any long-term capital gains reported by the
shareholder with respect to such shares. A loss realized on a
taxable disposition of Fund shares may be disallowed to the
extent that additional Fund shares are purchased (including by
reinvestment of distributions) within 30 days before or after
such disposition.
The redemption of shares is a taxable event, and a shareholder
may realize a capital gain or capital loss. The Fund will
report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in the
redeemed shares for tax purposes, shareholders should retain
their account statements for use in determining their tax
liability on a redemption.
At the time of a shareholder's purchase, the Fund's net asset
value may reflect undistributed income or capital gains. A
subsequent distribution of these amounts by the Fund will be
taxable to the shareholder even though the distribution
economically is a return of part of the shareholder's
investment.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions and redemptions paid to non-corporate
shareholders who have not complied with Internal
Revenue Service taxpayer identification regulations.
Shareholders may avoid this withholding requirement by
certifying on the Account Application 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 a more detailed description of Federal income tax
aspects that may be relevant to a shareholder. Shareholders
may also be subject to state and local taxes on income and any
gains from their investment. Investors should consult their
own tax advisers concerning the tax consequences of an
investment in the Fund.
NET ASSET 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 or an authorized service agent or sub-agent.
Net asset value per share is determined by dividing the
total value of the Fund's investments plus cash 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. New accounts
(other than IRA or 403(b)(7) accounts) can be opened either by
mail, by telephone or by wire. An Account Application must be
completed and returned, regardless of the method selected. If
you need assistance with the Account Application or have any
questions about the Fund, please call Investor Information at
1-800-221-4268. Note: For certain types of account
registrations (e.g., corporations, partnerships, foundations,
associations, other organizations, trusts or powers of
attorney), please call Investor Information to determine if you
need to provide additional forms with your application.
Type of Account Minimum
- --------------- -------
Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
403(b)(7) accounts * None
* Separate forms must be used for opening IRAs or 403(b)(7)
accounts; please call Investor Information if you need these
forms.
Subsequent 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
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
Please include the amount of Additional investments should
your initial investment on the include the Invest-by-Mail
Application Form, make your remittance form attached to
check payable to The Royce your Fund account confirmation
Fund, and mail to: statements. Please make your
check payable to The Royce
The Royce Funds Fund, write your account
P.O. Box 419012 number on your check and,
Kansas City, MO 64141-6012 using the return envelope
provided, mail to the address
indicated on the Invest-by-
Mail form.
For express or All written requests should be
registered mail, mailed to one of the addresses
send to: indicated for new accounts.
The Royce Funds
c/o National Financial Data
Services
1004 Baltimore, 5th Floor
Kansas City, MO 64105
PURCHASING BY
TELEPHONE
To open an account by Subsequent telephone purchases
telephone, you should call ($500 minimum) may also be
Investor Information (1-800-221-4268) made by calling Investor
before 4:00 p.m., Information. For all
Eastern time. You will be telephone purchases, payment
given a confirming order is due within three business
number for your purchase. days and may be made by wire
This number must be placed on or personal, business or bank
your completed Application check, subject to collection.
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.
Purchasing By
Wire:
BEFORE WIRING:
For a new
account,
please contact
Investor
Information at
1-800-221-4268<PAGE>
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: Royce Equity 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, and complete the Account Application and mail it to the
"New Account" address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders will be
accepted only when the Fund and its custodian are open for
business.
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 or computer online access.
AUTOMATIC INVESTMENT PLAN allows you to make regular, automatic
transfers ($50 minimum) from your bank account to purchase
shares in your Royce Fund account on the monthly or quarterly
schedule you select.
To establish the Expedited Purchase Option and/or Automatic
Investment Plan, please provide the appropriate information on
the Account Application and attach a voided check. We will send
you a confirmation of Express Service activation. Please wait
three weeks before using the service.
To make an Expedited Purchase, other than through computer
online access, please call Shareholder Services at
1-800-841-1180 before 4:00 p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT 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. If you want to add or change shareholder
options later, you may need to provide additional information
and a signature guarantee. Please call Shareholder Services at
1-800-841-1180 for further assistance.
Signature
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.
<PAGE>
Certificates
Certificates for whole shares will be issued upon request. If
a certificate is lost, stolen or destroyed, you may incur an
expense to replace it.
Purchases
Through
Service
Providers
If you purchase shares of the Fund through a program of
services offered or administered by a broker-dealer, financial
institution or other service provider, you should read the
program materials provided by the service provider, including
information regarding fees which may be charged, in conjunction
with this Prospectus. Certain shareholder servicing features
of the Fund may not be available or may be modified in
connection with the program of services offered. When shares
of the Fund are purchased in this way, the service provider,
rather than the customer, may be the shareholder of record of
the shares. QDI, Quest and/or the Fund may pay fees so
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.
Telephone and
Online Access
Transactions
Neither the Fund nor its transfer agent will be liable for
following instructions communicated by telephone or computer
online access that are reasonably believed to be genuine. The
transfer agent uses certain procedures designed to confirm that
telephone and computer online access instructions are genuine,
which may include requiring some form of personal
identification prior to acting on the instructions, providing
written confirmation of the transaction and/or recording
incoming telephone calls, and if it does not follow such
procedures, the Fund or the transfer agent may be liable for
any losses due to unauthorized or fraudulent transactions.
Nonpayment
If your check or wire does not clear, or if payment is not
received for any telephone or computer online access purchase,
the transaction will be canceled and you will be responsible
for any loss the Fund incurs. If you are already a
shareholder, the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for any loss
incurred.
Trade Date for
Purchases
Your trade date is the date on which share purchases are
credited to your account. If your purchase is made by check,
Federal Funds wire, telephone, computer online access or
exchange and is received by the close of regular trading on the
New York Stock Exchange (generally 4:00 p.m., Eastern time),
your trade date is the date of receipt. If your purchase is
received after the close of regular trading on the Exchange,
your trade date is the next business day. Your shares are
purchased at the net asset value determined on your trade date.
In order to prevent lengthy processing delays caused by the
clearing of foreign checks, the Fund will accept only a foreign
check which has been drawn in U.S. dollars and has been issued
by a foreign bank with a United States correspondent bank.
The Trust reserves the right to suspend the offering of Fund
shares to new investors. The Trust also reserves the right to
reject any specific purchase request.
REDEEMING 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
Redemption 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 or an authorized service agent or
sub-agent has received all required documents in Good Order.
Definition of
Good Order
Good Order means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners exactly as they are registered
on the account.
4. Signature guarantees if the value of the shares being
redeemed exceeds $50,000 or if the payment is to be sent
to an address other than the address of record or is to
be made to a payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be
required, in the case of retirement plans, corporations,
trusts, estates and certain other accounts.
If you have any questions about what is required as it pertains
to your request, please call Shareholder Services at 1-800-841-1180.<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.
If preapproved, higher minimums may apply for institutional
accounts. To redeem shares by telephone, you or your
pre-authorized representative may call Shareholder Services
at 1-800-841-1180. Redemption requests received by telephone prior
to the close of regular trading on the New York Stock Exchange
(generally 4:00 p.m., Eastern time) are processed on the day of
receipt; redemption requests received by telephone after the
close of regular trading on the Exchange are processed on the
business day following receipt.
Telephone redemption service is not available for Trust-sponsored retirement
plan accounts or if certificates are held.
Telephone redemptions will not be permitted for a period of
sixty days after a change in the address of record. See also
"Important Account Information - Telephone and Online Access
Transactions".
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 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 the Trust will normally make redemptions in cash, it
may cause the Fund to redeem in kind under certain
circumstances.
Early Redemption
Fee
In order to discourage short-term trading, the Fund assesses an
early redemption fee of 1% on redemptions of share purchases
held for less than one year. Purchases of Fund shares prior to
July 1, 1996 are exempt from the fee. Redemption fees will be
paid to the Fund, out of the redemption proceeds otherwise
payable to the shareholder, to help offset transaction costs.
The Fund will use the "first-in, first-out" (FIFO) method to
determine the one-year holding period. Under this method, the
date of the redemption will be compared with the earliest
purchase date of the share purchases held in the account. If
this holding period is less than one year, the fee will be
assessed. In determining "one year," the Fund will use the
anniversary month of a transaction. Thus, shares purchased in
August 1997, for example, will be subject to the fee if they
are redeemed prior to August 1998. If they are redeemed on or
after August 1, 1998, they will not be subject to the fee.
No redemption fee will be payable on shares acquired through
reinvestment, on an exchange into another Royce Fund or by
shareholders who are (a) employees of the Trust or Quest 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, (d) profit-sharing trusts,
corporations or other institutional investors who are
investment advisory clients of Quest or (e) omnibus or 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 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, computer online access
or mail. An exchange is treated as a redemption and purchase;
therefore, you could realize a taxable gain or loss on the
transaction. Exchanges are accepted only if the registrations
and the tax identification numbers of the two accounts are
identical. Minimum investment requirements must be met when
opening a new account by exchange, and exchanges may be made
only for shares of a series 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 confirmation statement will be sent to you each time you have
a transaction in your account and semi-annually. Shareholder
reports are mailed semi-annually. To reduce expenses, only one
copy of most shareholder reports may be mailed to a household.
Please call Investor Information if you need additional copies.
Tax-sheltered
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. <PAGE>
The Royce Funds
1414 Avenue of the Americas THE ROYCE FUNDS
New York, NY 10019 ---------------
1-800-221-4268
[email protected]
Investment Adviser
Quest Advisory Corp. ROYCE EQUITY INCOME FUND
1414 Avenue of the Americas A NO LOAD MUTUAL FUND
New York, NY 10019
Distributor
Quest Distributors, Inc.
1414 Avenue of the Americas
New York, NY 10019
Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180 PROSPECTUS
APRIL 30, 1997
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and
Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
John E. Denneen, Secretary
THE ROYCE FUNDS
ROYCE VALUE FUND
PROSPECTUS -- April 30, 1997
NEW ACCOUNT AND GENERAL INFORMATION: Investor Information -- 1-800-221-4268
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR SERVICES
- -- 1-800-33-ROYCE
INVESTMENT
OBJECTIVE AND
POLICIES
Royce Value Fund (the "Fund") is a series of The Royce Fund
(the "Trust"), a diversified, open-end management investment
company. Its investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective
primarily through investments in common stocks and securities
convertible into common stocks of small companies selected on
a value basis. There can be no assurance that the Fund will
achieve its objective.
The Trust is currently offering shares of eleven series. This
Prospectus relates to Royce Value 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 April 30, 1997 and has been
incorporated by reference into this Prospectus. A copy may be
obtained without charge by writing to the Trust or calling
Investor Information.
The Trust's Board of Trustees has recommended that the Fund's
shareholders approve the acquisition of all of the Fund's
assets and liabilities by Pennsylvania Mutual Fund, another
series of the Trust, in exchange for shares of a newly-
established Consultant Class of Pennsylvania Mutual Fund.
The proposed combination will be voted on at a Special Meeting
of the Fund's shareholders to be held on or before June 27,
1997.
TABLE OF CONTENTS Page Page
Fund Expenses 2 Dividends, Distributions and Taxes 7
Financial Highlights 3 Net Asset Value Per Share 8
Investment Performance and SHAREHOLDER GUIDE
Volatility 4 Opening an Account and Purchasing
Investment Objective 4 Shares 9
Investment Policies 5 Choosing a Distribution Option 11
Investment Risks 5 Important Account Information 11
Investment Limitations 5 Redeeming Your Shares 12
Management of the Trust 6 Exchange Privilege 14
General Information 7 Transferring Ownership 14
Other Services 14
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
FUND EXPENSES
The following table summarizes the maximum transaction costs
and estimated 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
Deferred Sales Load None
Redemption Fee -- on purchases held for 1 year or more None
Early Redemption Fee -- on purchases held for less
than 1 year 1%
Annual Fund Operating Expenses
------------------------------
Management Fees . . . . . . . . . . . . . .87%
12b-1 Fees (after waiver) . . . . . . . . .67%
Other Expenses. . . . . . . . . . . . . . .32%
---
Total Operating Expenses. . . . . . . . . 1.86%
-----
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. 12b-1
fees would be 1% and total operating expenses would be 2.19%
without the waiver of 12b-1 fees by Quest Distributors, Inc.
("QDI"), the Fund's distributor. See "Management of the Trust
- -Distribution."
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
------ ------- ------- --------
$19 $58 $101 $218
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.
Long-term shareholders of the Fund may pay more than the
economic equivalent of the maximum front-end sales charge of
6.25% of the amount invested permitted by the Rules of Fair
Practice of NASD Regulation, Inc.
FINANCIAL The following financial highlights are part of the Fund's
HIGHLIGHTS financial statements and have been audited by Coopers & Lybrand
(For a share L.L.P., independent accountants. The Fund's financial
outstanding statements and Coopers & Lybrand L.L.P.'s reports on them are
throughout included in the Fund's Annual Reports to Shareholders and are
each year) 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.
<TABLE>
Year ended December 31,
------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR $10.02 $9.11 $9.73 $9.51 $8.83 $6.96 $8.48 $7.99 $6.81 $8.33
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (1) 0.0 0.05 0.07 0.05 0.04 0.09 0.14 0.17 0.11 0.09
Net realized and unrealized
gain (loss) on investments 1.35 1.65 (0.23) 0.97 1.37 2.05 (1.29) 1.10 1.49 (.02)
---- ---- ------ ---- ---- ---- ------ ---- ---- -----
Total from Investment
Operations 1.37 1.70 (0.16) 1.02 1.41 2.14 (1.15) 1.27 1.60 .07
---- ---- ------ ---- ---- ---- ------ ---- ---- ---
LESS DISTRIBUTIONS
Dividends paid from net
investment income (0.02) (0.05) (0.05) (0.05) (0.04) (0.09) (0.15) (0.18) (0.12) (0.17)
Distributions paid from capital
gains (1.77) (0.74) (0.41) (0.75) (0.69) (0.18) (0.22) (0.60) (0.30) (1.42)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions (1.79) (0.79) (0.46) (0.80) (0.73) (0.27) (0.37) (0.78) (0.42) (1.59)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF YEAR $9.60 $10.02 $9.11 $9.73 $9.51 $8.83 $6.96 $8.48 $7.99 $6.81
----- ------ ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN 14.0% 18.7% -1.6% 10.7% 16.0% 30.8% -13.6% 15.9% 23.6% 0.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets,
End of Year (millions) $145 $167 $167 $186 $178 $167 $148 $193 $169 $140
Ratio of Expenses to
Average Net Assets (1) 1.86% 1.76% 1.80% 1.84% 1.88% 1.69% 1.88% 1.87% 1.88% 1.88%
Ratio of Net Investment Income
to Average Net Assets 0.14% 0.46% 0.67% 0.43% 0.42% 1.00% 1.77% 1.84% 1.36% 0.97%
Portfolio Turnover Rate 30% 14% 22% 31% 28% 25% 18% 31% 22% 41%
Average Commission Rate
Paid* $.0626 --- --- --- --- --- --- ---
(1) Net investment income and the ratio of expenses to average net assets
are shown after the waiver of fees by the adviser and distributor. The expense
ratio before waivers would have been 2.19%, 2.14%, 2.16%, 2.15%, 2.15% and
2.20% for the years ended December 31, 1996, 1995, 1994, 1993, 1992 and
1991, respectively.
*Beginning in 1996, the Fund is required to disclose average commission
rates paid per share for purchases and sales of investments.
</TABLE>
INVESTMENT
PERFORMANCE
AND VOLATILITY
Total return is
the change in
value over a
given time
period, assuming
reinvestment of
dividends and
capital gains
distributions
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. "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. Total returns
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 this fee applies only
to redemptions of share purchases held for less than one year.
Additionally, the performance of the Fund may be compared to
(i) the performance of various indices and investments for
which reliable performance data is available and (ii) averages,
performance rankings or other information prepared by
recognized mutual fund statistical services.
The Fund's average annual total returns (%) for the periods
ended December 31, were:
One Five Ten Since
Year Years Years Inception Inception Date
---- ----- ----- --------- --------------
14.03% 11.32% 10.78% 12.83% December 31, 1982
The relative risk of investing in a particular fund should be
considered in addition to the total returns of a fund. Risk,
in terms of how volatile an investor's returns have been, can
be measured in a number of ways, including standard deviation
and beta.
Standard deviation measures the range of performance
within which a fund's total returns have fallen.
The lower the standard deviation of the fund, the
less volatile and more consistent the fund's monthly
total returns have been over that period. When the
standard deviation of a fund is lower than the
standard deviation of the S&P 500, the fund has been
less volatile than the index.
Beta measures a fund's sensitivity to market
movements. The beta for the index chosen to
represent the market (the S&P 500) is 1.00. If the
fund has a beta greater than 1.00, it has been more
volatile than the index; if its beta is less than
1.00, it has been less volatile than the index.
These measures of risk, which are historical in nature and not
necessarily predictive of future volatility, are more fully
described in the Statement of Additional Information. For the
three year period ended December 31, 1996, standard deviation
and beta for the Fund, the Russell 2000, an index
representative of small company stocks, and the S&P 500 were:
Std. Dev. Beta
--------- ----
Royce Value 7.53 .52
Russell 2000 12.10 .94
S&P 500 9.72 1.00
Investors evaluating these and other quantitative measures of
risk should understand that the risk profiles of the Fund's
portfolio may change over time. The investment risks
associated with the types of securities in which the Fund may
invest are described below. See "Investment Risks."
INVESTMENT
OBJECTIVE
ROYCE VALUE FUND'S investment objective is long-term capital
appreciation, primarily through investments in securities of
small companies. Production of income is incidental to this
objective. Since certain risks are inherent in owning any
security, there can be no assurance that the Fund will achieve
its objective.
This investment objective of long-term capital appreciation is
fundamental and may not be changed without the approval of a
majority of the Fund's outstanding voting shares.
INVESTMENT
POLICIES
The Fund invests
on a
value basis
The Fund invests
primarily in
small and
micro-cap
companies
Quest Advisory Corp. ("Quest"), the Fund's investment adviser,
uses a "value" method in managing the Fund's assets. In its
selection process, Quest puts primary emphasis on various
internal returns indicative of profitability, balance sheet
quality, cash flows and the relationships that these factors
have to the current price of a given security.
Quest's value method is based on its belief that the securities
of certain companies may sell at a discount from its estimate
of such companies' "private worth," that is, what a
knowledgeable buyer would pay for the entire company. Quest
attempts to identify and invest in these securities for the
Fund, with the expectation that this "value discount" will
narrow over time and thus provide capital appreciation for the
Fund.
Normally, the Fund will invest at least 65% of its assets in
common stocks and convertible securities of small companies
with stock market capitalizations under $750,000,000 at the
time of investment. The remainder of its assets may be
invested in securities of companies with higher stock market
capitalizations and non-convertible preferred stocks and debt
securities.
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 invests substantial portions of its assets in securities
of small and/or micro-cap companies. Such companies may not be
well-known to the investing public, may not have significant
institutional ownership and may have cyclical, static or only
moderate growth prospects. In addition, the securities of such
companies may be more volatile in price, have wider spreads
between their bid and ask prices and have significantly lower
trading volumes than larger capitalization stocks.
Accordingly, Quest's investment focus requires a long-term
horizon, and the Fund should not be used to play short-term
swings in the market.
In addition, the Fund invests in micro-cap securities that are
followed by relatively few securities analysts, with the result
that there tends to be less publicly available information
concerning the securities. The securities of these companies
may have more limited trading volumes and be subject to more
abrupt or erratic market movements than the securities of
small-cap companies, and Quest may be required to deal with
only a few market-makers when purchasing and selling these
securities. Such companies also may have limited product
lines, markets or financial resources, may lack management
depth and may be more vulnerable to adverse business or market
developments. Thus, the Fund may involve considerably more
risk than a mutual fund investing in the more liquid equity
securities of companies traded on the New York or American
Stock Exchanges.
INVESTMENT
LIMITATIONS
The Fund has
adopted certain
fundamental
limitations
The Fund has adopted certain fundamental limitations, 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
limitations are set forth in the Statement of Additional
Information and provide, among other things, that the Fund will
not:
(a) 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 the value of the repurchase agreement and will
be held by the Fund's custodian bank until repurchased. Should
the Fund implement a temporary investment policy, its
investment objective may not be achieved.
Securities
lending
The Fund may lend up to 25% of its assets to qualified
institutional investors for the purpose of realizing additional
income. Loans of securities of the Fund will be collateralized
by cash or securities issued or guaranteed by the United States
Government or its agencies or instrumentalities. The
collateral will equal at least 100% of the current market value
of the loaned securities. The risks of securities lending
include possible delays in receiving additional collateral or
in recovery of loaned securities or loss of rights in the
collateral if the borrower defaults or becomes insolvent.
Lower-rated debt
securities
The Fund may invest up to 35% of its assets in debt securities
in the lowest category of investment grade debt. These bonds
may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than
is the case with higher grade bonds. 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.
Foreign
securities
The Fund may invest up to 10% of its assets in debt and/or
equity securities of foreign issuers. Foreign investments
involve certain risks, such as political or economic
instability of the issuer or of the country of issue,
fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to
greater fluctuations in price than the securities of U.S.
corporations, and there may be less publicly available
information about their operations. Foreign companies may not
be subject to accounting standards or governmental supervision
comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less
protection to investors such as the Fund.
Warrants, rights
and options
The Fund may invest up to 5% of its total assets in warrants,
rights and options.
MANAGEMENT OF
THE TRUST
Quest Advisory
Corp. 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. Quest, the Fund's
investment adviser, is responsible for the investment of their
assets, subject to the authority of the Board. Charles M.
Royce, Quest's President, Chief Investment Officer and sole
voting shareholder since 1972, is primarily responsible for
managing the Funds' portfolios. He is assisted by Quest's
investment staff, including W. Whitney George, Portfolio
Manager and Managing Director, and by Jack E. Fockler, Jr.,
Managing Director. Quest is also the investment adviser to
Pennsylvania Mutual Fund, PMF II, Royce Equity Income, Premier,
Micro-Cap, Low-Priced Stock, Total Return, Global Services and
GiftShares Funds, which are other series of the Trust, and to
other investment and non-investment company accounts.
As compensation for its services to the Fund, Quest is entitled
to receive annual advisory fees, payable monthly from the
assets of the Fund, of 1% of the first $50 million of the
Fund's average net assets; .875% of the next $50 million of
average net assets; and .75% of average net assets in excess of
$100 million. For 1996, the fees paid to Quest by the Fund
were .87% of its average net assets.
Brokerage
Allocation
Quest selects the brokers who execute purchases and sales of
the Fund's portfolio securities and may place orders with
brokers who provide brokerage and research services to Quest.
Quest is authorized, in recognition of the value of brokerage
and research services provided, to pay commissions to a broker
in excess of the amount which another broker might have charged
for the same transaction.
Distribution Quest Distributors, Inc. ("QDI"), which is wholly-owned by
Charles M. Royce, acts as distributor of the Fund's shares.
Shares of the Fund are available through certain broker-dealers
having agreements with QDI and, from time to time and in
management's sole discretion, directly from the Fund. The
Trust has adopted a distribution plan for the Fund pursuant to
Rule 12b-1. The plan provides for payment to QDI of fees not to
exceed 1% per annum of the Fund's average net assets, which may
be used for payment of sales commissions and other fees to
those broker-dealers who introduce investors to the Fund and
various other promotional, sales-related and servicing costs
and expenses. The fees payable by the Fund to QDI have been
allocated between asset-based sales charges and personal
service and/or account maintenance fees, so that not more than
.25% per annum is payable as a personal service and/or account
maintenance fee and not more than .75% per annum is payable as
an asset-based sales charge. For 1996, the fees paid to QDI by
the Fund were .67% of its average net assets.
GENERAL
INFORMATION
The Royce Fund (the "Trust") is a Delaware business trust
registered with the Securities and Exchange Commission as a
diversified, open-end management investment company. It is the
successor to a Massachusetts business trust established in
October 1985 and merged into the Trust in June 1996. The
Trustees have the authority to issue an unlimited number of
shares of beneficial interest, without shareholder approval,
and these shares may be divided into an unlimited number of
series and classes. Shareholders are entitled to one vote per
share. Shares vote by individual series on all matters, except
that shares are voted in the aggregate and not by individual
series when required by the 1940 Act and that if the Trustees
determine that a matter affects only one series, then only
shareholders of that series are entitled to vote on that
matter.
Meetings of shareholders will not be held except as required by
the 1940 Act or other applicable law. A meeting will be held
to vote on the removal of a Trustee or Trustees of the Trust if
requested in writing by the holders of not less than 10% of the
outstanding shares of the Trust.
The custodian for securities, cash and other assets of the 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
The Fund pays
dividends and
capital gains
distributions
annually in
December
The Fund pays dividends from net investment income (if any) 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 tax purposes, all distributions by the Fund
are taxable to shareholders when declared, whether received in
cash or reinvested in shares. Distributions paid from the
Fund's net investment income and short-term capital gains are
taxable to shareholders as ordinary income dividends. A
portion of the Fund's dividends may qualify for the corporate
dividends-received deduction, subject to certain limitations.
The portion of the Fund's dividends qualifying for such
deduction is generally limited to the aggregate taxable
dividends received by the Fund from domestic
corporations.Distributions paid from long-term capital gains of
the Fund are treated by a shareholder for Federal income tax
purposes as long-term capital gains, regardless of how long the
shareholder has held Fund shares.
If a shareholder disposes of shares held for six months or less
at a loss, such loss 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. A loss realized
on a taxable disposition of Fund shares may be disallowed to
the extent that additional Fund shares are purchased (including
by reinvestment of distributions) within 30 days before or
after such disposition.
The redemption of shares is a taxable event, and a shareholder
may realize a capital gain or capital loss. The Fund will
report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in the
redeemed shares for tax purposes, shareholders should retain
their account statements for use in determining their tax
liability on a redemption.
At the time of a shareholder's purchase, the Fund's net asset
value may reflect undistributed income or capital gains. A
subsequent distribution of these amounts by the Fund will be
taxable to the shareholder even though the distribution
economically is a return of part of the shareholder's
investment.
The Fund is required to withhold 31% of taxable dividends,
capital gain distributions and redemptions paid to non
-corporate shareholders who have not complied with Internal
Revenue Service taxpayer identification regulations.
Shareholders may avoid this withholding requirement by
certifying on the Account Application 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 a more detailed of Federal income tax aspects that may
be relevant to a shareholder. Shareholders may also be subject
to state and local taxes on income and any gains from their
investment. Investors should consult their own tax advisers
concerning the tax consequences of an investment in the Fund.
NET ASSET VALUE
PER SHARE
Net asset value
per share (NAV)
is determined each
day the New York
Stock Exchange
is open
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 or an authorized service agent or sub-agent.
Net asset value per share is determined by dividing the total
value of the Fund's investments plus cash 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 New accounts can be opened by completing an Account
ACCOUNT AND Application and returning it to a broker-dealer having an
PURCHASING agreement with QDI. If you need assistance with the Account
SHARES Application or have any questions about the Fund, please call
your financial consultant or call Investor Information at
1-800-221-4268. Note: For certain types of account
registrations (e.g., corporations, partnerships, foundations,
associations, other organizations, trusts or powers of
attorney), please call Investor Information to determine if
you need to provide additional forms with your application.
Type of Account Minimum
--------------- -------
Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
401(k) and 403(b)(7) accounts None
* Separate forms must be used for opening IRAs or 403(b)(7)
accounts; please call Investor Information if you need these
forms.
Subsequent 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).
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY Please include the amount of Additional investments should
MAIL your initial investment on include the Invest-by-Mail
the Account Application, make remittance form attached to
Complete and your check payable to The your Fund account
sign the Royce Fund, and forward confirmation statements.
enclosed through your financial Please make your check
Account consultant to: payable to The Royce Fund,
Application The Royce Funds write your account number on
P.O. Box 419012 your check and, using the
Kansas City, MO 64141-6012 return envelope provided,
mail to the address indicated
on the Invest-by-Mail form.
For express or The Royce Funds All written requests should
registered c/o National Financial Data be mailed to one of the
mail, Services addresses indicated for new
send to: 1004 Baltimore, 5th Floor accounts.
Kansas City, MO 64105
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY To open an account by Subsequent telephone
TELEPHONE telephone, your financial purchases ($500 minimum) may
consultant should call also be made by calling
Investor Information Investor Information. For
(1-800-221-4268) before all telephone purchases,
4:00 p.m., Eastern time. payment is due within three
A confirming order number business days and may be made
for the purchase will be by wire or personal, business
provided. This number or bank check, subject to
must be placed on the collection.
completed Account Application
before mailing. If a
completed and signed Account
Application is not received
on an account opened by
telephone, the account may
be subject to backup
withholding of Federal
income taxes.
PURCHASING BY
WIRE
BEFORE WIRING:
For a new
account, please
contact Investor
Information at
1-800-221-4268
Money should be wired to:
State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: Royce Value 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, your financial consultant must call Investor
Information to obtain an order number, and complete the
Account Application and mail it to the "New Account" address
above after completing the wire arrangement. Note: Federal
Funds wire purchase orders will be accepted only when the
Fund and its custodian are open for business.
PURCHASING BY
EXPRESS SERVICE
Additional shares can be purchased 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 or computer online access.
AUTOMATIC INVESTMENT PLAN allows you to make regular,
automatic transfers ($50 minimum) from your bank account to
purchase shares in your Royce Fund account on the monthly or
quarterly schedule you select.
To establish the Expedited Purchase Option and/or Automatic
Investment Plan, please provide the appropriate information
on the Account Application and attach a voided check. We will
send you a confirmation of Express Service activation.
Please wait three weeks before using the service.
To make an Expedited Purchase, other than through computer
online access, please call Shareholder Services at
1-800-841-1180 before 4:00 p.m., Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT DEPOSIT
PLAN let you have investments ($50 minimum) made from your
net payroll or government check into your existing Royce Fund
account each pay period. Your employer must have direct
deposit capabilities through ACH (Automated Clearing House)
available to its employees. You may terminate participation
in these programs by giving written notice to your employer
or government agency, as appropriate. The Fund is not
responsible for the efficiency of the employer or government
agency making the payment or any financial institution
transmitting payments.
To initiate a Direct Deposit Plan, you must complete an
Authorization for Direct Deposit form which may be obtained
from Investor Information by calling 1-800-221-4268.
Purchasing through
a Broker
If you purchase shares of the Fund through a program of
services offered or administered by a broker-dealer,
financial institution or other service provider, you should
read the program materials provided by the service provider,
including information regarding fees which may be charged, in
conjunction with this Prospectus. Certain shareholder
servicing features of the Fund may not be available or may be
modified in connection with the program of services offered.
When shares of the Fund are purchased in this way, the
service provider, rather than the customer, may be the
shareholder of record of the shares. Certain broker-dealers
and other service providers receive compensation from the
Fund, QDI and/or Quest for providing such services.
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. If you want to add or change
shareholder options later, you may need to provide additional
information and a signature guarantee. Please call
Shareholder Services at 1-800-841-1180 for further
assistance.
Signature
Guarantees
For our mutual protection, we may require a signature
guarantee on certain written transaction requests. A
signature guarantee verifies the authenticity of your
signature and may be obtained from banks, brokerage firms and
any other guarantor that our transfer agent deems acceptable.
A signature guarantee cannot be provided by a notary public.
Certificates Certificates for whole shares will be issued upon request.
If a certificate is lost, stolen or destroyed, you may incur
an expense to replace it.
Telephone and
Online Access
Transactions
Neither the Fund nor its transfer agent will be liable for
following instructions communicated by telephone or computer
online access that are reasonably believed to be genuine.
The transfer agent uses certain procedures designed to
confirm that telephone and computer online access
instructions are genuine, which may include requiring some
form of personal identification prior to acting on the
instructions, providing written confirmation of the
transaction and/or recording incoming telephone calls, and if
it does not follow such procedures, the Fund or the transfer
agent may be liable for any losses due to unauthorized or
fraudulent transactions.
Nonpayment
If your check or wire does not clear, or if payment is not
received for any telephone or computer online access
purchase, the transaction will be canceled and you will be
responsible for any loss the Fund incurs. If you are already
a shareholder, the Fund can redeem shares from any
identically registered account in the Fund as reimbursement
for any loss incurred.
Trade Date for
Purchases
Your TRADE DATE is the date on which share purchases are
credited to your account. If your purchase is made by check,
Federal Funds wire, telephone, computer online access or
exchange and is received by the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m., Eastern
time), your trade date is the date of receipt. If your
purchase is received after the close of regular trading on
the Exchange, your trade date is the next business day. Your
shares are purchased at the net asset value determined on
your trade date.
In order to prevent lengthy processing delays caused by the
clearing of foreign checks, the Fund will accept only a
foreign check which has been drawn in U.S. dollars and has
been issued by a foreign bank with a United States
correspondent bank.
The Trust reserves the right to suspend the offering of Fund
shares to new investors. The Trust also reserves the right
to reject any specific purchase request.
REDEEMING
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
Redemption 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 or an authorized service agent or
sub-agent has received all required documents in Good Order.
Definition of
Good Order GOOD ORDER means that the request includes the following:
1. The account number and Fund name.
2. The amount of the transaction (specified in dollars or
shares).
3. Signatures of all owners exactly as they are
registered on the account.
4. Signature guarantees if the value of the shares being
redeemed exceeds $50,000 or if the payment is to be
sent to an address other than the address of record or
is to be made to a payee other than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that might be
required, in the case of retirement plans,
corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as it
pertains to your request, please call Shareholder Services at
1-800-841-1180.
REDEEMING BY
TELEPHONE
Shareholders who have not established Express Service may
redeem up to $50,000 of their shares by telephone, provided
the proceeds are mailed to their address of record. If
pre-approved, higher minimums may apply for institutional
accounts. To redeem shares by telephone, you or your
pre-authorized representative may call Shareholder Services
at 1-800-841-1180. Redemption requests received by telephone
prior to the close of regular trading on the New York Stock
Exchange (generally 4:00 p.m., Eastern time) are processed on
the day of receipt; redemption requests received by telephone
after the close of regular trading on the Exchange are
processed on the business day following receipt.
Telephone redemption service is not available for Trust-sponsored
retirement plan accounts or if certificates are
held. Telephone redemptions will not be permitted for a
period of sixty days after a change in the address of record.
See also "Important Account Information - Telephone and
Online Access Transactions".
REDEEMING BY
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 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 the Trust will normally make redemptions in cash, it
may cause the Fund to redeem in kind under certain
circumstances.
EARLY
REDEMPTION
FEE
In order to discourage short-term trading, the Fund assesses
an early redemption fee of 1% on redemptions of share
purchases held for less than one year. Purchases of shares
prior to July 1, 1996 are exempt from the fee. Redemption
fees will be paid to the Fund, out of the redemption proceeds
otherwise payable to the shareholder, to help offset
transaction costs.
The Fund will use the "first-in, first-out" (FIFO) method to
determine the one-year holding period. Under this method,
the date of the redemption will be compared with the earliest
purchase date of the share purchases held in the account. If
this holding period is less than one year, the fee will be
assessed. In determining "one year," the Fund will use the
anniversary month of a transaction. Thus, shares purchased
in October 1996, for example, will be subject to the fee if
they are redeemed prior to October 1997. If they are
redeemed on or after October 1, 1997, they will not be
subject to the fee.
No redemption fee will be payable on shares acquired through
reinvestment, on an exchange into another Royce Fund or by
shareholders who are (a) employees of the Trust, Quest, QDI
or employees or representatives of broker-dealers having
agreements with QDI, members of their immediate families or
employee benefit plans for such individuals or entities; (b)
current participants in an Automatic Investment Plan or an
Automatic Withdrawal Plan; (c) certain Trust-approved Group
Investment Plans and charitable organizations; (d) profit-
sharing trusts, corporations or other institutional investors
who are investment advisory clients of Quest; or (e) 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
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 are permitted by
telephone, computer online access or mail. An exchange is
treated as a redemption and purchase; therefore, you could
realize a taxable gain or loss on the transaction. Exchanges
are accepted only if the registrations and the tax
identification numbers of the two accounts are identical.
Minimum investment requirements must be met when opening a
new account by exchange, and exchanges may be made only for
shares of a series then offering its shares for sale in your
state of residence. The Trust reserves the right to revise
or terminate the exchange privilege at any time.
TRANSFERRING
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 confirmation statement will be sent to you each time you
have a transaction in your account, and an account statement
is sent semi-annually. Shareholder reports are mailed semi-
annually. To reduce expenses, only one copy of most
shareholder reports may be mailed to a household. Please
call Investor Information if you need additional copies.
Tax-sheltered
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 FUNDS THE ROYCE FUNDS
1414 Avenue of the Americas ---------------
New York, NY 10019
1-800-221-4268
[email protected]
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
ROYCE VALUE
DISTRIBUTOR FUND
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 PROSPECTUS
APRIL 30, 1997
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
OFFICERS
Charles M. Royce, President and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
John E. Denneen, Secretary
THE ROYCE FUNDS
ROYCE FINANCIAL SERVICES FUND
PROSPECTUS --April 30, 1997
NEW ACCOUNT AND GENERAL INFORMATION: INVESTOR INFORMATION -- 1-800-221-4268
SHAREHOLDER SERVICES -- 1-800-841-1180 INVESTMENT ADVISOR SERVICES
- -- 1-800-33-ROYCE
ROYCE FINANCIAL SERVICES FUND (the "Fund") seeks
INVESTMENT long-term capital appreciation by investing
OBJECTIVE AND primarily in common stocks and securities
POLICIES convertible into common stocks of companies
principally engaged in the financial services
business sector. The Fund's securities are
selected on a value basis. There can be no
assurance that the Fund will achieve its objective.
The Fund is a no-load series of The Royce Fund (the
"Trust"), a diversified open-end management
investment company. The Fund is one of twelve
series of the Trust. This Prospectus relates to
Royce Financial Services Fund only.
ABOUT THIS This Prospectus sets forth concisely the
PROSPECTUS 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 April 30, 1997 and has been incorporated
by reference into this Prospectus. A copy may be
obtained without charge by writing to the Trust or
calling Investor Information.
TABLE OF CONTENTS
Page Page
Fund Expenses 2 SHAREHOLDER GUIDE
Investment Performance 3 Opening an Account and
Investment Objective 3 Purchasing Shares 10
Investment Policies 3 Choosing a Distribution Option 12
Investment Risks 4 Important Account Information 12
Investment Limitations 6 Redeeming Your Shares 13
Management of the Trust 7 Exchange Privilege 15
General Information 7 Transferring Ownership 16
Dividends, Distributions and Taxes 8 Other Services 16
Net Asset Value Per Share 9
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND EXPENSES
The Fund is The following table summarizes all expenses and
no-load and no fees that you would incur as a shareholder of the Fund.
12b-1 fees are
being charged Shareholder Transaction Expenses
--------------------------------
Sales Load Imposed on Purchases .............. None
Sales Load Imposed on Reinvested Dividends.... None
Deferred Sales Load........................... None
Redemption Fee -- on share purchases held for
1 year or more............................... None
Early Redemption Fee -- on share purchases held
for less than 1 year......................... 1%
Annual Fund Operating Expenses
------------------------------
Management Fees (after waivers)............. .00%
12b-1 Fees (after waivers).................. .00%
Other Expenses.............................. 1.99%
-----
Total Operating Expenses.................... 1.99%
-----
The purpose of the above tables is to assist you in
understanding the various costs and expenses that
you would bear directly or indirectly as an
investor in the Fund. Management Fees would be
1.00%, 12b-1 fees would be .25% and Total
Operating Expenses would be 3.22% without the
waivers of management fees by Quest Advisory Corp.
("Quest"), the Fund's investment adviser, and of
the 12b-1 fees by Quest Distributors, Inc. ("QDI"),
the Fund's distributor. Quest has voluntarily
committed to reduce its management fees to the
extent necessary to maintain annual Total Operating
Expenses at or below 1.99% through December 31,
1997.
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
------ -------
$20 $62
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.
INVESTMENT The Fund may include in communications to current
PERFORMANCE or prospective shareholders figures reflecting
total return over various time periods. "Total
Total return return" is the rate of return on an amount invested
is the in the Fund from the beginning to the end of the
change in stated period. "Average annual total return" is
value over the annual compounded percentage change in the
a given time value of an amount invested in the Fund from the
period, beginning until the end of the stated period.
assuming Total returns are historical measures of past
reinvestment performance and are not intended to indicate future
of dividends performance. Total returns assume the reinvestment
and capital of all net investment income dividends and capital
gains gains distributions. The figures do not reflect
distributions the Fund's early redemption fee because this fee
applies only to redemptions of share purchases held
for less than one year. Additionally, the
performance of the Fund may be compared in
publications to i) the performance of various
indices and investments for which reliable
performance data is available and to ii) averages,
performance rankings or other information prepared
by recognized mutual fund statistical services.
INVESTMENT Royce Financial Services Fund's investment
OBJECTIVE objective is long-term capital appreciation. It
seeks to achieve this objective primarily through
investments in common stocks and securities
convertible into common stocks of companies
principally engaged in the financial services
business sector. There can be no assurance that
the Fund will achieve its investment objective.
The Fund's investment objective of long-term
capital appreciation is fundamental and may not be
changed without the approval of a majority of its
outstanding voting shares, as that term is defined
in the Investment Company Act of 1940 (the "1940
Act").
INVESTMENT Quest uses a "value" method in managing the Fund's
POLICIES assets. In its selection process, Quest puts
primary emphasis on the understanding of various
internal returns indicative of profitability,
balance sheet quality, cash flows and the
The Fund relationships that these factors have to the price
invests on a of a given security.
value basis
Quest's value method is based on its belief that
the securities of certain companies may sell at a
discount from its estimate of such companies'
"private worth", that is, what a knowledgeable
buyer would pay for the entire company. Quest
attempts to identify and invest in these securities
for the Fund, with the expectation that this "value
discount" will narrow over time and thus provide
capital appreciation for the Fund.
The Fund The Fund normally invests at least 65% of its
invests assets in the common stocks, securities convertible
primarily in into common stocks and warrants of domestic and
financial foreign companies "principally" engaged in the
services financial services business sector. The financial
companies services business sector may include: commercial
and industrial banks, savings and loan
associations, consumer and industrial finance,
leasing, insurance, securities brokerage,
investment management, companies that serve these
industries, and other industries as Quest may from
time to time determine to be in the financial
services business sector. For these purposes, a
company is deemed to be principally engaged in the
financial services business sector if at least 50%
of its consolidated assets, revenues or net income
are committed to, or are derived from, financial
services-related activities, or if, based on
available financial information, a question exists
whether a company meets one of these standards,
Quest determines that the company's principal
activities are within the financial services
business sector.
Other The assets of the Fund that are not required to be
securities invested in the equity securities of domestic and
foreign companies principally engaged in the
financial services business sector may be invested
in the common stocks, securities convertible into
common stocks and warrants of domestic and foreign
companies engaged in non-financial services
industries and/or in the non-convertible preferred
stocks and debt securities of domestic and foreign
companies engaged in service or non-service
industries.
Other The Fund may also indirectly invest in the securities
investment of domestic and foreign service and non-service companies
companies by investing up to 20% of its assets in the securities of
other investment companies that invest primarily in such
companies. The other investment companies in which the Fund
may invest may be domestic companies registered under the
1940 Act or foreign companies that are not so registered
or otherwise regulated. They usually have their own
management fees and expenses, and Quest will also earn its
fee on Fund assets invested in such other companies, which
would result in a duplication of fees to the extent of any
such investment. However, Quest will waive its management
fee on any Fund assets invested in other open-end investment
companies, and no sales charge will be incurred on such an
investment.
INVESTMENT As a mutual fund investing primarily in common
RISKS stocks and securities convertible into common
stocks, the Fund is subject to market risk -- that
The Fund is is, the possibility that common stock prices will
subject to decline over short or even extended periods.
certain Because of Quest's value method, the Fund may
investment invest in securities of companies that have
risks cyclical, static or only moderate growth prospects.
Quest's investment method requires a long-term
investment horizon, and the Fund should not be used
to play short-term swings in the market or as a
complete investment program.
Financial Many financial services industries are subject to
service extensive governmental regulation. This may limit
companies are both the amounts and types of loans and other
subject to financial commitments that banks, broker-dealers
certain risks and insurance companies are permitted to make, and,
risks in the case of banks and insurance companies, the
interest, fees and premiums they are permitted to
charge. Insurance companies are particularly
subject to rate setting, potential anti-trust and
tax law changes and industry-wide pricing and
competition cycles and may be affected by
catastrophes and/or reinsurance carrier failures.
Also, the profitability of many types of financial
service companies is largely dependent on the
availability and cost of capital funds and may
fluctuate significantly when interest rates change.
General economic conditions are important to the
operation of most financial services companies, and
credit losses resulting from financial difficulties
of borrowers may negatively impact some of them.
Changes in regulations, brokerage commission
structure and securities market activities,
together with the leverage and trading strategies
employed by broker-dealers and investment banks,
may produce erratic returns for them over time.
Finally, most types of financial services companies
are subject to substantial price and other
competition.
Prices of the securities of domestic and foreign
financial services companies may be more volatile
than those of more broadly diversified investments,
and the Fund's performance will be tied to the
financial services business sector in particular
and the United States and world economies in
general. The securities of financial services
companies may react similarly to market conditions.
Foreign Up to 25% of the Fund's assets, measured at the
securities time of purchase, may be invested in foreign
securities. American Depositary Receipts ("ADRs")
are not subject to this 25% limitation. ADRs are
certificates held in trust by a bank or similar
financial institution evidencing ownership of
shares of a foreign-based issuer. Designed for use
in U.S. securities markets, ADRs are alternatives
to the purchase of the underlying foreign
securities in their national markets and
currencies.
The Fund does not expect to purchase or sell
foreign currencies to hedge against declines in the
U.S. dollar or to lock in the value of the foreign
securities it purchases, and its foreign
investments may be adversely affected by changes in
foreign currency rates. Consequently, the risks
associated with such investments may be greater
than if the Fund did engage in foreign currency
transactions for hedging purposes. Foreign
investments may also be adversely affected by
exchange control regulations, if any, in such
foreign markets, and the Fund's ability to make
certain distributions necessary to maintain
eligibility as a regulated investment company and
avoid the imposition of income and excise taxes may
to that extent be limited.
There may be less information available about a
foreign company than a domestic company; foreign
companies may not be subject to accounting,
auditing and reporting standards and requirements
comparable to those applicable to domestic
companies; and foreign markets, brokers and issuers
are generally subject to less extensive government
regulation than their domestic counterparts.
Foreign securities may be less liquid and may be
subject to greater price volatility than domestic
securities. Foreign brokerage commissions and
custodial fees are generally higher than those in
the United States. Foreign markets also have
different clearance and settlement procedures, and
in certain markets there have been times when
settlements have been unable to keep pace with the
volume of securities transactions, thereby making
it difficult to conduct such transactions. Delays
or problems with settlements might affect the
liquidity of the Fund's portfolio. Foreign
investments may also be subject to local economic
and political risks, political instability and
possible nationalization of issuers or
expropriation of their assets, which might
adversely affect the Fund's ability to realize on
its investment in such securities. Furthermore,
some foreign securities are subject to brokerage
taxes levied by foreign governments, which have the
effect of increasing the cost of such investment
and reducing the realized gain or increasing the
realized loss on such securities at the time of
sale.
Income earned or received by the Fund from sources
within foreign countries may be subject to
withholding and other taxes imposed by such
countries. Any such taxes paid by the Fund will
reduce its cash available for distribution to
shareholders. The Fund is required to calculate
its distributable income and capital gains for U.S.
Federal income tax purposes by reference to the
U.S. dollar. Fluctuations in applicable foreign
currency exchange rates may cause the Fund's
distributable income and capital gains for U.S.
Federal income tax purposes to differ from the
value of its investments calculated by reference to
foreign currencies. If the Fund invests in stock
of a so-called passive foreign investment company,
the Fund may make certain elections that will
affect the calculation of its net investment income
and capital gains.
INVESTMENT The Fund has adopted certain fundamental
LIMITATIONS limitations, designed to reduce its exposure to
specific situations, which may not be changed
The Fund has without the approval of a majority of its
adopted outstanding voting shares, as that term is defined
certain in the 1940 Act. These limitations are set forth
fundamental in the Statement of Additional Information and
limitations provide, among other things, that the Fund will
not:
(a) 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.
The 1940 Act contains certain limitations applicable to
the Fund's investments in the securities of a company that
is a broker, a dealer, an underwriter, an investment adviser
registered under the Investment Advisers Act of 1940 or an
investment adviser to an investment company. These limitations
are set forth in the Statement of Additional Information.
OTHER In addition to investing primarily in the equity and fixed
INVESTMENT income securities described above, the Fund may follow a
PRACTICES number of additional investment practices.
Restricted and The Fund will not invest more than 15% of its net assets in
illiquid illiquid securities, including those restricted securities
securities that are illiquid.
Restricted securities are securities which, if publicly sold,
might cause the Fund to be deemed an "underwriter" under the
Securities Act of 1933 (the "1933 Act") or which are subject
to contractual restrictions on resale. Restricted securities
which the Fund may purchase include securities which have not
been registered under the 1933 Act, but are eligible for
purchase and sale pursuant to Rule 144A under the 1933 Act.
This Rule permits certain qualified institutional buyers to
trade in privately placed securities even though such
securities are not registered under the 1933 Act. Investing in
Rule 144A securities could have the effect of increasing the
amount of investments in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
For more information concerning Rule 144A securities, see
"Investment Policies and Restrictions " in the Statement of
Additional Information.
Short-term The Fund may invest in short-term fixed income securities for
fixed income temporary defensive purposes, to invest uncommitted cash
securities balances or to maintain liquidity to meet shareholder
redemptions. These securities consist of United States Treasury
bills, domestic bank certificates of deposit, high-quality
commercial paper and repurchase agreements collateralized by
U.S. Government securities. In a repurchase agreement, a bank
sells a security to the Fund at one price and agrees to
repurchase it at the Fund's cost plus interest within a
specified period of seven or fewer days. In these transactions,
which are, in effect, secured loans by the Fund, the securities
purchased by the Fund will have a value equal to or in excess
of the value of the repurchase agreement and will be held by
the Fund's custodian bank until repurchased. Should the Fund
implement a temporary investment policy, its investment
objective may not be achieved.
Securities The Fund may lend up to 25% of its assets to qualified
lending institutional investors for the purpose of realizing
additional income. Loans of securities of the Fund will
be collateralized by cash or securities issued or guaranteed
by the United States Government or its agencies or
instrumentalities. The collateral will equal at least 100% of
the current market value of the loaned securities. The risks
of securities lending include possible delays in receiving
additional collateral or in recovery of loaned securities or
loss of rights in the collateral if the borrower defaults or
becomes insolvent.
Lower-rated The Fund may invest no more than 5% of its net assets in
debt securities lower-rated (high-risk) non-convertible debt securities,
which are below investment grade. The Fund does not expect
to invest in debt securities that are rated lower than Caa
by Moody's Investors Service, Inc. or CCC by Standard & Poor's
Corp. or, if unrated, determined to be of comparable quality.
Warrants, rights The Fund may invest up to 5% of its total assets in
and options warrants, rights and options.
MANAGEMENT OF The Trust's business and affairs are managed under
THE TRUST the direction of its Board of Trustees. Quest, the
Fund's investment adviser, is responsible for the
Quest Advisory investment of their assets, subject to the
Corp. is authority of the Board. Charles M. Royce, Quest's
responsible for President, Chief Investment Officer and sole voting
management of shareholder since 1972, is primarily responsible
the Fund's for managing the Funds' portfolios. He is assisted
portfolio by Quest's investment staff, including W. Whitney
George, Portfolio Manager and Managing Director,
and by Jack E. Fockler, Jr., Managing Director.
Quest is also the investment adviser to
Pennsylvania Mutual, Royce Premier, Micro-Cap,
Equity Income, Low-Priced Stock, Total Return,
Global Services, Value and GiftShares Funds and PMF
II, which are other series of the Trust, and to
other investment and non-investment company
accounts.
As compensation for its services to the Fund, Quest
is entitled to receive annual advisory fees of 1.0%
of the average net assets of the Fund. These fees
are payable monthly from the assets of the Fund and
are higher than those paid by most other mutual
funds with a similar investment objective.
Quest 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 Quest. Quest is
authorized, in recognition of the value of
brokerage and research services provided, to pay
commissions to a broker in excess of the amount
which another broker might have charged for the
same transaction.
Quest Distributors, Inc. ("QDI"), which is wholly-
owned by Charles M. Royce, acts as distributor of
the Fund's shares. The Trust has adopted a
distribution plan for the Fund pursuant to Rule 12b-
1. The plan provides for payment to QDI of .25%
per annum of the average net assets of the Fund,
which may be used for payment of sales commissions
and other fees to those who introduce investors to
the Fund and for various other promotional, sales-
related and servicing costs and expenses. QDI has
voluntarily committed to waive its fees through
April 30, 1998.
GENERAL The Royce Fund (the "Trust") is a Delaware business
INFORMATION trust, registered with the Securities and Exchange
Commission as a diversified open-end management
investment company. It is the successor to a
Massachusetts business trust established in October
1985 and merged into the Trust in June 1996. The
Trustees have the authority to issue an unlimited
number of shares of beneficial interest, without
shareholder approval, and these shares may be
divided into an unlimited number of series and
classes. Shareholders are entitled to one vote per
share. Shares vote by individual series on all
matters, except that shares are voted in the
aggregate and not by individual series 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, The Fund pays dividends from net investment income (if any)
DISTRIBUTIONS and distributes its net realized capital gains annually in
AND TAXES December. Dividends and distributions will be automatically
reinvested in additional shares of the Fund unless the
shareholder chooses otherwise.
The Fund pays Shareholders receive information annually as to the tax status
dividends and of distributions made by the Fund for the calendar year. For
capital Federal income tax purposes, all distributions by the Fund are
gains taxable to shareholders when declared, whether received in cash
annually in or reinvested in shares. Distributions paid from the Fund's
December net investment income and short-term capital gains are taxable
to shareholders as ordinary income dividends. A portion of the
Fund's dividends may qualify for the corporate dividends
received deduction, subject to certain limitations. The
portion of the Fund's dividends qualifying for such deduction
is generally limited to the aggregate taxable dividends
received by the Fund from domestic corporations. Distributions
paid from long-term capital gains of the Fund are treated by a
shareholder for Federal income tax purposes as long-term capital
gains, regardless of how long the shareholder has held Fund
shares.
If a shareholder disposes of shares held for six months or less
at a loss, such loss is treated as a long-term capital loss to
the extent of any long-term capital gains reported by the
shareholder with respect to such shares. A loss realized on a
taxable disposition of Fund shares may be disallowed to the
extent that additional Fund shares are purchased (including
by reinvestment of distributions) within 30 days before or
after such disposition.
The redemption of shares is a taxable event, and a shareholder
may realize a capital gain or capital loss. The Fund will
report to redeeming shareholders the proceeds of their
redemptions. However, because the tax consequences of a
redemption will also depend on the shareholder's basis in
the redeemed shares for tax purposes, shareholders should
retain their account statements for use in determining their
tax liability on a redemption.
At the time of a shareholder's purchase, the Fund's net asset
value may reflect undistributed income or capital gains. A
subsequent distribution of these amounts by the Fund will be
taxable to the shareholder even though the distribution
economically is a return of part of the shareholder's
investment.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions and redemptions paid to non-
corporate shareholders who have not complied with Internal
Revenue Service taxpayer identification regulations.
Shareholders may avoid this withholding requirement by
certifying on the Account Application their proper Social
Security or Taxpayer Identification Number and that they are
not subject to backup withholding.
The discussion of Federal income taxes above is for general
information only. The Statement of Additional Information
includes a more detailed description of Federal income tax
aspects that may be relevant to a shareholder. Shareholders
may also be subject to state and local taxes on income and any
gains from their investment. Investors should consult their
own tax advisers concerning the tax consequences of an
investment in the Fund.
NET ASSET Fund shares are purchased and redeemed at their net
VALUE asset value per share next determined after an
PER SHARE order is received by the Fund's transfer agent or
an authorized service agent or sub-agent. Net
Net asset asset value per share is determined by dividing the
value per total value of the Fund's investments and other
share (NAV) is assets, less any liabilities, by the number of
determined outstanding shares of the Fund. Net asset value
each day the per share is calculated at the close of regular
New York Stock trading on the New York Stock Exchange on each day
Stock Exchange the Exchange is open for business.
is open
In determining net asset value, securities listed
on an exchange or the Nasdaq National Market System
are valued on the basis of the last reported sale
price prior to the time the valuation is made or,
if no sale is reported for that day, at their bid
price for exchange-listed securities and at the
average of their bid and ask prices for Nasdaq
securities. Quotations are taken from the market
where the security is primarily traded. Other over-
the-counter securities for which market quotations
are readily available are valued at their bid
price. Securities for which market quotations are
not readily available are valued at their fair
value under procedures established and supervised
by the Board of Trustees. Bonds and other fixed
income securities may be valued by reference to
other securities with comparable ratings, interest
rates and maturities, using established independent
pricing services.
SHAREHOLDER GUIDE
OPENING AN The Fund's shares are offered on a no-load basis.
ACCOUNT AND New accounts (other than IRA or 403(b)(7) accounts)
PURCHASING can be opened either by mail, by telephone or by
SHARES wire. An Account Application must be completed and
returned, regardless of the method selected. If
you need assistance with the Account Application or
have any questions about the Fund, please call
Investor Information at 1-800-221-4268. Note: For
certain types of account registrations (e.g.,
corporations, partnerships, foundations,
associations, other organizations, trusts or powers
of attorney), please call Investor Information to
determine if you need to provide additional forms
with your application.
Type of Account Minimum
--------------- -------
Regular accounts $2,000
IRAs * 500
Accounts established with Automatic 500
Investment Plan or Direct Deposit Plan
401(k) and 403(b)(7) accounts * None
* Separate forms must be used for opening IRAs or
403(b)(7) accounts; please call Investor
Information if you need these forms.
Subsequent 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).
ADDITIONAL INVESTMENTS
NEW ACCOUNT TO EXISTING ACCOUNTS
PURCHASING BY Please include the Additional investments
MAIL amount of your initial should include the Invest-
Complete and investment on the by-Mail remittance form
sign the Account Application, attached to your Fund account
enclosed make your check payable confirmation statements.
Account to The Royce Fund, and Please make your check
Application mail to: payable to The Royce Fund,
write your account number
The Royce Fund on your check and, using
P.O. Box 419012 the return envelope provided,
Kansas City, MO 64141-6012 mail to the address indicated
on the Invest-by-Mail form.
For express The Royce Funds All written requests should
or registered c/o National Financial be mailed to one of the
mail, send to: Data Services addresses indicated for new
mail, 1004 Baltimore, 5th Floor accounts.
send to: Kansas City, MO 64105
Purchasing By ADDITIONAL INVESTMENTS
Telephone NEW ACCOUNT TO EXISTING ACCOUNTS
To open an account by Subsequent telephone
telephone, you should purchases ($500 minimum)
call Investor Information may also be made by calling
(1-800-221-4268) before Investor Information. For all
4:00 p.m., Eastern time. telephone purchases, payment
You will be given a is due within three business
confirming order number days and may be made by wire
for your purchase. This or personal, business or bank
number must be placed on check, subject to collection.
your completed Account
Application before mailing.
If a completed and signed
Account Application is not
received on an account opened
by telephone, the account may
be subject to backup withholding
of Federal Income Taxes
PURCHASE BY WIRE Money should be wired to:
State Street Bank and Trust Company
BEFORE WIRING: ABA 011000028 DDA 9904-712-8
For a new account, Ref: Royce Financial Services Fund
please contact Order Number or Account Number ___________________
Investor Information Account Name _____________________________________
at 1-800-221-4268
To ensure proper receipt, please be sure your bank
includes the name of the Fund and your order number
(for telephone purchases) or account number. If you
are opening a new account, you must call Investor
Information to obtain an order number, and complete
the Account Application and mail it to the "New
Account" address above after completing your wire
arrangement. Note: Federal Funds wire purchase orders
will be accepted only when the Fund and its custodian
are open for business.
PURCHASING BY You can purchase shares automatically or at your
EXPRESS discretion through the following options:
SERVICE
EXPEDITED PURCHASE OPTION permits you, at your
discretion, to transfer funds ($100 minimum and
$200,000 maximum) from your bank account to
purchase shares in your Royce Fund account by
telephone or computer online access.
AUTOMATICE INVESTMENT PLAN allows you to make
regular, automatic transfers ($50 minimum) from
your bank account to purchase shares in your Royce
Fund account on the monthly or quarterly schedule
you select.
To establish the Expedited Purchase Option and/or
Automatic Investment Plan, please provide the
appropriate information on the Account Application
and ATTACH A VOIDED CHECK. We will send you a
confirmation of Express Service activation. Please
wait three weeks before using the service.
To make an Expedited Purchase, other than through
computer online access, please call Shareholder
Services at 1-800-841-1180 before 4:00 p.m.,
Eastern time.
PAYROLL DIRECT DEPOSIT PLAN AND GOVERNMENT DIRECT
DEPOSIT PLAN let you have investments ($50 minimum)
made from your net payroll or government check into
your existing Royce Fund account each pay period.
Your employer must have direct deposit capabilities
through ACH (Automated Clearing House) available to
its employees. You may terminate participation in
these programs by giving written notice to your
employer or government agency, as appropriate. The
Fund is not responsible for the efficiency of the
employer or government agency making the payment or
any financial institution transmitting payments.
To initiate a Direct Deposit Plan, you must
complete an Authorization for Direct Deposit form
which may be obtained from Investor Information by
calling 1-800-221-4268.
CHOOSING A You may select one of three distribution options:
DISTRIBUTION
OPTION 1. Automatic Reinvestment Option--Both net
investment income dividends and capital gains
distributions will be reinvested in additional
Fund shares. This option will be selected for you
automatically unless you specify one of the other
options.
2. Cash Dividend Option--Your dividends will be
paid in cash and your capital gains distributions
will be reinvested in additional Fund shares.
3. All Cash Option--Both dividends and capital
gains distributions will be paid in cash.
You may change your option by calling Shareholder
Services at 1-800-841-1180.
IMPORTANT The easiest way to establish optional services on
ACCOUNT your account is to select the options you desire
INFORMATION when you complete your Account Application. If you
want to add or change shareholder options later,
you may need to provide additional information and
a signature guarantee. Please call Shareholder
Services at 1-800-841-1180 for further assistance.
Signature For our mutual protection, we may require a
Guarantees signature guarantee on certain written transaction
requests. A signature guarantee verifies the
authenticity of your signature and may be obtained
from banks, brokerage firms and any other guarantor
that our transfer agent deems acceptable. A
signature guarantee cannot be provided by a notary
public.
Certificates Certificates for whole shares will be issued upon
request. If a certificate is lost, stolen or
destroyed, you may incur an expense to replace it.
Purchases If you purchase shares of the Fund through a
Through program of services offered or administered by a
Service broker-dealer, financial institution or other
Providers service provider, you should read the program
materials provided by the service provider,
including information regarding fees which may be
charged, in conjunction with this Prospectus.
Certain shareholder servicing features of the Fund
may not be available or may be modified in
connection with the program of services offered.
When shares of the Fund are purchased in this way,
the service provider, rather than the customer, may
be the shareholder of record of the shares. QDI,
Quest and/or the Fund may pay fees to unaffiliated
broker-dealers, financial institutions or other
service providers who introduce investors to the
Fund and/or provide certain administrative services
to those of their customers who are Fund
shareholders.
Telephone and Neither the Fund nor its transfer agent will be
Online Access liable for following instructions communicated by
Transactions telephone or computer online access that are
reasonably believed to be genuine. The transfer
agent uses certain procedures designed to confirm
that telephone and computer online access
instructions are genuine, which may include
requiring some form of personal identification
prior to acting on the instructions, providing
written confirmation of the transaction and/or
recording incoming telephone calls, and if it does
not follow such procedures, the Fund or the
transfer agent may be liable for any losses due to
unauthorized or fraudulent transactions.
Nonpayment If your check or wire does not clear, or if payment is
not received for any telephone or computer online access
purchase, the transaction will be canceled and you will be
responsible for any loss the Fund incurs. If you are already
a shareholder, the Fund can redeem shares from any identically
registered account in the Fund as reimbursement for any loss
incurred.
Trade Date for Your trade date is the date on which share purchases are
Purchases credited to your account. If your purchase is made by check,
Federal Funds wire, telephone, computer online access or
exchange and is received by the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m., Eastern
time), your trade date is the date of receipt. If your purchase
is received after the close of regular trading on the Exchange,
your trade date is the next business day. Your shares are
purchased at the net asset value determined on your trade date.
In order to prevent lengthy processing delays caused by
the clearing of foreign checks, the Fund will accept only a
foreign check which has been drawn in U.S. dollars and has
been issued by a foreign bank with a United States
correspondent bank.
The Trust reserves the right to suspend the offering of Fund
shares to new investors. The Trust also reserves the right to
reject any specific purchase request.
REDEEMING You may redeem any portion of your account at any
YOUR time. You may request a redemption in writing or
SHARES by telephone. Redemption proceeds normally will be
sent within two business days after the receipt of
the request in Good Order.
REDEEMING BY Redemption requests should be mailed to The Royce
MAIL 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 or an
authorized service agent or sub-agent has received
all required documents in Good Order.
DEFINITION OF GOOD ORDER means that the request includes the
GOOD ORDER following:
1. The account number and Fund name.
2. The amount of the transaction (specified in
dollars or shares).
3. Signatures of all owners exactly as they are
registered on the account.
4. Signature guarantees if the value of the
shares being redeemed exceeds $50,000 or if the
payment is to be sent to an address other than the
address of record or is to be made to a payee other
than the shareholder.
5. Certificates, if any are held.
6. Other supporting legal documentation that
might be required, in the case of retirement plans,
corporations, trusts, estates and certain other
accounts.
If you have any questions about what is required as
it pertains to your request, please call
Shareholder Services at 1-800-841-1180.
REDEEMING BY Shareholders who have not established Express
TELEPHONE Service may redeem up to $50,000 of their Fund
shares by telephone, provided the proceeds are
mailed to their address of record. If pre-
approved, higher minimums may apply for
institutional accounts. To redeem shares by
telephone, you or your pre-authorized
representative may call Shareholder Services at 1-
800-841-1180. Redemption requests received by
telephone prior to the close of regular trading on
the New York Stock Exchange (generally 4:00 p.m.,
Eastern time) are processed on the day of receipt;
redemption requests received by telephone after the
close of regular trading on the Exchange are
processed on the business day following receipt.
Telephone redemption service is not available for
Trust-sponsored retirement plan accounts or if
certificates are held. TELPHONE REDEMPTIONS WILL
NOT BE PERMITTED FOR A PERIOD OF SIXTY DAYS AFTER A
CHANGE IN THE ADDRESS OF RECORD. See also
"Important Account Information - Telephone and
Online Access Transactions".
REDEEMING BY If you select the Express Service AUTOMATIC
EXPRESS WITHDRAWAL option, shares will be automatically
SERVICE redeemed from your Fund account and the proceeds
transferred to your bank account according to the
schedule you have selected. You must have at least
$25,000 in your Fund account to establish the
Automatic Withdrawal option.
The EXPEDITED REDEMPTION option lets you redeem up
to $50,000 of shares from your Fund account by
telephone and transfer the proceeds directly to
your bank account. You may elect Express Service on
the Account Application or call Shareholder
Services at 1-800-841-1180 for an Express Service
application.
IMPORTANT If you are redeeming shares recently purchased by
REDEMPTION check, Express Service Expedited Purchase or
INFORMATION Automatic Investment Plan, the proceeds of the
redemption may not be sent until payment for the
purchase is collected, which may take up to fifteen
calendar days. Otherwise, redemption proceeds must
be sent to you within seven days of receipt of your
request in Good Order.
If you experience difficulty in making a telephone
redemption during periods of drastic economic or
market changes, your redemption request may be made
by regular or express mail. It will be processed
at the net asset value next determined after your
request has been received by the transfer agent in
Good Order. The Trust reserves the right to revise
or terminate the telephone redemption privilege at
any time.
The Trust may suspend the redemption right or
postpone payment at times when the New York Stock
Exchange is closed or under any emergency
circumstances as determined by the Securities and
Exchange Commission.
Although the Trust will normally make redemptions
in cash, it may cause the Fund to redeem in kind
under certain circumstances.
EARLY In order to discourage short-term trading, the Fund
REDEMPTION assesses an early redemption fee of 1% on
FEE redemptions of share purchases held for less than
one year. Redemption fees will be paid to the
Fund, out of the redemption proceeds otherwise
payable to the shareholder, to help offset
transaction costs.
The Fund will use the "first-in, first-out" (FIFO)
method to determine the one-year holding period.
Under this method, the date of the redemption will
be compared with the earliest purchase date of the
share purchases held in the account. If this
holding period is less than one year, the fee will
be assessed. In determining "one year," the Fund
will use the anniversary month of a transaction.
Thus, shares purchased in October 1997, for
example, will be subject to the fee if they are
redeemed prior to October 1998. If they are
redeemed on or after October 1, 1998, they will not
be subject to the fee.
No redemption fee will be payable on shares
acquired through reinvestment, on an exchange into
another Royce Fund or by shareholders who are (a)
employees of the Trust or Quest or members of their
immediate families or employee benefit plans for
them, (b) current participants in an Automatic
Investment Plan or an Automatic Withdrawal Plan,
(c) certain Trust-approved Group Investment Plans
and charitable organizations, (d) profit-sharing
trusts, corporations or other institutional
investors who are investment advisory clients of
Quest or (e) omnibus or similar account customers
of certain Trust-approved broker-dealers and other
institutions.
MINIMUM Due to the relatively high cost of maintaining smaller
ACCOUNT accounts, the Trust reserves the right to involuntarily
BALANCE redeem shares in any Fund account that falls below the
REQUIREMENT minimum initial investment due to redemptions by the
shareholder. If at any time the balance in an account does
not have a value at least equal to the minimum initial
investment or, if an Automatic Investment Plan is discontinued
before an account reaches the minimum initial investment that
would otherwise be required, you may be notified that the value
of your account is below the Fund's minimum account balance
requirement. You would then have sixty days to increase your
account balance before the account is liquidated. Proceeds
would be promptly paid to the shareholder.
EXCHANGE Exchanges between series of the Trust and with
PRIVILEGE other open-end Royce funds are permitted by
telephone, computer online access or mail. An
exchange is treated as a redemption and purchase;
therefore, you could realize a taxable gain or loss
on the transaction. Exchanges are accepted only if
the registrations and the tax identification
numbers of the two accounts are identical. Minimum
investment requirements must be met when opening a
new account by exchange, and exchanges may be made
only for shares of a series or fund then offering
its shares for sale in your state of residence.
The Trust reserves the right to revise or terminate
the exchange privilege at any time.
TRANSFERRING You may transfer the ownership of any of your Fund
OWNERSHIP shares to another person by writing to: The Royce
Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO
64141-6012. The request must be in Good Order (see
"Redeeming Your Shares - Definition of Good
Order"). Before mailing your request, please
contact Shareholder Services (1-800-841-1180) for
full instructions.
OTHER For more information about any of these services,
SERVICES please call Investor Information at 1-800-221-4268.
Statements A confirmation statement will be sent to you each
and time you have a transaction in your account and
Reports semi-annually. Financial reports are mailed semi-
annually. To reduce expenses, only one copy of
most shareholder reports may be mailed to a
household. Please call Investor Information if you
need additional copies.
Tax-sheltered Shares of the Fund are available for purchase in connection
Retirement with certain types of tax-sheltered retirement plans,
Plans including Individual Retirement Accounts (IRA's) for
individuals and 403(b)(7) Plans for employees of certain
tax-exempt organizations.
These plans should be established with the Trust only after
an investor has consulted with a tax adviser or attorney.
Information about the plans and the appropriate forms may be
obtained from Investor Information at 1-800-221-4268.
THE ROYCE FUNDS
- ---------------
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
[email protected] THE ROYCE FUNDS
---------------
INVESTMENT ADVISER
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019 ROYCE
FINANCIAL SERVICES
DISTRIBUTOR FUND
Quest Distributors, Inc.
1414 Avenue of the Americas A NO LOAD MUTUAL FUND
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 PROSPECTUS
Charles M. Royce, APRIL 30, 1997
President and Treasurer
Thomas R. Ebright, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President and
Assistant Secretary
John E. Denneen, Secretary
THE ROYCE FUND
STATEMENT OF ADDITIONAL INFORMATION
THE ROYCE FUND (the "Trust"), a Delaware business trust, is
a professionally-managed open-end registered investment company,
which offers investors the opportunity to invest in twelve
portfolios or series. One of the twelve series, Pennsylvania
Mutual Fund, offers two classes of its shares, an Investment
Class and a Consultant Class. Each series has distinct
investment objectives and/or policies, and a shareholder's
interest is limited to the series in which the shareholder owns
shares. The twelve series are:
Pennsylvania Mutual Fund Royce Value Fund
Royce Premier Fund Royce Total Return Fund
Royce Micro-Cap Fund Royce Global Services Fund
Royce Equity Income Fund PMF II
Royce Low-Priced Stock Fund Royce Financial Services Fund
Royce GiftShares Fund The REvest Growth & Income Fund
This Statement of Additional Information relates to all
of the series other than The REvest Growth & Income Fund (each a
"Fund" and collectively the "Funds"). REvest is covered by its
own separate Statement of Additional Information.
The Trust is designed for long-term investors, including
those who wish to use shares of any Fund (other than Royce
GiftShares Fund) as a funding vehicle for certain tax-deferred
retirement plans (including Individual Retirement Account (IRA)
plans), and not for investors who intend to liquidate their
investments after a short period of time.
This Statement of Additional Information is not a
prospectus, but should be read in conjunction with the Trust's
current Prospectuses dated April 30, 1997. Please retain this
document for future reference. The audited financial statements
and schedules of investments included in the Annual Reports to
Shareholders of such Funds for the fiscal year or period ended
December 31, 1996 are incorporated herein by reference. To
obtain an additional copy of the Prospectus or Annual or Semi-
Annual Reports to Shareholders for any of these Funds, please
call Investor Information at 1-800-221-4268.
INVESTMENT ADVISER TRANSFER AGENT
Quest Advisory Corp. ("Quest") State Street Bank and Trust Company
c/o National Financial Data Services
DISTRIBUTOR CUSTODIAN
Quest Distributors, Inc. ("QDI") State Street Bank and Trust Company
APRIL 30, 1997
TABLE OF CONTENTS
Page Page
INVESTMENT POLICIES AND INDEPENDENT ACCOUNTANTS 22
LIMITATIONS 2 PORTFOLIO TRANSACTIONS 23
RISK FACTORS AND SPECIAL CODE OF ETHICS AND RELATED
CONSIDERATIONS 6 MATTERS 25
MANAGEMENT OF THE TRUST 11 PRICING OF SHARES BEING OFFERED 25
PRINCIPAL HOLDERS OF SHARES 14 REDEMPTIONS IN KIND 26
INVESTMENT ADVISORY TAXATION 26
SERVICESICES 17 DESCRIPTION OF THE TRUST 33
DISTRIBUTOR 20 PERFORMANCE DATA 35
CUSTODIAN 22
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations
supplement those set forth in the Funds' Prospectuses.
Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a Fund's assets
that may be invested in any security or other asset or sets
forth a policy regarding quality standards, the percentage
limitation or standard will be determined immediately after
giving effect to the Fund's acquisition of the security or
other asset. Accordingly, any subsequent change in values,
net assets or other circumstances will not be considered in
determining whether the investment complies with the Fund's
investment policies and limitations.
A Fund's fundamental investment policies cannot be
changed without the approval of a "majority of the
outstanding voting securities" (as defined in the Investment
Company Act of 1940 (the "1940 Act")) of the Fund. Except
for the fundamental investment restrictions set forth below,
the investment policies and limitations described in this
Statement of Additional Information are operating policies
and may be changed by the Board of Trustees without
shareholder approval. However, shareholders will be
notified prior to a material change in an operating policy
affecting their Fund.
No Fund may, as a matter of fundamental policy:
1. Issue any senior securities;
2. Purchase securities on margin or write call
options on its portfolio securities;
3. Sell securities short;
4. Borrow money, except that each of the Funds
may borrow money from banks as temporary
measure for extraordinary or emergency
purposes in an amount not exceeding 5% of
such Fund's total assets;
5. Underwrite the securities of other issuers;
6. Invest more than 10% of its total assets in
the securities of foreign issuers (except for
Royce Global Services Fund, which is not
subject to any such limitation, and for PMF
II and Royce Financial Services Funds, which
may invest up to 25% of their respective
total assets in such securities );
7. Invest in restricted securities (except for
Royce Global Services Fund, PMF II and Royce
Financial Services Fund, which each may
invest up to 15% of its net assets in
illiquid securities, including restricted
securities) or in repurchase agreements which
mature in more than seven days;
8. Invest more than 10% (15% for Royce Global
Services Fund, PMF II and Royce Financial
Services Fund) of its assets in securities
without readily
available market quotations (i.e., illiquid
securities)(except for Pennsylvania Mutual
Fund, which is not subject to any such
limitation);
9. Invest, with respect to Royce Value and Royce
Equity Income Funds, more than 5% of such
Fund's assets in the securities of any one
issuer (except U.S. Government securities)
or, with respect to 75% of the other Funds'
total assets, more than 5% of such Fund's
assets in the securities of any one issuer
(except U.S. Government securities);
10. Invest more than 25% of its assets in any one
industry;
11. Acquire (own, in the case of Pennsylvania
Mutual Fund) more than 10% of the outstanding
voting securities of any one issuer;
12. Purchase or sell real estate or real estate
mortgage loans or invest in the securities of
real estate companies unless such securities
are publicly-traded;
13. Purchase or sell commodities or commodity
contracts;
14. Make loans, except for purchases of portions
of issues of publicly- distributed bonds,
debentures and other securities, whether or
not such purchases are made upon the original
issuance of such securities, and except that
each Fund may loan up to 25% of its assets to
qualified brokers, dealers or institutions
for their use relating to short sales or
other securities transactions (provided that
such loans are fully collateralized at all
times);
15. Invest in companies for the purpose of
exercising control of management;
16. Purchase portfolio securities from or sell
such securities directly to any of the
Trust's Trustees, officers, employees or
investment adviser, as principal for their
own accounts;
17. Invest in the securities of other investment
companies (except for Pennsylvania Mutual
Fund, Royce Global Services Fund, PMF II and
Royce Financial Services Fund, which may
invest in the securities of other investment
companies to the extent permitted by the 1940
Act); or
18. Invest more than 5% of its total assets in
warrants, rights and options (except for
Pennsylvania Mutual Fund, which may not
purchase any warrants, rights or options).
NO FUND MAY, 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.
PENNSYLVANIA MUTUAL FUND
PMF II
Pennsylvania Mutual Fund and PMF II may each invest up
to 25% of the value of their total assets in the securities
of other investment companies (open or closed-end) and up to
5% of their total assets in the securities of any one other
investment company. All such securities must be acquired in
the open market, in transactions involving no commissions or
discounts to a sponsor or dealer (other than customary
brokerage commissions). The issuers of such securities are
not required to redeem them in an amount exceeding 1% of
such issuers' total outstanding securities during any period
of less than thirty days, and Pennsylvania Mutual Fund and
PMF II will vote all proxies with respect to such securities
in the same proportion as the vote of all other holders of
such securities. Except for cash collateral received in
connection with their securities lending activities and
invested in the money market funds of their custodian bank,
neither Pennsylvania Mutual Fund nor PMF II has any current
intention of investing in the securities of any open-end
investment companies.
ROYCE GLOBAL SERVICES FUND
ROYCE FINANCIAL SERVICES FUND
Global Services and Financial Services Funds may invest
in the securities of a company that is engaged in securities
related activities as a broker, a dealer, an underwriter, an
investment adviser registered under the Investment Advisers
Act of 1940 or an investment adviser to an investment
company, subject to the following limitations in the case of
a company that, in its most recent fiscal year, derived more
than 15% of its gross revenues from such activities:
(a) The purchase cannot cause more than 5% of the
Fund's assets to be invested in the securities of the
company;
(b) For an equity security, the purchase cannot result
in the Fund owning more than 5% of the company's
outstanding securities of that class; and
(c) For a debt security, the purchase cannot result in
the Fund owning more than 10% of the principal amount
of the company's outstanding debt securities.
In applying the gross revenues test, a company's gross
revenues from its own securities related activities and from
its ratable share of the securities related activities of
enterprises of which it owns 20% or more of the voting or
equity interest are considered in determining the degree to
which the company is engaged in securities related
activities. The limitations apply only at the time of the
Fund's purchase of the securities of such a company. When
Quest is considering purchasing or has purchased warrants or
convertible securities of a securities related business for
the Fund, the required determination is made as though such
warrants or conversion privileges had been exercised.
Global Services and Financial Services Funds are not
permitted to acquire a general partnership interest or a
security issued by their investment adviser or principal
underwriter or any affiliated person of their investment
adviser or principal underwriter.
Global Services and Financial Services Funds may each
invest up to 20% of its assets in the securities of other
investment companies, provided that (i) the Fund and all
affiliated persons of the Fund do not invest in more than 3%
of the total outstanding stock of any one such company and
(ii) the Fund does not offer or sell its shares at a public
offering price which includes a sales load of more than 1
1/2%. (The 20% and 3% limitations do not apply to securities
received as dividends, through offers of exchange or as a
result of a reorganization, consolidation or merger.) The
other investment company is not obligated to redeem those of
its securities held by the Fund in an amount exceeding 1% of
its total outstanding securities during any period of less
than thirty days, and the Fund will be obligated to exercise
voting rights with respect to any such security by voting
the securities held by it in the same proportion as the vote
of all other holders of the security.
Global Services and Financial Services Funds do not
currently intend to invest more than 5% of their assets in
the securities of any one other investment company, to
purchase securities of other investment companies (except
in the open market where no commission other than the
ordinary broker's commission is paid) or to purchase or hold
securities issued by other open-end investment companies
(except for cash collateral received in connection with
their securities lending activities and invested in the
money market funds of their custodian bank).
ROYCE GLOBAL SERVICES FUND
PMF II
ROYCE FINANCIAL SERVICES FUND
Global Services Fund, PMF II and Financial Services
Fund will not invest more than 15% of their net asets in
illiquid securities, including those restricted securities
that are illiquid. Illiquid securities include securities
subject to contractual or legal restrictions on resale
because they have not been registered under the Securities
Act of 1933 (the "Securities Act") and other securities for
which market quotations are not readily available.
Securities which have not been registered under the
Securities Act are referred to as private placements or
restricted securities and are purchased directly from the
issuer, a control person of the issuer or another investor
holding such securities.
A large institutional market has developed for certain
securities that are not registered under the Securities Act,
including foreign securities. Institutional investors
depend on an efficient institutional market in which the
unregistered security can be readily resold or on an
issuer's ability to honor a demand for repayment. The fact
that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be
indicative of the liquidity of such investments.
Rule 144A under the Securities Act allows an
institutional trading market for securities otherwise
subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain
securities to qualified institutional buyers. An
insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held
by the Funds, however, could adversely affect the
marketability of such portfolio securities, and the Funds
might be unable to dispose of such securities promptly or at
reasonable prices. Rule 144A produces enhanced liquidity
for many restricted securities, and market liquidity for
such securities may continue to expand as a result of this
regulation.
RISK FACTORS AND SPECIAL CONSIDERATIONS
FUNDS' RIGHTS AS STOCKHOLDERS
As noted above, no Fund may invest in a company for the
purpose of exercising control of management. However, a
Fund may exercise its rights as a stockholder and
communicate its views on important matters of policy to
management, the board of directors and/or stockholders if
Quest or the Board of Trustees determine that such matters
could have a significant effect on the value of the Fund's
investment in the company. The activities that a Fund may
engage in, either individually or in conjunction with
others, may include, among others, supporting or opposing
proposed changes in a company's corporate structure or
business activities; seeking changes in a company's board of
directors or management; seeking changes in a company's
direction or policies; seeking the sale or reorganization of
a company or a portion of its assets; or supporting or
opposing third party takeover attempts. This area of
corporate activity is prone to litigation, and it is
possible that a Fund could be involved in lawsuits related
to such activities. Quest will monitor such activities with
a view to mitigating, to the extent possible, the risk of
litigation against the Funds and the risk of actual
liability if a Fund is involved in litigation. However, no
guarantee can be made that litigation against a Fund will
not be undertaken or liabilities incurred.
A Fund may, at its expense or in conjunction with
others, pursue litigation or otherwise exercise its rights
as a security holder to seek to protect the interests of
security holders if Quest and the Trust's Board of Trustees
determine this to be in the best interests of a Fund's
shareholders.
SECURITIES LENDING
Each Fund may lend up to 25% of its assets to brokers,
dealers and other financial institutions. Securities
lending allows the Fund to retain ownership of the
securities loaned and, at the same time, to earn additional
income. Since there may be delays in the recovery of loaned
securities or even a loss of rights in collateral supplied
should the borrower fail financially, loans will be made
only to parties that participate in a Global Securities
Lending Program monitored by the Funds' custodian and who
are deemed by it to be of good standing. Furthermore, such
loans will be made only if, in Quest's judgment, the
consideration to be earned from such loans would justify the
risk.
Quest understands that it is the current view of the
staff of the Securities and Exchange Commission that a Fund
may engage in such loan transactions only under the
following conditions: (i) the Fund must receive 100%
collateral in the form of cash or cash equivalents (e.g.,
U.S. Treasury bills or notes) from the borrower; (ii) the
borrower must increase the collateral whenever the market
value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (iii) after giving
notice, the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest or other distributions
on the securities loaned and to any increase in market
value; (v) the Fund may pay only reasonable custodian fees
in connection with the loan; and (vi) the Fund must be able
to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative
arrangement with the borrower.
LOWER-RATED (HIGH-RISK) DEBT SECURITIES
Each Fund may invest up to 5% of its net assets in
lower-rated (high-risk) non-convertible debt securities.
They may be rated from Ba to Ca by Moody's Investors
Service, Inc. or from BB to D by Standard & Poor's
Corporation or may be unrated. These securities have poor
protection with respect to the payment of interest and
repayment of principal and may be in default as to the
payment of principal or interest. These securities are
often considered to be speculative and involve greater risk
of loss or price changes due to changes in the issuer's
capacity to pay. The market prices of lower-rated (high-
risk) debt securities may fluctuate more than those of
higher-rated debt securities and may decline significantly
in periods of general economic difficulty, which may follow
periods of rising interest rates.
While the market for lower-rated (high-risk) corporate
debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a
dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructurings.
Past experience may not provide an accurate indication of
the future performance of the high-yield/high-risk bond
market, especially during periods of economic recession. In
fact, from 1989 to 1991, the percentage of lower-rated (high-
risk) debt securities that defaulted rose significantly
above prior levels.
The market for lower-rated (high-risk) debt securities
may be thinner and less active than that for higher-rated
debt securities, which can adversely affect the prices at
which the former are sold. If market quotations cease to be
readily available for a lower-rated (high-risk) debt
security in which a Fund has invested, the security will
then be valued in accordance with procedures established by
the Board of Trustees. Judgment plays a greater role in
valuing lower-rated (high-risk) debt securities than is the
case for securities for which more external sources for
quotations and last sale information are available. Adverse
publicity and changing investor perceptions may affect a
Fund's ability to dispose of lower-rated (high-risk) debt
securities.
Since the risk of default is higher for lower-rated
(high-risk) debt securities, Quest's research and credit
analysis may play an important part in managing securities
of this type for the Funds. In considering such investments
for the Funds, Quest will attempt to identify those issuers
of lower-rated (high-risk) debt securities whose financial
condition is adequate to meet future obligations, has
improved or is expected to improve in the future. Quest's
analysis may focus on relative values based on such factors
as interest or dividend coverage, asset coverage, earnings
prospects and the experience and managerial strength of the
issuer.
FOREIGN INVESTMENTS
Except for Royce Global Services Fund, which is not
subject to any such limitation, each Fund may invest up to
10% of its total assets (25% for PMF II and Financial
Services Fund) 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 Quest
will be able to anticipate these potential events or counter
their effects.
The considerations noted above are generally
intensified for investments in developing countries.
Developing countries may have relatively unstable
governments, economies based on only a few industries and
securities markets that trade a small number of securities.
American Depositary Receipts (ADRs) are certificates
held in trust by a bank or similar financial institution
evidencing ownership of securities of a foreign-based
issuer. Designed for use in U.S. securities markets, ADRs
are alternatives to the purchase of the underlying foreign
securities in their national markets and currencies.
ADR facilities may be established as either unsponsored
or sponsored. While ADRs issued under these two types of
facilities are in some respects similar, there are
distinctions between them relating to the rights and
obligations of ADR holders and the practices of market
participants. A depository may establish an unsponsored
facility without participation by (or even necessarily the
acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-
objection from such issuer prior to the establishment of the
facility. Holders of unsponsored ADRs generally bear all
the costs of such facilities. The depository usually
charges fees upon the deposit and withdrawal of the
deposited securities, the conversion of dividends into U.S.
dollars, the disposition of non-cash distributions and the
performance of other services. The depository of an
unsponsored facility frequently is under no obligation to
distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited
securities. Sponsored ADR facilities are created in
generally the same manner as unsponsored facilities, except
that the issuer of the deposited securities enters into a
deposit agreement with the depository. The deposit
agreement sets out the rights and responsibilities of the
issuer, the depository and the ADR holders. With sponsored
facilities, the issuer of the deposited securities generally
will bear some of the costs relating to the facility (such
as deposit and withdrawal fees). Under the terms of most
sponsored arrangements, depositories agree to distribute
notices of shareholder meetings and voting instructions and
to provide shareholder communications and other information
to the ADR holders at the request of the issuer of the
deposited securities.
REPURCHASE AGREEMENTS
In a repurchase agreement, a Fund in effect makes a
loan by purchasing a security and simultaneously committing
to resell that security to the seller at an agreed upon
price on an agreed upon date within a number of days
(usually not more than seven) from the date of purchase.
The resale price reflects the purchase price plus an agreed
upon incremental amount which is unrelated to the coupon
rate or maturity of the purchased security. A repurchase
agreement involves the obligation of the seller to pay the
agreed upon price, which obligation is in effect secured by
the value (at least equal to the amount of the agreed upon
resale price and marked to market daily) of the underlying
security.
The Funds may engage in repurchase agreements with
respect to any U.S. Government security. While it does not
presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in
the market value of the underlying securities, as well as
delays and costs to the Fund in connection with bankruptcy
proceedings), it is the policy of the Trust to enter into
repurchase agreements only with its custodian, State Street
Bank and Trust Company, and having a term of seven days or
less.
WARRANTS, RIGHTS AND OPTIONS
Each Fund, other than Pennsylvania Mutual Fund, may
invest up to 5% of its total assets in warrants, rights and
options. A warrant, right or call option entitles the
holder to purchase a given security within a specified
period for a specified price and does not represent an
ownership interest. A put option gives the holder the right
to sell a particular security at a specified price during
the term of the option. These securities have no voting
rights, pay no dividends and have no liquidation rights. In
addition, their market prices do not necessarily move
parallel to the market prices of the underlying securities.
The sale of warrants, right or options held for more
than one year generally results in a long-term capital gain
or loss to the Fund, and the sale of warrants, rights or
options held for one year or less generally results in a
short term capital gain or loss. The holding period for
securities acquired upon exercise of a warrant, right or
call option, however, generally begins on the day after the
date of exercise, regardless of how long the warrant, right
or option was held. The securities underlying warrants,
rights and options could include shares of common stock of a
single company or securities market indices representing
shares of the common stocks of a group of companies, such as
the S&P 600.
Investing in warrants, rights and call options on a
given security allows the Fund to hold an interest in that
security without having to commit assets equal to the market
price of the underlying security and, in the case of
securities market indices, to participate in a market
without having to purchase all of the securities comprising
the index. Put options, whether on shares of common stock
of a single company or on a securities market index, would
permit the Fund to protect the value of a portfolio security
against a decline in its market price and/or to benefit from
an anticipated decline in the market price of a given
security or of a market. Thus, investing in warrants,
rights and options permits the Fund to incur additional risk
and/or to hedge against risk.
PORTFOLIO TURNOVER
For the year ended December 31, 1996 and the period
from December 27, 1995 (commencement of operations) through
December 31, 1995, Royce GiftShares Fund's portfolio
turnover rates were 93% and 0%, respectively. The Fund's
portfolio turnover rate for its start-up period in 1995 was
zero because the Fund was then investing its initial cash
and did not sell any portfolio securities during this
period.
* * *
Quest believes that Pennsylvania Mutual, Low-Priced
Stock, Royce Value, Micro-Cap, GiftShares, Global Services,
PMF II and Financial Services Funds are suitable for
investment only by persons who can invest without concern
for current income, and that such Funds and Royce Premier
Fund are suitable only for those who are in a financial
position to assume above-average investment risks in search
for long-term capital appreciation.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as
to each Trustee and officer of the Trust:
<TABLE>
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
- --------------------- -------------- -----------------------------------------
<S> <C> <C>
Charles M. Royce* (57) Trustee, President, Managing Director
1414 Avenue of the President (since April 1997), Secretary, Treasurer
Americas and Treasurer, sole director and
New York, NY 10019 sole voting shareholder of Quest
Advisory Corp. ("Quest"), the
Trust's and its predecessors'
principal investment adviser;
Trustee, President and
Treasurer of the Trust and its
predecessors; Director,
President and Treasurer of Royce
Value Trust, Inc. ("RVT"), Royce
Micro-Cap Trust, Inc. ("OTCM")
(since September 1993) and,
Royce Global Trust, Inc. ("RGT")
(since October 1996), closed-end
diversified management
investment companies of which
Quest is the investment adviser;
Trustee, President and Treasurer
of Royce Capital Fund ("RCF")
(since December 1996), an open-
end diversified management
investment company of which
Quest is the investment adviser
(the Trust, RVT, OTCM, RGT and
RCF 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
* and Vice of the Trust and one of its
(52) President predecessors ; Vice President of
50 Portland Pier, the Trust and one of its
Portland, ME 04101 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 Royce, Ebright &
Associates, Inc., the investment
adviser for a series of TRF
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 (73) Trustee Financial consultant.
9421 Crosby Road
Silver Spring, MD 20910
Richard M. Galkin (58) Trustee Private investor and President
5284 Boca Marina of Richard M. Galkin Associates,
Boca Raton, FL 33487 Inc., tele-communications
consultants.
Stephen L. Isaacs (57) Trustee President of The Center for
60 Haven Street, Fl. B-2 Health and Social Policy since
New York, NY 10032 September 1996; President of
Stephen L. Isaacs Associates,
Consultants; and Director of
Columbia University Development
Law and Policy Program;
Professor at Columbia University
until August 1996.
William L. Koke (62) Trustee Registered investment adviser
73 Pointina Road and financial planner with
Westbrook, CT 06498 Shoreline Financial Consultants.
David L. Meister (57) Trustee Consultant to the communications
111 Marquez Place industry since January 1993; and
Pacific Palisades, CA 90272 Executive officer of Digital
Planet Inc. from April 1991 to
December 1992.
Jack E. Fockler, Jr. (38) Vice Managing Director (since April
1414 Avenue of the Americas President 1997) and Vice President (since
New York, NY 10019 August 1993) of Quest, having
been employed by Quest since
October 1989; Vice President of
RGT (since October 1996), RCF
(since December 1996) and the
other Royce Funds (since April
1995); Vice President of QDI
(since November 1995); and
general partner of QMC since
July 1993.
W. Whitney George * Vice Managing Director (since April
(38) President 1997) and Vice President (since
1414 Avenue of the August 1993) of Quest, having
Americas been employed by Quest since
New York, NY 10019 October 1991; Trustee and Vice
President of RCF (since December
1996); Vice President of RGT
(since October 1996) and of the
other Royce Funds (since April
1995); and general partner of
QMC and its predecessor since
January 1992.
Daniel A. O'Byrne* (35) Vice Vice President of Quest (since
1414 Avenue of the Americas President May 1994), having been employed
New York, NY 10019 and by Quest since October 1986; and
Assistant Vice President of RGT (since
Secretary October 1996), of RCF (since
December 1996) and of the other
Royce Funds (since July 1994).
John E. Denneen* (30) Secretary Associate General Counsel and
1414 Avenue of the Americas Chief Compliance Officer of
New York, NY 10019 Quest (since May 1996);
Secretary of RGT (since October
1996), of RCF (since December
1996) and of the other Royce
Funds (since June 1996); and
Associate of Seward & Kissel
from September 1992 to May 1996.
_______________________________________________________________________________
</TABLE>
*An "interested person" of the Trust and/or Quest under
Section 2(a)(19) of the 1940 Act.
All of the Trust's trustees, other than Messrs. Cafritz
and Koke, are also directors/trustees of RVT, OTCM , RGT and
RCF, except for Mr. Ebright, who is not a director of RGT or
a trustee of RCF.
The Board of Trustees has an Audit Committee, comprised
of Hubert L. Cafritz, Richard M. Galkin, Stephen L. Isaacs,
William L. Koke and David L. Meister. The Audit Committee is
responsible for recommending the selection and nomination of
independent auditors of the Funds and for conducting post-
audit reviews of their financial conditions with such
auditors.
For the year ended December 31, 1996, the following
trustees and affiliated persons of the Trust received
compensation from the Trust and its predecessor and/or the
other funds in the group of registered investment companies
comprising The Royce Funds:
<TABLE>
Aggregate
Compensation
From Trust Pension or Retirement Total Compensation
and its Benefits Accrued As from The Royce Funds
Name Predecessor Part of Trust Expenses paid to Trustee/Directors
- ---- ----------- ---------------------- -------------------------
<S> <C> <C> <C>
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
</TABLE>
PRINCIPAL HOLDERS OF SHARES
As of April 1, 1997, the following persons were known
to the Trust to be the record or beneficial owners of 5% or
more of the outstanding shares of certain of its Funds:
<TABLE>
Number Type of Percentage of
Fund of Shares Ownership Outstanding Shares
- ---- --------- --------- ------------------
<S> <C> <C>
Pennsylvania Mutual Fund
Laird Lorton Trust Company C/F 4,125,555 Record 6.9%
Administrative Systems Inc.
Norton Building, 16th Floor
801 Second Avenue
Seattle, WA 98104-1509
Charles Schwab & Co., Inc. 8,884,371 Record 14.8%
101 Montgomery Street
San Francisco, CA 94104
Royce Premier Fund
Charles Schwab & Co., Inc. 13,786,222 Record 32.3%
101 Montgomery Street
San Francisco, CA 94104
Wheat First Securities Inc. 5,015,904 Record 11.8%
Special Custody Account
FBO Fundsource
Attn. No Load Unit
P.O. Box 6540
Glen Allen, VA 23058-6540
Royce Equity Income Fund
Charles Schwab & Co., Inc. 2,124,753 Record 36.8%
101 Montgomery Street
San Francisco, CA 94104
Royce Low-Priced Stock Fund
Andrew & Company 140,781 Record 5.4%
C/O Chase Manhattan Bank NA
1211 Avenue of the Americas
New York, NY 10036
Charles Schwab & Co., Inc. 856,672 Record 33.1%
101 Montgomery Street
San Francisco, CA 94104
Quest Management Company 217,945 Record and 8.4%
8 Soundshore Drive Beneficial
Greenwich, CT 06830
Fleet National Bank, 209,922 Record 8.1%
Custodian
FBO Brown University
One East Avenue
Rochester, NY 14638
Royce GiftShares Fund
W. Whitney George , Trustee 146,156 Record and 72.5%
The Royce 1992 GST Trust Beneficial
1414 Avenue of the Americas
New York, NY 10019
Royal Total Return Fund
Charles Schwab & Co. Inc. 509,246 Record 20.3%
Attn. Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
FTC & Co.. 233,051 Record 8.9%
Datalynx #154
P.O. Box 173736
Denver, CO 80217-3736
National City Bank 136,338 Record 5.4%
FBO Scott F. Zimmerman
P.O. Box 94777
Cleveland, OH 44101
Royce Global Services Fund
Charles M. Royce 145,868 Record and 45.5%
1414 Avenue of the Americas Beneficial
New York, NY 10019
Integra Trust Company 51,173 Record and 16.0%
National Assn. Beneficial
300 Fourth Avenue
Pittsburgh, PA 15278
Bruce Museum Inc. 46,662 Record and 14.6%
Museum Drive Beneficial
Greenwich, CT 06830
PMF II
Charles Schwab & Co.Inc. 624,784 Record 18.2%
Attn. Mutual Fund Dept.
101 Montgomery St.
San Francisco, CA 94104-4122
Steven F. Fischer & 252,712 Record 7.4%
Frederick C. Fisher Co.
TTEES U/A/D 1/1/76
Fischer Special Manufacturing
111 Industrial Road
Cold Spring, KY 41076-9020
</TABLE>
As of April 1, 1997, all of the trustees and officers
of the Trust as a group beneficially owned less than 1% of
the outstanding shares of each of Pennsylvania Mutual, Royce
Premier, Equity Income and Value Funds, approximately 1.2%
of the outstanding shares of Royce Micro-Cap Fund,
approximately 19.6% of the outstanding shares of Royce Low-
Priced Stock Fund, approximately 72.6% of the outstandaing
shares of Royce GiftShares Fund, approximately 1.1% of the
outstanding shares of Royce Total Return Fund, approximately
52.1% of the outstanding shares of Royce Global Services
Fund and approximately 2.9% of the outstandaing shares of
PMF II.
As of the date of this Statement of Additional
Information, Charles M. Royce owned 100% of the outstanding
shares of Royce Financial Services Fund.
INVESTMENT ADVISORY SERVICES
Services Provided by Quest
As compensation for its services under the Investment
Advisory Agreements with the Funds, Quest is entitled to
receive the following fees:
Percentage Per Annum
Fund of Fund's Average Net Assets
---- ----------------------------
[S] [C]
Pennsylvania Mutual Fund 1.00% of first $50,000,000,
.875% of next $50,000,000 and
.75% of any additional average
net assets
Royce Premier Fund 1.00%
Royce Micro-Cap Fund 1.50%
Royce Equity Income Fund 1.00%
Royce Low-Priced Stock Fund 1.50%
Royce GiftShares Fund 1.25%
Royce Value Fund 1.00% of first $50,000,000,
.875% of next $50,000,000 and
.75% of any additional
average net assets
Royce Total Return Fund 1.00%
Royce Global Services Fund 1.50%
PMF II 1.00%
Royce Financial Services Fund 1.00%
Such fees are payable monthly from the assets of the Fund
involved and, in the case of Pennsylvania Mutual Fund, are
allocated between the Investment and Consultant Classes of
its shares based on their relative net assets.
Under the Investment Advisory Agreements, Quest (i)
determines the composition of each Fund's portfolio, the
nature and timing of the changes in it and the manner of
implementing such changes, subject to any directions it may
receive from the Trust's Board of Trustees; (ii) provides
each Fund with investment advisory, research and related
services for the investment of its assets; (iii) furnishes,
without expense to the Trust, the services of certain of its
executive officers and full-time employees; and (iv) pays
such persons' salaries and executive expenses and all
expenses incurred in performing its investment advisory
duties under the Investment Advisory Agreements.
The Trust pays all administrative and other costs and
expenses attributable to its operations and transactions,
including, without limitation, transfer agent and custodian
fees; legal, administrative and clerical services; rent for
its office space and facilities; auditing; preparation,
printing and distribution of its prospectuses, proxy
statements, shareholders reports and notices; supplies and
postage; Federal and state registration fees; Federal, state
and local taxes; non-affiliated trustees' fees; and
brokerage commissions.
For each of the three years ended December 31, 1994,
1995 and 1996, as applicable, Quest received advisory fees
from the Funds (net of any amounts waived by Quest) and
waived advisory fees payable to it, as follows:
Net Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
[S] [C] [C]
Pennsylvania Mutual Fund
------------------------
1994 $ 6,831,793 $ -
1995 5,361,354 88,173
1996 4,104,694 198,074
Royce Premier Fund
------------------
1994 $ 1,400,394 $ -
1995 2,603,445 6,279
1996 2,838,340 65,000
Royce Micro-Cap Fund
--------------------
1994 $ 295,148 $ 20,330
1995 804,905 14,047
1996 1,792,264 96,036
Royce Equity Income Fund
------------------------
1994 $ 820,662 $ 53,626
1995 598,783 57,030
1996 360,791 25,696
Royce Low-Priced Stock Fund
---------------------------
1994 $ 0 $ 15,727
1995 6,174 31,425
1996 122,045 51,828
Royce GiftShares Fund
---------------------
1995* $ 0 $ 86
1996 0 7,866
Royce Value Fund
----------------
1994 $ 1,503,696 $ -
1995 1,424,451 16,222
1996 1,322,009 -
Royce Total Return Fund
-----------------------
1994 $ 0 10,506
1995 12,027 9,947
1996 12,189 28,758
Royce Global Services Fund
--------------------------
1994** $ 0 $ 367
1995 0 20, 261
1996 0 29,185
__________
* December 27, 1995 (commencement of operations) to
December 31, 1995
** December 15, 1994 (commencement of operations) to
December 31, 1994
Net Advisory Fees Amounts
Received by Quest Waived by Quest
----------------- ---------------
[S] [C] [C]
PMF II
------
1996*** $ 0 $ 12,215
________
***November 19, 1996 (commencement of operations) to
December 31, 1996
DISTRIBUTOR
QDI, the distributor of the shares of each Fund, has
its office at 1414 Avenue of the Americas, New York, New
York 10019. It was organized in November 1982 and is a
member of the National Association of Securities Dealers,
Inc. ("NASD").
As compensation for its services and for the expenses
payable by it under the Distribution Agreement with the
Trust, QDI is entitled to receive, for and from the assets
of the Fund involved, a monthly fee equal to 1% per annum
(consisting of an asset-based sales charge of .75% and a
personal service and/or account maintenance fee of .25%) of
Pennsylvania Mutual Fund's Consultant Class and of Royce
Value Fund's respective average net assets and .25% per
annum (consisting of an asset-based sales charge) of Royce
Low-Priced Stock, Total Return, Global Services and
Financial Services Funds' respective average net assets.
Except to the extent that they may be waived by QDI, these
fees are not subject to any required reductions. QDI is
also entitled to receive the proceeds of any front-end sales
loads that may be imposed on purchases of shares of
Pennsylvania Mutual Fund's Consultant Class and Royce Value
Fund and of any contingent deferred sales charges that may
be imposed on redemptions of such shares. Pennsylvania
Mutual Fund's Investment Class, Royce Premier, Micro-Cap,
Equity Income and GiftShares Funds and PMF II do not pay any
fees to QDI under the Distribution Agreement.
Under the Distribution Agreement, QDI (i) seeks to
promote the sale and/or continued holding of shares of such
Funds through a variety of activities, including
advertising, direct marketing and servicing investors and
introducing parties on an on-going basis; (ii) pays sales
commissions and other fees to those broker-dealers,
investment advisers and others (excluding banks) who have
introduced investors to such Funds (which commissions and
other fees may or may not be the same amount as or otherwise
comparable to the distribution fees payable to QDI);
(iii) pays the cost of preparing, printing and distributing
any advertising or sales literature and the cost of printing
and mailing the Funds' prospectuses to persons other than
shareholders of the Funds; and (iv) pays all other expenses
incurred by it in promoting the sale and/or continued
holding of the shares of such Funds and in rendering such
services under the Distribution Agreement. The Trust bears
the expense of registering its shares with the Securities
and Exchange Commission and the cost of qualifying and
maintaining the qualification of its shares for sale under
the securities laws of the various states.
The Trust entered into the Distribution Agreement with
QDI pursuant to a Distribution Plan which, among other
things, permits each Fund that remains covered by the Plan
to pay the monthly distribution fee out of its net assets.
As required by Rule 12b-1 under the 1940 Act, the Plan has
been approved by the shareholders of each Fund or class of
shares that remains covered by the Plan and by the Trust's
Board of Trustees (which also approved the Distribution
Agreement pursuant to which the distribution fees are paid),
including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or the
Distribution Agreement.
In approving the Plan, the Trustees, in accordance with
the requirements of Rule 12b-1, considered various factors
(including the amount of the distribution fees) and
determined that there is a reasonable likelihood that the
Plan will benefit each Fund and its shareholders or class of
shareholders.
The Plan may be terminated as to any Fund or class of
shares by vote of a majority of the non-interested Trustees
who have no direct or indirect financial interest in the
Plan or in the Distribution Agreement or by vote of a
majority of the outstanding voting securities of such Fund
or class. Any change in the Plan that would materially
increase the distribution cost to a Fund or class of shares
requires approval by the shareholders of such Fund or class;
otherwise, the Plan may be amended by the Trustees,
including a majority of the non-interested Trustees, as
described above.
The Distribution Agreement may be terminated as to any
Fund or class of shares at any time on 60 days' written
notice and without payment of any penalty by QDI, by the
vote of a majority of the outstanding voting securities of
such Fund or class or by the vote of a majority of the
Trustees who are not interested persons of the Trust and who
have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto.
The Distribution Agreement and the Plan, if not sooner
terminated in accordance with their terms, will continue in
effect for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of
a majority of the Trustees who are not parties to the
Agreement or interested persons of any such party and who
have no direct or indirect financial interest in the Plan or
the Agreement and (ii) either by the vote of a majority of
the outstanding voting securities of the Fund or class of
shares involved or by the vote of a majority of the entire
Board of Trustees.
While the Plan is in effect, the selection and
nomination of those Trustees who are not interested persons
of the Trust will be committed to the discretion of the
Trustees who are not interested persons.
For the year ended December 31, 1996, Royce Value Fund
paid distribution fees to QDI of $1,013,215 (net of $505,034
waived by QDI -- 1% of its average net assets during such
year before giving effect to such waiver and 0.67% of its
average net assets after giving effect to such waiver). QDI
spent the distribution fees paid to it by and the proceeds
of contingent deferred sales charges released to it for
Royce Value Fund during 1996 primarily to compensate
introducing brokers.
QDI has temporarily waived the distribution fees
payable to it by Royce Low-Priced Stock, Total Return and
Global Services Funds, PMF II and Royce Financial Services
Fund .
No trustee of the Trust who was not an interested
person of the Trust had any direct or indirect financial
interest in the operation of the Plan or the Distribution
Agreement. Charles M. Royce, an interested person of the
Trust, Quest and QDI, had such an interest.
The benefits to Royce Value Fund included the receipt
of net proceeds of $3,630,516 from sales of its shares
during the fiscal year ended December 31, 1996. The value
of shares redeemed by such Fund during such year aggregated
$43,873.860.
Under the Rules of Fair Practice of the NASD, the front-
end sales loads, asset-based sales charges and contingent
deferred sales charges payable by any Fund and/or the
shareholders thereof to QDI are limited to (i) 6.25% of
total new gross sales occurring after July 7, 1993 plus
interest charges on such amount at the prime rate plus 1%
per annum, increased by (ii) 6.25% of total new gross sales
occurring after such Fund first adopted the Plan until July
7, 1993 plus interest charges on such amount at the prime
rate plus 1% per annum less any front-end, asset-based or
deferred sales charges on such sales or net assets resulting
from such sales.
CUSTODIAN
State Street Bank and Trust Company ("State Street") is
the custodian for the securities, cash and other assets of
each Fund and the transfer agent and dividend disbursing
agent for the shares of each Fund, but it does not
participate in any Fund's investment decisions. The Trust
has authorized State Street to deposit certain domestic and
foreign portfolio securities in several central depository
systems and to use foreign sub-custodians for certain
foreign portfolio securities, as allowed by Federal law.
State Street's main office is at 225 Franklin Street,
Boston, Massachusetts 02107. All mutual fund transfer,
dividend disbursing and shareholder service activities are
performed by State Street's agent, National Financial Data
Services, at 1004 Baltimore, Kansas City, Missouri 64105.
State Street is responsible for the calculation of each
Fund's daily net asset value per share and for the
maintenance of its portfolio and general accounting records
and also provides certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post
Office Square, Boston, Massachusetts 02109, are the
independent accountants of the Trust.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who
effect the purchases and sales of each Fund's portfolio
securities. No broker is selected to effect a securities
transaction for a Fund
unless such broker is believed by Quest to be capable of
obtaining the best price and execution
for the security involved in the transaction. In addition
to considering a broker's execution capability, Quest
generally considers the brokerage and research services
which the broker has provided to it, including any research
relating to the security involved in the transaction and/or
to other securities. Such services may include general
economic research, market and statistical information,
industry and technical research, strategy and company
research and performance measurement and may be written or
oral. Quest determines the overall reasonableness of
brokerage commissions paid, after considering the amount
another broker might have charged for effecting the
transaction and the value placed by Quest upon the brokerage
and/or research services provided by such broker, viewed in
terms of either that particular transaction or Quest's
overall responsibilities with respect to its accounts.
Quest is authorized, under Section 28(e) of the
Securities Exchange Act of 1934 and under its Investment
Advisory Agreements with the Trust, to pay a brokerage
commission in excess of that which another broker might have
charged for effecting the same transaction, in recognition
of the value of brokerage and research services provided by
the broker.
Brokerage and research services furnished by brokers
through whom a Fund effects securities transactions may be
used by Quest in servicing all of its accounts and those of
QMC, and not all of such services may be used by Quest in
connection with the Trust or any one of its Funds.
Quest may also place a Fund's brokerage business with
firms which promote the sale of the Funds' shares,
consistent with achieving the best price and execution. In
no event will a Fund's brokerage business be placed with
QDI.
Even though investment decisions for each Fund are made
independently from those for the other Funds and the other
accounts managed by Quest and QMC, securities of the same
issuer are frequently purchased, held or sold by more than
one Quest/QMC account because the same security may be
suitable for all of them. When the same security is being
purchased or sold for more than one Quest/QMC account on the
same trading day, Quest seeks to average the transactions as
to price and allocate them as to amount in a manner believed
to be equitable to each. Such purchases and sales of the
same security are generally effected pursuant to Quest/QMC's
Trade Allocation Guidelines and Procedures. Under such
Guidelines and Procedures, unallocated orders are placed
with and executed by broker-dealers during the trading day.
The securities purchased or sold in such transactions are
then allocated to one or more of Quest's and QMC's accounts
at or shortly following the close of trading, using the
average net price obtained. Such allocations are done based
on a number of judgmental factors that Quest and QMC believe
should result in fair and equitable treatment to those of
their accounts for which the securities may be deemed
suitable. In some cases, this procedure may adversely
affect the price paid or received by a Fund or the size of
the position obtained for a Fund.
During each of the three years ended December 31, 1994,
1995 and 1996, the Funds paid brokerage commissions as
follows:
Fund 1994 1995 1996
- ---- ---- ---- ----
[S] [C] [C] [C]
Pennsylvania Mutual Fund $797,686 $683,334 $935,022
Royce Premier Fund 465,986 419,040 429,150
Royce Micro-Cap Fund 41,497 117,909 295,737
Royce Equity Income Fund 218,843 119,097 80,692
Royce Low-Priced Stock Fund 12,946 22,645 114,456
Royce GiftShares Fund - 760* 3,555
Royce Value Fund 138,437 114,296 187,689
Royce Total Return Fund 6,231 6,117 21,379
Royce Global Services Fund 382** 6,199 6,872
PMF II - - 29,490***
_________________
* For the period from December 27, 1995 (commencement of
operations) to December 31, 1995
** For the period from December 15, 1994 (commencement of
operations) to December 31, 1994
***For the period from November 19, 1996 (commencement of
operations) to December 31, 1996
For the year ended December 31, 1996, the aggregate
amount of brokerage transactions of each Fund having a
research component and the amount of commissions paid by
each Fund for such transactions were as follows:
<TABLE>
Aggregate Amount of
Brokerage Transactions Commissions Paid
Fund Having a Research Component For Such Transactions
- ---- --------------------------- ---------------------
<S> <C> <C>
Pennsylvania Mutual Fund $ 94,132,403 $ 307,755
Royce Premier Fund 49,849,078 140,207
Royce Micro-Cap Fund 11,407,913 56,499
Royce Equity Income Fund 7,044,321 27,376
Royce Low-Priced Stock Fund 2,510,264 15,390
Royce GiftShares Fund 239,455 957
Royce Value Fund 28,074,006 81,397
Royce Total Return Fund 927,710 3,075
Royce Global Services Fund 501,800 1,696
PMF II* -0- -0-
_________________
* For the period from November 19, 1996 (commencement of
operations) to December 31, 1996
</TABLE>
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI, QMC and The Royce Funds have adopted a
Code of Ethics under which directors, officers, employees
and partners of Quest, QDI and QMC ("Quest-related persons")
and interested trustees/directors, officers and employees of
The Royce Funds are prohibited from personal trading in any
security which is then being purchased or sold or considered
for purchase or sale by a Royce Fund or any other Quest or
QMC account. Such persons are permitted to engage in other
personal securities transactions if (i) the securities
involved are United States Government debt securities,
municipal debt securities, money market instruments, shares
of affiliated or non-affiliated registered open-end
investment companies or shares acquired from an issuer in a
rights offering or under an automatic dividend reinvestment
or employer-sponsored automatic payroll-deduction cash
purchase plan or (ii) they first obtain permission to trade
from Quest's Compliance Officer and an executive officer of
Quest. The Code contains standards for the granting of such
permission, and it is expected that permission to trade will
be granted only in a limited number of instances.
Quest's and QMC's clients include several private
investment companies in which Quest or QMC has (and,
therefore, Charles M. Royce, Jack E. Fockler, Jr. and/or W.
Whitney George may be deemed to beneficially own) a share of
up to 15% of the company's realized and unrealized net
capital gains from securities transactions, but less than 5%
of the company's equity interests. The Code of Ethics does
not restrict transactions effected by Quest or QMC for such
private investment company accounts. Transactions for such
private investment company accounts are subject to Quest's
and QMC's allocation policies and procedures. See "Portfolio
Transactions".
As of April 1, 1997, Quest-related persons, interested
trustees/directors, officers and employees of The Royce
Funds and members of their immediate families beneficially
owned shares of The Royce Funds having a total value of
approximately $26.4 million, and Quest's and QMC's equity
interests in such private investment companies totalled
approximately $3.4 million.
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of each Fund's shares
is based on the Fund's current net asset value per share.
See "Net Asset Value Per Share" in the Funds' Prospectuses.
As set forth under "Net Asset Value Per Share", the
Funds' custodian determines the net asset value per share of
each Fund at the close of regular trading on the New York
Stock Exchange on each day that the Exchange is open. The
Exchange is open on all weekdays which are not holidays.
Thus, it is closed on Saturdays and Sundays and on New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future
which would, in the judgment of the Board of Trustees or
management, make it undesirable for a Fund to pay for all
redemptions in cash. In such cases, payment may be made in
portfolio securities or other property of the Fund.
However, the Trust has obligated itself under the 1940 Act
to redeem for cash all shares presented for redemption by
any one shareholder up to $250,000 (or 1% of the Trust's net
assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions would be selected by
Quest and valued at the same value assigned to them in
computing the net asset value per share for purposes of such
redemption. Shareholders receiving such securities would
incur brokerage costs when these securities are sold.
TAXATION
Each Fund (except Royce Financial Services Fund) has
qualified, intends to qualify and to remain qualified, and
Royce Financial Services Fund intends to qualify and to
remain qualified, each year for the tax treatment applicable
to a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To
so qualify, a Fund must comply with certain requirements of
the Code relating to, among other things, the source of its
income and the diversification of its assets.
By so qualifying, a Fund will not be subject to Federal
income taxes to the extent that its net investment income
and capital gain net income are distributed, so long as the
Fund distributes, as ordinary income dividends, at least 90%
of its investment company taxable income.
A non-deductible 4% excise tax will be imposed on a
Fund to the extent that the Fund does not distribute
(including by declaration of certain dividends), during each
calendar year, (i) 98% of its ordinary income for such
calendar year, (ii) 98% of its capital gain net income for
the one-year period ending October 31 of such calendar year
(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, each
Fund intends to distribute substantially all of its net
investment income and capital gain net income at least
annually to its shareholders.
Each Fund maintains accounts and calculates income by
reference to the U.S. dollar for U.S. Federal income tax
purposes. Investments calculated by reference to foreign
currencies will not necessarily correspond to a Fund's
distributable income and capital gains for U.S. Federal
income tax purposes as a result of fluctuations in foreign
currency exchange rates. Furthermore, if any exchange
control regulations were to apply to a Fund's investments in
foreign securities, such regulations could restrict that
Fund's ability to repatriate investment income or the
proceeds of sales of securities, which may limit the Fund's
ability to make sufficient distributions to satisfy the 90%
distribution requirement and avoid the 4% excise tax.
Income earned or received by a Fund from investments in
foreign securities may be subject to foreign withholding
taxes unless a withholding exemption is provided under an
applicable treaty. Any such taxes would reduce that Fund's
cash available for distribution to shareholders. It is
currently anticipated that none of the Funds will be
eligible to elect to "pass through" such taxes to their
shareholders for purposes of enabling them to claim foreign
tax credits or other U.S. income tax benefits with respect
to such taxes.
If a Fund invests in stock of a so-called passive
foreign investment company ("PFIC"), such Fund may be
subject to Federal income tax on a portion of any "excess
distribution" with respect to, or gain from the disposition
of, such stock. The tax would be determined by allocating
such distribution or gain ratably to each day of the Fund's
holding period for the stock. The amount so allocated to any
taxable year of the Fund prior to the taxable year in which
the excess distribution or disposition occurs would be taxed
to the Fund at the highest marginal income tax rate in
effect for such years, and the tax would be further
increased by an interest charge. The amount allocated to the
taxable year of the distribution or disposition would be
included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the
extent distributed by the Fund as a dividend to
shareholders.
In lieu of being taxable in the manner described above,
a Fund may be able to elect to include annually in income
its pro rata share of the ordinary earnings and net capital
gain (whether or not distributed) of the PFIC. In order to
make this election, the Fund would be required to obtain
annual information from the PFICs in which it invests, which
in many cases may be difficult to obtain. Alternatively, if
eligible, the Fund may be able to elect to mark to market
its PFIC stock, resulting in the stock being treated as sold
at fair market value on the last business day of each
taxable year. Any resulting gain would be reported as
ordinary income, and any resulting loss would not be
recognized. The Fund may make either of these elections
with respect to its investments (if any) in PFICs.
Investments of a Fund in securities issued at a
discount or providing for deferred interest payments or
payments of interest in kind (which investments are subject
to special tax rules under the Code) will affect the amount,
timing and character of distributions to shareholders. For
example, a Fund which acquires securities issued at a
discount will be required to accrue as ordinary income each
year a portion of the discount (even though the Fund may not
have received cash interest payments equal to the amount
included in income) and to distribute such income each year
in order to maintain its qualification as a regulated
investment company and to avoid income and excise taxes. In
order to generate sufficient cash to make distributions
necessary to satisfy the 90% distribution requirement and to
avoid income and excise taxes, the Fund may have to dispose
of securities that it would otherwise have continued to
hold.
DISTRIBUTIONS
For Federal income tax purposes, distributions by each
Fund from net investment income and from any net realized
short-term capital gain are taxable to shareholders as
ordinary income, whether received in cash or reinvested in
additional shares. Ordinary income generally cannot be
offset by capital losses. For corporate shareholders,
distributions of net investment income (but not
distributions of short-term capital gains) may qualify in
part for the 70% dividends received deduction for purposes
of determining their regular taxable income. (However, the
70% dividends received deduction is not allowable in
determining a corporate shareholder's alternative minimum
taxable income.) The amount qualifying for the dividends
received deduction generally will be limited to the
aggregate dividends received by the Fund from domestic
corporations. The dividends received deduction for
corporate shareholders may be further reduced or eliminated
if the shares with respect to which dividends are received
by the Fund are treated as debt-financed or are deemed to
have been held for fewer than 46 days, or under other
generally applicable statutory limitations.
So long as a Fund qualifies as a regulated investment
company and satisfies the 90% distribution requirement,
distributions by such Fund from net capital gains will be
taxable as long-term capital gains, whether received in cash
or reinvested in Fund shares and regardless of how long a
shareholder has held his or its Fund shares. Such
distributions are not eligible for the dividends received
deduction. Long-term capital gains of non-corporate
shareholders, although fully includable in income, currently
are taxed at a lower maximum marginal Federal income tax
rate than ordinary income.
Distributions by a Fund in excess of its current and
accumulated earnings and profits will reduce a shareholder's
basis in Fund shares (but, to that extent, will not be
taxable) and, to the extent such distributions exceed the
shareholder's basis, will be taxable as capital gain
assuming the shareholder holds Fund shares as capital
assets.
A distribution will be treated as paid during a
calendar year if it is declared in October, November or
December of the year to shareholders of record in such month
and paid by January 31 of the following year. Such
distributions will be taxable to such shareholders as if
received by them on December 31, even if not paid to them
until January. In addition, certain other distributions made
after the close of a taxable year of a Fund may be "spilled
back" and treated as paid by the Fund (other than for
purposes of avoiding the 4% excise tax) during such year.
Such dividends would be taxable to the shareholders in the
taxable year in which the distribution was actually made by
the Fund.
The Trust will send written notices to shareholders
regarding the amount and Federal income tax status as
ordinary income or capital gain of all distributions made
during each calendar year.
BACK-UP WITHHOLDING/WITHHOLDING TAX
Under the Code, certain non-corporate shareholders may
be subject to 31% withholding on reportable dividends,
capital gains distributions and redemption payments
("back-up withholding"). Generally, shareholders subject to
back-up withholding will be those for whom a taxpayer
identification number and certain required certifications
are not on file with the Trust or who, to the Trust's
knowledge, have furnished an incorrect number. In addition,
the Trust is required to withhold from distributions to any
shareholder who does not certify to the Trust that such
shareholder is not subject to back-up withholding due to
notification by the Internal Revenue Service that such
shareholder has under-reported interest or dividend income.
When establishing an account, an investor must certify under
penalties of perjury that such investor's taxpayer
identification number is correct and that such investor is
not subject to or is exempt from back-up withholding.
Ordinary income distributions paid to shareholders who
are non-resident aliens or which are foreign entities will
be subject to 30% United States withholding tax unless a
reduced rate of withholding or a withholding exemption is
provided under an applicable treaty. Non-U.S. shareholders
are urged to consult their own tax advisers concerning the
United States tax consequences to them of investing in a
Fund.
TIMING OF PURCHASES AND DISTRIBUTIONS
At the time of an investor's purchase, a Fund's net
asset value may reflect undistributed income or capital
gains or net unrealized appreciation of securities held by
the Fund. A subsequent distribution to the investor of such
amounts, although it may in effect constitute a return of
his or its investment in an economic sense, would be taxable
to the shareholder as ordinary income or capital gain as
described above. Investors should carefully consider the
tax consequences of purchasing Fund shares just prior to a
distribution, as they will receive a distribution that is
taxable to them.
SALES OR REDEMPTIONS OF SHARES
Gain or loss recognized by a shareholder upon the sale,
redemption or other taxable disposition of Fund shares
(provided that such shares are held by the shareholder as a
capital asset) will be treated as capital gain or loss,
measured by the difference between the adjusted basis of the
shares and the amount realized on the sale or exchange.
Such gain or loss will be long-term capital gain or loss if
the shares disposed of were held for more than one year. A
loss will be disallowed to the extent that the shares
disposed of are replaced (including by receiving Fund 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. A shareholder's exchange of shares between
Funds will be treated for tax purposes as a redemption of
the Fund shares surrendered in the exchange, and may result
in the shareholder's recognizing a taxable gain or loss.
* * *
The foregoing relates to Federal income taxation.
Distributions, as well as any gains from a sale, redemption
or other taxable disposition of Fund shares, also may be
subject to state and local taxes. Under current law, so
long as each Fund qualifies for the Federal income tax
treatment described above, it is believed that neither the
Trust nor any Fund will be liable for any income or
franchise tax imposed by Delaware.
Investors are urged to consult their own tax advisers
regarding the application to them of Federal, state and
local tax laws.
ROYCE GIFTSHARES FUND
GIFT TAXES
An investment in Royce GiftShares Fund may be a taxable
gift for Federal tax purposes, depending upon the options
selected and other gifts that the Donor and his or her
spouse may make during the year.
If the Donor selects the Withdrawal Option, the entire
amount of the gift will be a "present interest" that
qualifies for the Federal annual gift tax exclusion. In
that case, the Donor will be required to file a Federal gift
tax return for the year of the gift only if he or she makes
gifts (including the gift of Fund shares and any gifts by
his or her spouse treated as made by him or her) totaling
more than $10,000 to the same individual during that year or
if he or she makes any gift of a future interest during that
year. The Trustee will notify the Beneficiary of his or her
right of withdrawal promptly following any investment in the
Fund under the Withdrawal Option.
If the Donor selects the Accumulation Option, the
entire amount of the gift will be a "future interest" for
Federal gift tax purposes, so that none of the gift will
qualify for the Federal annual gift tax exclusion
(currently, $10,000). Consequently, the Donor will have to
file a Federal gift tax return IRS (Form 709) reporting the
entire amount of the gift, even if the gift is less than
$10,000.
If the Donor selects the Split Option, the portion of
the gift representing the Beneficiary's income interest will
be a "present interest" that will qualify for the Federal
annual gift tax exclusion, and the balance will be a "future
interest" that will not so qualify. The value of the income
interest is the present value of the Beneficiary's right to
receive the Trust income for the 40 year term of this Trust
(without regard to the possibility that the Trust may be
terminated sooner) or until the Beneficiary's earlier death,
using actuarial tables and interest rate assumptions
prescribed by the Internal Revenue Service in effect on the
date of the gift. Using the assumptions currently in
effect, the income interest portion of Royce GiftShares Fund
Trusts using the Split Option and created for Beneficiaries
aged 15, 20, 25, 30 and 35 would be 93.6%, 93.3%, 92.8%,
91.9% and 90.5%, respectively. Nevertheless, the Donor will
have to file a Federal gift tax return reporting the gift
and identifying the portion that does not represent a
present interest, no matter how small. The Donor should
consult with his or her tax adviser to determine the manner
in which the gift must be reported for Federal gift tax
purposes.
No Federal gift tax will be payable by the Donor until
his or her cumulative taxable gifts (i.e., gifts other than
those qualifying for the annual exclusion or other
exclusions) exceed the Federal gift and estate tax exclusion
equivalent amount (currently, $600,000). Any gift of Fund
shares that does not qualify as a present interest will
reduce the amount of the Federal gift and estate tax
exemption that would otherwise be available for future gifts
or to the Donor's estate. All gifts of Fund shares qualify
for "gift splitting" with the Donor's spouse, meaning that
the Donor and his or her spouse may elect to treat the gift
as having been made one-half by each of them.
The Donor's gift of Fund shares may also have to be
reported for state gift tax purposes, if the state in which
the Donor resides imposes a gift tax. Many states do not
impose such a tax. Some do follow the Federal rules
concerning the types of transfers subject to tax and the
availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the Beneficiary of a gift of Royce GiftShares Fund
shares is a grandchild or more remote descendant of the
Donor or is assigned, under Federal tax law, to the
generation level of the Donor's grandchildren or more remote
descendants, any part of the gift that does not qualify for
the Federal annual gift tax exclusion will be a taxable
transfer for purposes of the Federal generation-skipping
transfer tax ("GST tax"). The Donor may protect these gifts
from the GST tax by allocating his or her GST exemption
until his or her cumulative gifts (other than certain gifts
qualifying for the annual exclusion or other exclusions) to
individuals assigned, under Federal tax law, to the
generation level of the Donor's grandchildren or more remote
descendants exceed the GST tax exemption (currently,
$1,000,000). The tax rate on transfers subject to GST tax
is the maximum Federal estate tax rate (currently, 55%).
Gifts subject to GST tax, whether or not covered by the GST
tax exemption, must be reported on the Donor's Federal gift
tax return. Whether, and the extent to which, an investment
in Royce GiftShares Fund will qualify for the Federal annual
gift tax exclusion will depend upon the options selected and
other gifts that the Donor and his or her spouse may have
made during the year. See "Gift Taxes" above.
INCOME TAXES
The Internal Revenue Service has taken the position in
recent rulings that a trust beneficiary who is given a power
of withdrawal over contributions to the trust should be
treated as the "owner" of the portion of the trust that was
subject to the power for Federal income tax purposes.
Accordingly, if the Donor selects the Withdrawal Option, the
Beneficiary may be treated as the "owner" of all of the Fund
shares in the account for Federal income tax purposes, and
will be required to report all of the income and capital
gains earned in the Trust on his or her personal Federal
income tax return. The Trust will not pay Federal income
taxes on any of the Trust's income or capital gains, and the
"throwback rules" of the Code will not apply when the Trust
terminates. The Trustee will prepare and file the Federal
income tax information returns that are required each year
(and any state income tax returns that may be required), and
will send the Beneficiary a statement following each year
showing the amounts (if any) that the Beneficiary must
report on his or her income tax returns for that year. If
the Beneficiary is under fourteen years of age, these
amounts may be subject to Federal income taxation at the
marginal rate applicable to the Beneficiary's parents. The
Beneficiary will have the option to require the Trustee to
pay him or her a portion of the Trust's income and capital
gains annually to provide funds with which to pay any
resulting income taxes, which the Trustee will do by
redeeming Fund shares. The amount distributed will be a
fraction of the Trust's ordinary income and short-term
capital gains and the Trust's long-term capital gains equal
to the highest marginal Federal income tax rate imposed on
each type of income (currently, 39.6% and 28%,
respectively). If the Beneficiary selects this option, he
or she will receive those fractions of his or her Trust's
income and capital gains annually for the duration of the
Trust.
Under the Withdrawal Option, the Beneficiary will also
be able to require the Trustee to pay his or her tuition,
room and board and other expenses of his or her college or
post-graduate education, and the Trustee will raise the cash
necessary to fund these distributions by redeeming Fund
shares. Any such redemption will result in the realization
of capital gain or loss on the shares redeemed, which will
be reportable by the Beneficiary on his or her income tax
returns for the year in which the shares are redeemed, as
described above.
If the Donor selects the Accumulation Option, the Trust
that he or she creates will be subject to Federal income tax
on all income and capital gains earned by the Trust, less a
$100 annual exemption (in lieu of the personal exemption
allowed to individuals). The amount of the tax will be
determined under the tax rate schedule applicable to estates
and trusts, which is more sharply graduated than the rate
schedule for individuals, reaching the same maximum marginal
rate for ordinary income (currently, 39.6%), but at a much
lower taxable income level (for 1997, $8,100) than would
apply to an individual. It is anticipated, however, that
most of the income generated by Fund shares will be long-
term capital gains, on which the Federal income tax rate is
currently limited to 28 %. The Trustee will raise the cash
necessary to pay any Federal or state income taxes by
redeeming Fund shares. The Beneficiary will not pay Federal
income taxes on any of the Trust's income or capital gains,
except those earned in the year when the Trust terminates.
If the Trust terminates after the Beneficiary reaches age
21, the distribution of the balance of the trust fund may
be treated as an "accumulation distribution" under the so-
called "throwback rules" of the Code, which could result in
the imposition of additional income tax on the Beneficiary.
The Trustee will prepare and file all Federal and state
income tax returns that are required each year, and will
send the Beneficiary an information statement for the year
in which the Trust terminates showing the amounts (if any)
that the Beneficiary must report on his or her Federal and
state income tax returns for that year and the amount (if
any) of any accumulation distribution subject to the
"throwback rules" of the Code.
If the Donor selects the Split Option, the Trust will
be subject to Federal income tax only on capital gains
earned by the Trust (which would include all capital gains
distributions on the shares of the Fund held in the Trust),
less a $300 exemption (in lieu of the personal exemption
allowed to individuals). The amount of the tax will be
determined under the tax rate schedule applicable to estates
and trusts, which is more sharply graduated than the rate
schedule used for individuals, reaching the same maximum
marginal rate for ordinary income (currently, 39.6%) but at
a much lower taxable income level (for 1997, $8,100) than
would apply to an individual. It is anticipated, however,
that most of the income generated by Fund shares will be
long-term capital gains, on which the Federal tax rate is
currently limited to 28%. The Trustee will raise the cash
necessary to pay any Federal or state income tax by
redeeming Fund shares. The Trust will receive any net
investment income dividends paid by the Fund in cash, the
Trustee will distribute all of the Trust's net income to the
Beneficiary and the Beneficiary will be subject to Federal
income tax on all ordinary income received from the Trust
each year. The Beneficiary will not pay Federal income
taxes on any of the Trust's capital gains, except those
earned in the year of the Trust's termination, and the
"throwback rules" of the Code will not apply when the Trust
terminates. The Trustee will prepare and file all Federal
and state income tax returns that are required each year,
and will send the Beneficiary an information statement each
year showing the amounts (if any) that the Beneficiary must
report on his or her Federal and state income tax returns
for that year.
When the Trust terminates, the distribution of the
remaining Fund shares held in the Trust to the Beneficiary
will not be treated as a taxable disposition, and no capital
gain or loss will be realized by the Beneficiary (or, if he
or she has died, by his or her estate) at that time. Any
Fund shares received by the Beneficiary will have the same
cost basis as they had in the Trust at the time of
termination. Any Fund shares received by the Beneficiary's
estate will have a basis equal to the value of the shares at
the Beneficiary's death (or the alternative valuation date
for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED TAX ADVISER
Due to the complexity of Federal and state gift, GST
and income tax laws pertaining to all gifts in trust,
prospective Donors should consider consulting with an
attorney or other qualified tax adviser before investing in
Royce GiftShares Fund.
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 its Trust
Instrument, its principal governing document, is available
for inspection by shareholders at the Trust's office in New
York.
The Trust has an unlimited authorized number of shares
of beneficial interest, which may be divided into an
unlimited number of series and/or classes without
shareholder approval. (Each Fund, other than Pennsylvania
Mutual Fund, presently has only one class of shares.) All
shares of the Trust are entitled to one vote per share (with
proportional voting for fractional shares). Shares vote by
individual series and/or class except as otherwise required
by the 1940 Act or when the Trustees determine that the
matter affects shareholders of more than one series and/or
class.
Pennsylvania Mutual Fund has two classes of shares, an
Investment Class and a Consultant Class. The shares of each
class represent a pari passu interest in such Fund's
investment portfolio and other assets and have the same
redemption and other rights.
Each of the Trustees currently in office were elected
by the Predecessor's shareholders. There will normally be
no meeting of shareholders for the election of Trustees
until less than a majority of such Trustees remain in
office, at which time the Trustees will call a shareholders
meeting for the election of Trustees. In addition, Trustees
may be removed from office by written consents signed by the
holders of a majority of the outstanding shares of the Trust
and filed with the Trust's custodian or by a vote of the
holders of a majority of the outstanding shares of the Trust
at a meeting duly called for this purpose upon the written
request of holders of at least 10% of the Trust's
outstanding shares. Upon the written request of 10 or more
shareholders of the Trust, who have been shareholders for at
least 6 months and who hold shares constituting at least 1%
of the Trust's outstanding shares, stating that such
shareholders wish to communicate with the Trust's other
shareholders for the purpose of obtaining the necessary
signatures to demand a meeting to consider the removal of a
Trustee, the Trust is required (at the expense of the
requesting shareholders) to provide a list of its
shareholders or to distribute appropriate materials. Except
as provided above, the Trustees may continue to hold office
and appoint their successors.
The trustee of the Royce GiftShares Fund trusts will
send notices of meetings of Royce GiftShares Fund
shareholders, proxy statements and proxies for such meetings
to the trusts' beneficiaries to enable them to attend the
meetings in person or vote by proxies. It will vote all
GiftShares Fund shares held by it which are not present at
the meetings and for which no proxies are returned in the
same proportions as GiftShares Fund shares for which proxies
are returned.
Shares are freely transferable, are entitled to
distributions as declared by the Trustees and, in
liquidation of the Trust, are entitled to receive net assets
of their series and/or class. 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 stockholders of
private corporations for profit organized under the Delaware
General Corporation Law. No similar statutory or other
authority limiting business trust shareholder liability
exists in many other states. As a result, to the extent
that the Trust or a shareholder of the Trust is subject to
the jurisdiction of courts in those states, the courts may
not apply Delaware law and may thereby subject Trust
shareholders to liability. To guard against this
possibility, the Trust Instrument (i) requires that every
written obligation of the Trust contain a statement that
such obligation may be enforced only against the Trust's
assets (however, the omission of this disclaimer will not
operate to create personal liability for any shareholder);
and (ii) provides for indemnification out of Trust property
of any Trust shareholder held personally liable for the
Trust's obligations. Thus, the risk of a Trust shareholder
incurring financial loss beyond his investment because of
shareholder liability is limited to circumstances in which:
(i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii)
the Trust itself would be unable to meet its obligations. In
light of Delaware law, the nature of the Trust's business
and the nature of its assets, management believes that the
risk of personal liability to a Trust shareholder is
extremely remote.
PERFORMANCE DATA
The Funds' performances may be quoted in various ways.
All performance information supplied for the Funds is
historical and is not intended to indicate future returns.
Each Fund's share price and total returns fluctuate in
response to market conditions and other factors, and the
value of a Fund's shares when redeemed may be more or less
than their original cost.
TOTAL RETURN CALCULATIONS
Total returns quoted reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and
capital gain distributions and any change in the Fund's net
asset value per share (NAV) over the period. Average annual
total returns are calculated by determining the growth or
decline in value of a hypothetical historical investment in
the Fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced
the same result if the rate of growth or decline in value
had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an
average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a
compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's
performance is not constant over time, but changes from year
to year, and that average annual total returns represent
averaged figures as opposed to the actual year-to-year
performance of the Fund.
In addition to average annual total returns, a Fund's
unaveraged or cumulative total returns, reflecting the
simple change in value of an investment over a stated
period, may be quoted. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of
investments or a series of redemptions, over any time
period. Total returns may be broken down into their
components of income and capital (including capital gains
and changes in share prices) in order to illustrate the
relationship of these factors and their contributions to
total return. Total returns and other performance
information may be quoted numerically or in a table, graph
or similar illustration.
HISTORICAL FUND RESULTS
The following table shows certain of the Funds' total
returns for the periods indicated. Such total returns
reflect all income earned by each Fund, any appreciation or
depreciation of the assets of such Fund and all expenses
incurred by such Fund for the stated periods. The table
compares the Funds' total returns to the records of the
Russell 2000 Index (Russell 2000) and Standard & Poor's 500
Composite Stock Price Index (S&P 500) over the same periods.
The comparison to the Russell 2000 shows how the Funds'
total returns compared to the record of a broad index of
small capitalization stocks. The S&P 500 comparison is
provided to show how the Funds' total returns compared to
the record of a broad average of common stock prices over
the same period. The Funds have the ability to invest in
securities not included in the indices, and their investment
portfolios may or may not be similar in composition to the
indices. Figures for the indices are based on the prices of
unmanaged groups of stocks, and, unlike the Funds, their
returns do not include the effect of paying brokerage
commissions and other costs and expenses of investing in a
mutual fund.
<TABLE>
Period Ended
Fund December 31, 1996 Russell 2000 S&P 500
- ---- ----------------- ------------ -------
<S> <C> <C> <C>
Pennsylvania Mutual Fund
- ------------------------
1 Year Total Return 12.9% 16.5% 23.3%
5 Year Average Annual Total Return 11.5 15.7 15.3
10 Year Average Annual Total Return 11.4 12.4 15.3
Royce Premier Fund
- ------------------
1 Year Total Return 18.1% 16.5% 23.3%
5 Year Average Annual Total Return 14.7 15.7 15.3
Royce Micro-Cap Fund
- --------------------
1 Year Total Return 15.5% 16.5% 23.3%
5 Year Average Annual Total Return 17.9 15.7 15.3
Royce Equity Income Fund
- ------------------------
1 Year Total Return 16.5% 16.5% 23.3%
5 Year Average Annual Total Return 12.1 15.7 15.3
Average Annual Total Return since 1-2-90 10.0 13.4 14.2
(commencement of operations)
Royce Low-Priced Stock Fund
- ---------------------------
1 Year Total Return 22.8% 16.5% 23.3%
Average Annual Total Return since 12-15-93 15.5 14.8 19.8
(commencement of operations)
Royce Value Fund
- ----------------
1 Year Total Return 14.0% 16.5% 23.3%
5 Year Average Annual Total Return 11.3 15.7 15.3
10 Year Average Annual Total Return 10.8 12.4 15.3
Royce Total Return Fund
- -----------------------
1 Year Total Return 25.5% 16.5% 23.3%
Average Annual Total Return since 12-15-93 18.4 14.8 19.8
(commencement of operations)
Royce Global Services Fund
- --------------------------
1 Year Total Return 14.6% 16.5% 23.3%
Average Annual Total Return since 12-15-94 18.1 24.0 30.0
(commencement of operations)
Royce GiftShares Fund
- ---------------------
1 Year Total Return 25.6% 16.5% 23.3%
Average Annual Total Return since 12-27-95 25.3 17.0 23.2
(commencement of operations)
</TABLE>
During the applicable period ended December 31, 1996, a
hypothetical $10,000 investment in certain of the Funds
would have grown as indicated below, assuming all
distributions were reinvested:
Fund/Period Commencement Date Hypothetical Investment at December 31, 1996
- ------------------------------ --------------------------------------------
[S] [C]
Pennsylvania Mutual Fund (12-31-75) $296,457
Royce Premier Fund (12-31-91) 19,813
Royce Micro-Cap Fund (12-31-91) 22,798
Royce Equity Income Fund (1-2-90) 19,523
Royce Low-Priced Stock Fund (12-15-93) 15,524
Royce Value Fund (12-31-82) 53,966
Royce Total Return Fund (12-15-93) 16,738
Royce Global Services Fund (12-15-94) 14,064
Royce GiftShares Fund (12-27-95) 12,580
The Funds' performances may be compared in
advertisements to the performance of other mutual funds in
general or to the performance of particular types of mutual
funds, especially those with similar investment objectives.
Such comparisons may be expressed as mutual fund rankings
prepared by Lipper Analytical Services, Inc. ("Lipper"), an
independent service that monitors the performance of
registered investment companies. The Funds' rankings by
Lipper for the one year period ended December 31, 1996 were:
Fund Lipper Ranking
---- --------------
[S] [C]
Pennsylvania Mutual Fund 310 out of 388 small company growth funds
Royce Premier Fund 219 out of 388 small company growth funds
Royce Micro-Cap Fund 258 out of 388 small company growth funds
Royce Equity Income Fund 115 out of 163 equity income funds
Royce Low-Priced Stock Fund 132 out of 388 small company growth funds
Royce Value Fund 290 out of 388 small company growth funds
Royce Total Return Fund 70 out of 523 growth and income funds
Royce Global Services Fund 98 out of 159 global funds
Royce GiftShares Fund 97 out of 388 small company growth funds
Money market funds and municipal funds are not included in
the Lipper survey. The Lipper performance analysis ranks
funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption
fees payable by shareholders into consideration and is
prepared without regard to tax consequences.
The Lipper General Equity Funds Average can be used to
show how the Funds' performances compare to a broad-based
set of equity funds. The Lipper General Equity Funds
Average is an average of the total returns of all equity
funds (excluding international funds and funds that
specialize in particular industries or types of investments)
tracked by Lipper. As of December 31, 1996, the average
included 229 capital appreciation funds, 777 growth funds,
192 mid-cap funds, 452 small company growth funds, 597
growth and income funds, 187 equity income funds and 60 S&P
Index objective funds. Capital appreciation, growth and
small company growth funds usually invest principally in
common stocks, with long-term growth as a primary goal.
Growth and income and equity income funds tend to be more
conservative in nature and usually invest in a combination
of common stocks, bonds, preferred stocks and other income-
producing securities. Growth and income and equity income
funds generally seek to provide their shareholders with
current income as well as growth of capital, unlike growth
funds which may not produce income. S&P 500 Index objective
funds seek to replicate the performance of the S&P 500.
The Lipper Growth & Income Fund Index can be used to
show how the Total Return Fund's performance compares to a
set of growth and income funds. The Lipper Growth & Income
Fund Index is an equally-weighted performance index,
adjusted for capital gains distributions and income
dividends, of the 30 largest qualifying funds within
Lipper's growth and income investment objective category.
The Lipper Global Fund Index can be used to show how
the Global Services Fund's performance compares to a set of
global funds. The Lipper Global Fund Index is an equally-
weighted performance index, adjusted for capital gains
distributions and income dividends, of the 30 largest
qualifying funds in Lipper's global investment objective
category.
Ibbotson Associates (Ibbotson) provides historical
returns of the capital markets in the United States. The
Funds' performance may be compared to the long-term
performance of the U.S. capital markets in order to
demonstrate general long-term risk versus reward investment
scenarios. Performance comparisons could also include the
value of a hypothetical investment in common stocks, long-
term bonds or U.S. Treasury securities. Ibbotson calculates
total returns in the same manner as the Funds.
The capital markets tracked by Ibbotson are common
stocks, small capitalization stocks, long-term corporate
bonds, intermediate-term government bonds, long-term
government bonds, U.S. Treasury bills and the U.S. rate of
inflation. These capital markets are based on the returns
of several different indices. For common stocks, the S&P 500
is used. For small capitalization stocks, return is based
on the return achieved by Dimensional Fund Advisors (DFA)
U.S. 9-10 Small Company Fund. This fund is a market-value-
weighted index of the ninth and tenth deciles of the New
York Stock Exchange (NYSE), plus stocks listed on the
American Stock Exchange (AMEX) and over-the-counter (OTC)
with the same or less capitalization as the upper bound of
the NYSE ninth decile. As of December 31, 1996, DFA U.S.
9-10 Small Company Fund contained approximately 2,675
stocks, with a median market capitalization of about $121
million.
The S&P 500 is an unmanaged index of common stocks
frequently used as a general measure of stock market
performance. The Index's performance figures reflect changes
of market prices and quarterly reinvestment of all
distributions.
The S&P SmallCap 600 Index is an unmanaged market-
weighted index consisting of approximately 600 domestic
stocks chosen for market size, liquidity and industry group
representation. As of December 31, 1996, the weighted mean
market value of a company in this Index was approximately
$790 million.
The Russell 2000, prepared by the Frank Russell
Company, tracks the return of the common stocks of
approximately 2,000 of the smallest out of the 3,000 largest
publicly traded U.S.-domiciled companies by market
capitalization. The Russell 2000 tracks the return on these
stocks based on price appreciation or depreciation and
includes dividends.
U.S. Treasury bonds are securities backed by the credit
and taxing power of the U.S. government and, therefore,
present virtually no risk of default. Although such
government securities fluctuate in price, they are highly
liquid and may be purchased and sold with relatively small
transaction costs (direct purchase of U.S. Treasury
securities can be made with no transaction costs). Returns
on intermediate-term government bonds are based on a one-
bond portfolio constructed each year, containing a bond that
is the shortest non-callable bond available with a maturity
of not less than five years. This bond is held for the
calendar year and returns are recorded. Returns on long-
term government bonds are based on a one-bond portfolio
constructed each year, containing a bond that meets several
criteria, including having a term of approximately 20 years.
The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury bills are based on a one-
bill portfolio constructed each month, containing the
shortest term bill having not less than one month to
maturity. The total return on the bill is the month-end
price divided by the previous month-end price, minus one.
Data up to 1976 is from the U.S. Government Bond file at the
University of Chicago's Center for Research in Security
Prices; The Wall Street Journal is the source thereafter.
Inflation rates are based on the Consumer Price Index.
Quest may, from time to time, compare the performance
of common stocks, especially small capitalization stocks, to
the performance of other forms of investment over periods of
time.
From time to time, in reports and promotional
literature, the Funds' performances also may be compared to
other mutual funds tracked by financial or business
publications and periodicals, such as KIPLINGER's,
INDIVIDUAL INVESTOR, MONEY, FORBES, BUSINESS WEEK, BARRON's,
FINANCIAL TIMES, FORTUNE, MUTUAL FUNDS MAGAZINE and THE WALL
STREET JOURNAL. In addition, financial or business
publications and periodicals, as they relate to fund
management, investment philosophy and investment techniques,
may be quoted.
Morningstar, Inc.'s proprietary risk ratings may be
quoted in advertising materials. For the three years ended
December 31, 1996, the average risk score for the 1,826
domestic equity funds rated by Morningstar with a three-year
history was 1.00; the average risk score for the 242 small
company funds rated by Morningstar with a three-year history
was 1.29; and the average risk score for the 91 equity
income funds rated by Morningstar with a three-year history
was .71. For the three years ended December 31, 1996, the
risk scores for the Funds with a three-year history, and
their ranks within Morningstar's equity funds category and
either its small company or equity income funds categories,
as applicable, were as follows:
<TABLE>
Morningstar Rating within Morningstar Category of
----------- -------------------------------------
Fund Risk Score Equity Funds Small Company Funds Equity Income Funds
- ---- ----------- ------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Pennsylvania 0.75 Within lowest 35% Within lowest 10% -
Mutual
Premier 0.56 Within lowest 10% Within lowest 5% -
Micro-Cap 0.83 Within lowest 50% Within lowest 20% -
Equity 0.62 Within lowest 15% - Within lowest 15%
Income
Low-Priced
Stock 0.96 Within lowest 65% Within lowest 30% -
Value 0.80 Within lowest 35% Within lowest 10% -
Total Return 0.27 Within lowest 56% Lowest risk score -
</TABLE>
The Funds' performances may also be compared to those
of other compilations or indices.
Advertising for the Funds may contain examples of the
effects of periodic investment plans, including the
principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic
intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a
strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can
be lower than if fixed numbers of shares are purchased at
the same intervals. In evaluating such a plan, investors
should consider their ability to continue purchasing shares
during periods of low price levels.
The Funds may be available for purchase through
retirement plans or other programs offering deferral of or
exemption from income taxes, which may produce superior
after-tax returns over time. For example, a $2,000 annual
investment earning a taxable return of 8% annually would
have an after-tax value of $177,887 after thirty years,
assuming tax was deducted from the return each year at a 28%
rate. An equivalent tax-deferred investment would have a
value of $244,692 after thirty years.
RISK MEASUREMENTS
Quantitative measures of "total risk," which quantify
the total variability of a portfolio's returns around or
below its average return, may be used in advertisements and
in communications with current and prospective shareholders.
These measures include standard deviation of total return
and the Morningstar risk statistic. Such communications may
also include market risk measures, such as beta, and risk-
adjusted measures of performance such as the Sharpe Ratio,
Treynor Ratio, Jensen's Alpha and Morningstar's star rating
system.
Standard Deviation. The risk associated with a fund or
portfolio can be viewed as the volatility of its returns,
measured by the standard deviation of those returns. For
example, a fund's historical risk could be measured by
computing the standard deviation of its monthly total
returns over some prior period, such as three years. The
larger the standard deviation of monthly returns, the more
volatile - i.e., spread out around the fund's average
monthly total return, the fund's monthly total returns have
been over the prior period. Standard deviation of total
return can be calculated for funds having different
objectives, ranging from equity funds to fixed income funds,
and can be measured over different time frames. The standard
deviation figures presented are annualized statistics based
on the trailing 36 monthly returns. Approximately 68% of the
time, the annual total return of a fund will differ from its
mean annual total return by no more than plus or minus the
standard deviation figure. 95% of the time, a fund's annual
total return will be within a range of plus or minus 2x the
standard deviation from its mean annual total return.
Beta. Beta measures the sensitivity of a security's or
portfolio's returns to the market's returns. It measures
the relationship between a fund's excess return (over 3-
month T-bills) and the excess return of the benchmark index
(S&P 500 for domestic equity funds). The market's beta is by
definition equal to 1. Portfolios with betas greater than 1
are more volatile than the market, and portfolios with betas
less than 1 are less volatile than the market. For example,
if a portfolio has a beta of 2, a 10% market excess return
would be expected to result in a 20% portfolio excess
return, and a 10% market loss would be expected to result in
a 20% portfolio loss (excluding the effects of any firm-
specific risk that has not been eliminated through
diversification).
Morningstar Risk. The Morningstar proprietary risk
statistic evaluates a fund's downside volatility relative to
that of other funds in its class based on the
underperformances of the fund relative to the riskless T-
bill return. It then compares this statistic to those of
other funds in the same broad investment class.
Sharpe Ratio. Also known as the Reward-to-Variability
Ratio, this is the ratio of a fund's average return in
excess of the risk-free rate of return ("average excess
return") to the standard deviation of the fund's excess
returns. It measures the returns earned in excess of those
that could have been earned on a riskless investment per
unit of total risk assumed.
Treynor Ratio. Also known as the Reward-to-Volatility
Ratio, this is the ratio of a fund's average excess return
to the fund's beta. It measures the returns earned in
excess of those that could have been earned on a riskless
investment per unit of market risk assumed. Unlike the
Sharpe Ratio, the Treynor Ratio uses market risk (beta),
rather than total risk (standard deviation), as the measure
of risk.
Jensen's Alpha. This is the difference between a
fund's actual returns and those that could have been earned
on a benchmark portfolio with the same amount of risk -
i.e., the same beta, as the portfolio. Jensen's Alpha
measures the ability of active management to increase
returns above those that are purely a reward for bearing
market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual
fund rating service that rates mutual funds on the basis of
risk-adjusted performance. Ratings may change monthly. Funds
with at least three years of performance history are
assigned ratings from one star (lowest) to five stars
(highest). Morningstar ratings are calculated from the
funds' three-, five- and ten-year average annual returns
(when available). Funds' returns are adjusted for fees and
sales loads. Ten percent of the funds in an investment
category receive five stars, 22.5% receive four stars, 35%
receive three stars, 22.5% receive two stars and the bottom
10% receive one star.
None of the quantitative risk measures taken alone can
be used for a complete analysis and, when taken
individually, can be misleading at times. However, when
considered in some combination and with the total returns of
a fund, they can provide the investor with additional
information regarding the volatility of a fund's
performance. Such risk measures will change over time and
are not necessarily predictive of future performance or
risk.
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
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, 1996
(audited), of Royce Premier Fund for the five
years ended December 31, 1996 (audited), of Royce
Micro-Cap Fund for the five years ended December
31, 1996 (audited), of Royce Equity Income Fund
for the seven years ended December 31, 1996
(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 the three years ended December 31,
1996 (audited), of Royce GiftShares Fund for the
period from December 27, 1995 through December 31,
1995 and the year ended December 31, 1996
(audited), of Royce Value for the ten years ended
December 31, 1996 (audited), of Royce Global
Services Fund for the period from December 15,
1994 through December 31, 1994 and the two years
ended December 31, 1996 (audited) and of PMF II
for the period from November 19, 1996 through
December 31, 1996 (audited).
The following audited financial statements and schedules
of investments of the Registrant are included in the Registrant's
Annual Reports to Shareholders for the fiscal year or period
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,
1996;
Pennsylvania Mutual Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Pennsylvania Mutual Fund -- Statement of Changes in Net Assets
for the years ended December 31, 1996 and 1995;
Pennsylvania Mutual Fund -- Statement of Operations for the year
ended December 31, 1996;
Pennsylvania Mutual Fund -- Financial Highlights for the years
ended December 31, 1996, 1995, 1994, 1993, and 1992 ;
Pennsylvania Mutual Fund -- Notes to Financial Statements
-- Report of Independent Accountants dated February 14, 1997;
Royce Premier Fund -- Schedule of Investments at December 31, 1996;
Royce Premier Fund -- Statement of Assets and Liabilities at
December 31, 1996
Royce Premier Fund -- Statement of Changes in Net Assets for
the years ended December 31, 1996 and 1995;
Royce Premier Fund -- Statement of Operations for the year
ended December 31, 1996;
Royce Premier Fund -- Financial Highlights for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992
Royce Premier Fund -- Notes to Financial Statements -- Report
of Independent Accountants dated February 14, 1997;
Royce Micro-Cap Fund -- Schedule of Investments at December 31, 1996;
Royce Micro-Cap Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Royce Micro-Cap Fund -- Statement of Changes in Net Assets for
the years ended December 31, 1996 and 1995;
Royce Micro-Cap Fund -- Statement of Operations for the year ended
December 31, 1996;
Royce Micro-Cap Fund -- Financial Highlights for the years ended
December 31, 1996, 1995 , 1994, 1993 and 1992;
Royce Micro-Cap Fund -- Notes to Financial Statements --
Report of Independent Accountants dated February 14, 1997;
Royce Equity Income Fund -- Schedule of Investments at
December 31, 1996;
Royce Equity Income Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Royce Equity Income Fund -- Statement of Changes in Net Assets
for the years ended December 31, 1996 and 1995;
Royce Equity Income Fund -- Statement of Operations for the year ended
December 31, 1996;
Royce Equity Income Fund -- Financial Highlights for the years ended
December 31, 1996, 1995, 1994, 1993, 1992 and 1991;
Royce Equity Income Fund -- Notes to Financial Statements --
Report of Independent Accountants dated February 14, 1997;
Royce Low-Priced Stock Fund -- Schedule of Investments at December 31,
1996;
Royce Low-Priced Stock Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Royce Low-Priced Stock Fund -- Statement of Changes in Net Assets
for the years ended December 31, 1996 and 1995;
Royce Low-Priced Stock Fund -- Statement of Operations for the year
ended December 31, 1996;
Royce Low-Priced Stock Fund -- Financial Highlights for the years ended
December 31, 1996, 1995, 1994 and for 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 14, 1997;
Royce Total Return Fund -- Schedule of Investments at December 31, 1996;
Royce Total Return Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Royce Total Return Fund -- Statement of Changes in Net Assets for the
year ended December 31, 1996 and 1995;
Royce Total Return Fund -- Statement of Operations for the year ended
December 31, 1996;
Royce Total Return Fund -- Financial Highlights for the years ended
December 31, 1996, 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 14, 1997;
Royce GiftShares Fund -- Schedule of Investments at December 31, 1996;
Royce GiftShares Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Royce GiftShares Fund -- Statement of Changes in Net Assets for the
year ended December 31, 1996 and the period from December 27, 1995
through December 31, 1995;
Royce GiftShares Fund -- Financial Highlights for the year ended
December 31, 1996 and the period from December 27, 1995 through
December 31, 1995;
Royce GiftShares Fund -- Notes to Financial Statements
-- Report of Independent Accountants dated February 14, 1997.
Royce Value Fund -- Schedule of Investments at December 31, 1996;
Royce Value Fund -- Statement of Assets and Liabilities at December
31, 1996;
Royce Value Fund -- Statement of Changes in Net Assets for the years
ended December 31, 1996 and 1995;
Royce Value Fund -- Statement of Operations for the year ended
December 31, 1996;
Royce Value Fund -- Financial Highlights for the years ended December
31, 1996, 1995, 1994, 1993 and 1992;
Royce Value Fund -- Notes to Financial Statements -- Report of
Independent Accountants dated February 14, 1997;
Royce Global Services Fund -- Schedule of Investments at December
31, 1996;
Royce Global Services Fund -- Statement of Assets and Liabilities at
December 31, 1996;
Royce Global Services Fund -- Statement of Changes in Net Assets for
the years 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, 1996;
Royce Global Services Fund -- Financial Highlights for the two years
ended December 31, 1996 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 14, 1997;
PMF II -- Schedule of Investments at December 31, 1996;
PMF II -- Statement of Assets and Liabilities at December 31, 1996;
PMF II -- Statement of Changes in Net Assets for the period from
November 19, 1996 through December 31, 1996;
PMF II -- Statement of Operations for the period from November 19,
1996 through December 31, 1996;
PMF II -- Financial Highlights for the period from November 19, 1996
through December 31, 1996;
PMF II -- Notes to Financial Statements -- Report of Independent
Accountants dated February 14, 1997.
Financial statements, schedules and historical
information other than those listed above have been
omitted since they are either inapplicable or are not
required.
b. Exhibits:
The exhibits required by Items (1) through (3),
(6), (7), (9) through (12) and (14) through (16), to
the extent applicable to the Registrant, have been
filed with Registrant's initial Registration Statement
(No. 2-80348) and Post-Effective Amendment Nos. 4, 5,
6, 8, 9, 11, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23,
24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 38 and 40
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.
(10) (a) Distribution Fee Schedule Agreement for
the Consultant Class of Pennsylvania Mutual Fund
(b) Form of Agreement between Quest Distributors,
Inc. and introducing brokers
(11) Consent of Coopers & Lybrand L.L.P. relating to
all Funds except Royce Financial Services Fund and The
REvest Growth & Income Fund
(16) Schedule For Computation Of Performance Quotations
Provided in Item 22
(17) (a) Pennsylvania Mutual Fund Rule 18f-3 Plan
(b) 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 April 1, 1997, the number of record holders of
shares of each Fund of the Registrant was as follows:
Title of Fund Number of Record Holders
--------------- ------------------------
[S] [C]
Pennsylvania Mutual Fund 16,760
Royce Value Fund 6,428
Royce Premier Fund 10,368
Royce Equity Income Fund 1,500
Royce Micro-Cap Fund 6,856
Royce Low-Priced Stock Fund 1,077
Royce Total Return Fund 1,527
Royce Global Services Fund 66
The REvest Growth and Income Fund 544
Royce GiftShares Fund 58
PMF II 1,046
Royce Financial Services Fund 1
Item 27. Indemnification
(a) Article IX of the Trust Instrument of the Registrant
provides as follows:
"ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. All persons
contracting with or having any claim against the Trust
or a particular Series shall look only to the assets of
the Trust or such Series for payment under such
contract or claim; and neither the Trustees nor any
other Trust's officers, employees or agents, whether
past, present or future, shall be personally liable
therefor. Every written instrument or obligation on
behalf of the Trust or any Series shall contain a
statement to the foregoing effect, but the absence of
such statement shall not operate to make any Trustee or
officers of the trust liable thereunder. None of the
Trustees or officers of the Trust shall be responsible
or liable for any act or omission or for neglect or
wrongdoing by him or any agent, employee, investment
adviser or independent contractor of the Trust, but
nothing contained in this Trust Instrument or in the
Delaware Act shall protect any Trustee or officer of
the Trust against liability to the Trust or to
Shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of his or her office.
INDEMNIFICATION
Section 2.
(a) Subject to the exceptions and
limitations contained in Section 2(b) below:
(i) Every person who is, or has been,
a Trustee or officer of the Trust (including persons
who serve at the Trust's request as directors, officers
or trustees of another entity in which the Trust has
any interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") shall
be indemnified by the appropriate Fund to the fullest
extent not prohibited by law against liability and
against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred
by him in the settlement thereof; and
(ii) The words "claim", "action",
"suit" or "proceeding" shall apply to all claims, actions, suits
or proceedings (civil, criminal, administrative, investigatory or
other, including appeals), actual or threatened, while in office
or thereafter, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided
hereunder to a Covered Person:
(i) Who shall, in respect of
the matter or matters involved, have been
adjudicated by a court or body before which
the proceeding was brought (A) to be
liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith,
gross negligence in the performance of his
duties or reckless disregard of the
obligations and duties involved in the
conduct of his office or (B) not to have
acted in the belief that his action was in
the best interest of the Trust; or
(ii) In the event of a settlement,
unless there has been a determination that such Trustee
or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office,
(A) By the court or other body
approving the settlement;
(B) By a majority of those
Trustees who are neither Interested Persons of the
Trust nor are parties to the matter, based upon a
review of readily available facts (as opposed to a full
trial-type inquiry); or
(C) By written opinion of
independent legal counsel, based upon a review of
readily available facts (as opposed to a full
trial-type inquiry).
(c) The rights of indemnification herein
provided may be insured against by policies maintained
by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any
Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of
the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel,
other than Trustees and officers, and other persons may
be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation
and presentation of a defense to any claim, action, suit or
proceeding of the type described in subsection (a) of this
Section 2 may be paid by the applicable Fund from time to time
prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be
paid over by him to the applicable Fund if and when it is
ultimately determined that he is not entitled to indemnification
under this Section 2; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out
of any such advance payments or (iii) either a majority of the
Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written
opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered
Person will be found entitled to indemnification under this
Section 2."
(b)(1) Paragraph 8 of the Investment Advisory
Agreements by and between the Registrant and Quest Advisory
Corp. provides as follows:
"8. Protection of the Adviser. The Adviser shall
not be liable to the Fund or to any portfolio series thereof for
any action taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment
adviser of the Fund or such series, and the Fund or each
portfolio series thereof involved, as the case may be, shall
indemnify the Adviser and hold it harmless from and against all
damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement)
incurred by the Adviser in or by reason of any pending,
threatened or completed action, suit, investigation or other
proceeding (including an action or suit by or in the right of the
Fund or any portfolio series thereof or its security holders)
arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment
adviser of the Fund or such series. Notwithstanding the
preceding sentence of this Paragraph 8 to the contrary, nothing
contained herein shall protect or be deemed to protect the
Adviser against or entitle or be deemed to entitle the Adviser to
indemnification in respect of, any liability to the Fund or to
any portfolio series thereof or its security holders to which the
Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of its reckless disregard of its duties
and obligations under this Agreement.
Determinations of whether and the extent to which the
Adviser is entitled to indemnification hereunder shall be made by
reasonable and fair means, including (a) a final decision on the
merits by a court or other body before whom the action, suit or
other proceeding was brought that the Adviser was not liable by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties or (b) in the absence of such a
decision, a reasonable determination, based upon a review of the
facts, that the Adviser was not liable by reason of such
misconduct by (i) the vote of a majority of a quorum of the
Trustees of the Fund who are neither "interested persons" of the
Fund (as defined in Section 2(a)(19) of the Investment Company
Act of 1940) nor parties to the action, suit or other proceeding
or (ii) an independent legal counsel in a written opinion."
(b)(2) Paragraph 8 of the Investment Advisory
Agreement by and between the Registrant and Royce, Ebright &
Associates, Inc. provides as follows:
"8. Protection of the Adviser. The Adviser
shall not be liable to the Fund or to any portfolio
series thereof for any action taken or omitted to be
taken by the Adviser in connection with the performance
of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the
Fund or such series, and the Fund or each portfolio
series thereof involved, as the case may be, shall
indemnify the Adviser and hold it harmless from and
against all damages, liabilities, costs and expenses
(including reasonable attorneys' fees and amounts
reasonably paid in settlement) incurred by the Adviser
in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding
(including an action or suit by or in the right of the
Fund or any portfolio series thereof or its security
holders) arising out of or otherwise based upon any
action actually or allegedly taken or omitted to be
taken by the Adviser in connection with the performance
of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the
Fund or such series. Notwithstanding the preceding
sentence of this Paragraph 8 to the contrary, nothing
contained herein shall protect or be deemed to protect
the Adviser against or entitle or be deemed to entitle
the Adviser to indemnification in respect of, any
liability to the Fund or to any portfolio series
thereof or its security holders to which the Adviser
would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless
disregard of its duties and obligations under this
Agreement.
Determinations of whether and the extent to which
the Adviser is entitled to indemnification hereunder
shall be made by reasonable and fair means, including
(a) a final decision on the merits by a court or other
body before whom the action, suit or other proceeding
was brought that the Adviser was not liable by reason
of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties or (b) in the absence
of such a decision, a reasonable determination, based
upon a review of the facts, that the Adviser was not
liable by reason of such misconduct by (i) the vote of
a majority of a quorum of the Trustees of the Fund who
are neither "interested persons" of the Fund (as
defined in Section 2(a)(19) of the Investment Company
Act of 1940) nor parties to the action, suit or other
proceeding or (ii) an independent legal counsel in a
written opinion."
(c) Paragraph 9 of the Distribution Agreement
made October 31, 1985 by and between the Registrant and
Quest Distributors, Inc. provides as follows:
"9. Protection of the Distributor. The
Distributor shall not be liable to the Fund or to any
series thereof for any action taken or omitted to be
taken by the Distributor in connection with the
performance of any of its duties or obligations under
this Agreement or otherwise as an underwriter of the
Shares, and the Fund or each portfolio series thereof
involved, as the case may be, shall indemnify the
Distributor and hold it harmless from and against all
damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid
in settlement) incurred by the Distributor in or by
reason of any pending, threatened or completed action,
suit, investigation or other proceeding (including an
action or suit by or in the right of the Fund or any
series thereof or its security holders) arising out of
or otherwise based upon any action actually or
allegedly taken or omitted to be taken by the
Distributor in connection with the performance of any
of its duties or obligations under this Agreement or
otherwise as an underwriter of the Shares.
Notwithstanding the preceding sentences of this
Paragraph 9 to the contrary, nothing contained herein
shall protect or be deemed to protect the Distributor
against, or entitle or be deemed to entitle the
Distributor to indemnification in respect of, any
liability to the Fund or to any portfolio series
thereof or its security holders to which the
Distributor would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of its
reckless disregard of its duties and obligations under
this Agreement.
Determinations of whether and to the extent to
which the Distributor is entitled to indemnification
hereunder shall be made by reasonable and fair means,
including (a) a final decision on the merits by a court
or other body before whom the action, suit or other
proceeding was brought that the Distributor was not
liable by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties or
(b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that
the Distributor was not liable by reason of such
misconduct by (a) the vote of a majority of a quorum of
the Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of
the 1940 Act) nor parties to the action, suit or other
proceeding or (b) an independent legal counsel in a
written opinion."
Item 28. Business and Other Connections of Investment Advisers
Reference is made to the filings on Schedule D to
the Applications on Form ADV, as amended, of Quest Advisory
Corp. and Royce, Ebright & Associates, Inc. for Registration
as Investment Advisers under the Investment Advisers Act of
1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any
principal underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required
to be maintained by the Registrant pursuant to the
Investment Company Act of 1940, are maintained at the
following locations:
The Royce Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
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
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
including schedule of investments 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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State
of New York on the 22nd day of April, 1997.
THE ROYCE FUND
By: S/CHARLES M. ROYCE
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
S/CHARLES M. ROYCE President, Treasurer and 4/22/97
Charles M. Royce Trustee
(Principal Executive,
Accounting
and Financial Officer)
S/HUBERT L. CAFRITZ
Hubert L. Cafritz Trustee 4/22/97
S/THOMAS R. EBRIGHT
Thomas R. Ebright Trustee 4/22/97
S/RICHARD M. GALKIN
Richard M. Galkin Trustee 4/22/97
S/STEPHEN L. ISAACS
Stephen L. Isaacs Trustee 4/22/97
S/WILLIAM L. KOKE
William L. Koke Trustee 4/22/97
S/DAVID L. MEISTER
David L. Meister Trustee 4/22/97
NOTICE
A copy of the Trust Instrument of The Royce Fund is available for
inspection at the office of the Registrant, 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
DISTRIBUTION FEE AGREEMENT
FOR
PENNSYLVANIA MUTUAL FUND'S
CONSULTANT CLASS
The Royce Fund, a Delaware business trust (the "Trust"), and
Quest Distributors, Inc., a New York corporation ("QDI"), hereby
agree that as compensation for QDI's services and for the
expenses payable by QDI under the Distribution Agreement made
October 31, 1985 by and between the parties hereto, QDI shall
receive, for and from the assets of Pennsylvania Mutual Fund's
Consultant Class of shares, a monthly fee equal to 1.00% per
annum of the Class's average net assets.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the ____ day of _____, 1997.
THE ROYCE FUND
_____________________
QUEST DISTRIBUTORS, INC.
_____________________
April 19, 1997
<<First Name>> <<Last Name>>
<<Title>>
<<Company>>
<<Address1>>
<<Address2>>
<<City>>, <<State>> <<Postal Code>>
Dear Mr. <<Last Name>>:
Quest Distributors, Inc., a New York corporation ("QDI"),
is the distributor of shares of various series (each a "Fund"
and, collectively, the "Funds") of The Royce Fund, a Delaware
business trust (the "Trust"). QDI may receive fees from certain
of the Funds, as set forth in their current prospectuses, copies
of which have been provided to you. This letter will confirm our
agreement as to the terms and conditions on which you will
receive compensation from QDI in connection with sales of Fund
shares to potential investors introduced by you and the servicing
of such investors. Such terms and conditions are as follows:
1. You may, from time to time during the term of this
Agreement, introduce potential investors to a Fund. In
connection therewith, you will furnish each of such investors
with a copy of the Fund's then current prospectus, but not with
any other material concerning the Fund unless such material shall
have been approved in writing, or furnished, by QDI. All sales
of Fund shares shall be effected and processed in accordance with
the applicable provisions of the Fund's then current prospectus
and its account application form.
2(a). For each shareholder of a Fund so introduced by you
and who shall maintain an investment in the Fund during the term
of this Agreement, you will be entitled to receive monthly,
within fifteen (15) days following the end of the month involved,
an amount equal to (i) not less than 90% of any asset-based
sales charges received by QDI from the Fund for such month which
are allocable to the shares of the Fund owned by such shareholder
during such month (after giving effect to any waiver by QDI of
its right to receive such a charge from the Fund).
(b) In no event shall you be entitled to receive any
compensation for (i) any contingent deferred sales charge,
personal service fee and/or account maintenance fee paid to QDI,
(ii) any month for which the aggregate amount payable to you is
less than $10 or (iii) for any period after the month in which
the term of this Agreement shall terminate.
(c) Notwithstanding any of the preceding provisions of
this Paragraph 2 to the contrary, QDI shall not be obligated to
pay you any fee or charge thereunder so long as QDI's receipt or
retention of a similar type of fee or charge in respect of the
shareholder(s) involved or its receipt or retention of any
similar or dissimilar fees and/or charges under the Trust's
Distribution Plan under Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"), would, for any reason
whatsoever, constitute a violation by QDI or you of any then
applicable rule or regulation of the National Association of
Securities Dealers, Inc. ("NASD").
3. You represent, warrant and agree that you are (and
will continue to be during the term of this Agreement) (i) a
broker-dealer registered and in good standing with the Securities
and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and (ii) a member of
and in good standing with the NASD; that you and your agents have
obtained (and will continue to have during the term of this
Agreement) all state and other broker-dealer, agent and similar
licenses and registrations necessary for the conduct of your
business and for offers and sales of the Funds' shares by you and
such agents; and that you and your agents will offer and sell the
Funds' shares in a manner consistent with the provisions of the
1934 Act and the rules and regulations thereunder and all other
applicable securities laws.
4. You will indemnify and hold harmless each of the
Funds, the Trust and QDI from and against any and all claims,
damages, liabilities, losses, costs and expenses, including
reasonable attorneys' fees and amounts paid in settlement, which
they or either of them may incur or sustain on account of or in
any way arising out of or relating to your breach of any of the
representations, warranties, covenants or other provisions of
this Agreement and/or any actual or alleged violation by you or
by any of your agents of any of the provisions of the Securities
Act of 1933, as amended (the "1933 Act"), or the 1934 Act or any
of the rules or regulations under any of such statutes, the
securities laws of any state or other jurisdiction or any other
law, rule or regulation which may be applicable to your or their
activities hereunder.
5. QDI represents, warrants and agrees that it is (and
will continue to be during the term of this Agreement) (i) a
broker-dealer registered and in good standing with the SEC under
the 1934 Act and (ii) a member of and in good standing with the
NASD; that it and its agents have obtained (and will continue to
have during the term of this Agreement) all state and other
broker-dealer, agent and similar licenses and other registrations
necessary for the conduct of its business; that the Trust is
registered with the SEC as an open-end investment company under
the 1940 Act, as amended; that shares of the Funds are registered
with the SEC for sale under the 1933 Act; that shares of the
Funds may be publicly offered and sold only in those states where
such shares are currently qualified and/or registered (a list of
which is available from the Trust's office); and that the current
prospectuses of the Funds do not contain a misstatement of any
material fact or omit to state any material fact necessary in
order to make the statements contained therein not misleading.
6. QDI will indemnify you and hold you harmless
from and against any and all claims, damages, liabilities,
losses, costs and expenses, including reasonable attorneys' fees
and amounts paid in settlement, which you may incur or sustain on
account of or in any way arising out of or relating to its breach
of any of the representations, warranties, covenants or other
provisions of this Agreement and/or any actual or alleged
violation by QDI or any of its agents or by the Trust of any of
the provisions of the 1933 Act or the 1934 Act or any of the
rules or regulations under any of such statutes, the securities
laws of any state or other jurisdiction or any other law, rule or
regulation which may be applicable to its or their activities
hereunder.
7. The term of this Agreement shall commence on the
date hereof and shall terminate as of the last day of any
calendar month in which: (i) you give QDI written notice for any
reason of your intent to terminate this Agreement; (ii) QDI or
the Trust gives you written notice for any reason of its intent
to terminate this Agreement; or (iii) the Trust's Distribution
Plan under Rule 12b-1 under the 1940 Act, as amended, or its
Distribution Agreement(s) with QDI shall be terminated for any
reason whatsoever. Notwithstanding the foregoing, no such
termination of this Agreement shall affect any of the rights or
obligations of QDI or you with respect to any matter which may
have occurred prior to the effective date of such termination.
8. This Agreement (i) constitutes our entire agreement
and understanding with respect to the subject matter hereof and
supersedes all prior agreements, negotiations and understandings
with respect thereto; (ii) may not be changed, waived or
terminated orally or by course of dealing, and any change, waiver
or termination of any of the provisions hereof shall be binding
and effective only if made in writing and signed by you and us;
and (iii) shall be governed by and construed in accordance with
the laws of the State of New York.
Sincerely,
QUEST DISTRIBUTORS, INC.
By: ____________________________
John D. Diederich, President
Agreed to and accepted:
By:___________________________
Name
_________________________
Title
Date: ___________
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and
Shareholders of The Royce Funds:
We consent to the reference to our Firm in Post-Effective
Amendment No. 41 to the Registration Statement of The Royce
Funds on From N-1A (File No. 2-80348) under the Securities
Act of 1933 and Post-Effective Amendment No. 43 (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
April 16, 1997
SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000
initial investment in each Fund of the Trust by applying the
"Annual Total Return" and the "Average Annual Total Return"
percentages set forth in this Registration Statement in
response to Item 22 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.
Royce Value 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+ .140)1 = $1,140 ERV
(b) 5 Year ERV of a $1,000 investment for the five
(5) year period ended December 31, 1996:
$1,000 (1+ .113)5 = $1,710 ERV
(c) 10 Year ERV of a $1,000 investment for the ten
(10) year period ended December 31, 1996:
$1,000 (1+ .108)10 = $2,784 ERV
Royce Premier 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+ .181)1 = $1,181 ERV
(b) ERV of a $1,000 investment for the period from
the Fund's inception on January 1, 1992
through December 31, 1996:
$1,000 (1+ .146)5 = $1,980 ERV
Royce Equity Income Fund
(a) 1 Year ERV of a $1,000 investment for the one year
period ended December 31, 1996:
$1,000 (1+ .165)1 = $1,165 ERV
(b) 5 Year ERV of a $1,000 investment for the five year
period ended December 31, 1996:
$1,000 (1+ .121)5 = $1,771 ERV
(c) ERV of a $1,000 investment for the period from the
Fund's inception on January 2, 1990 through
December 31, 1996:
$1,000 (1+ .100)7 = $1,952 ERV
Royce Micro-Cap 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+ .155)1 = $1,155 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on January 1, 1992 through
December 31, 1996:
$1,000 (1+ .179)5 = $2,281 ERV
Royce Low-Priced Stock 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+ .228)1 = $1,228 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 15, 1993 through
December 31, 1996:
$1,000 (1+ .156)3.04 = $1,553 ERV
Royce Total Return 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+ .255)1 = $1,255 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 15, 1993 through
December 31, 1996:
$1,000 (1+ .185)3.04 = $1,675 ERV
Royce Global Services 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+ .146)1 = $1,146 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 15, 1994 through
December 31, 1996:
$1,000 (1+ .182)2.04 = $1,406 ERV
Pennsylvania Mutual 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+ .128)1 = $1,128 ERV
(b) 5 Year ERV of a $1,000 investment for the five (5)
year period ended December 31, 1996:
$1,000 (1+ .115)5 = $1,720 ERV
(c) 10 Year ERV of a $1,000 investment for the ten (10) year
period ended December 31, 1996:
$1,000 (1+ .114)10 = $2,955 ERV
Royce GiftShares 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+ .256)1 = $1,256 ERV
(b) ERV of a $1,000 investment for the period from the
Fund's inception on December 27, 1995 through
December 31, 1996:
$1,000 (1+ .255)1.014 = $1,259 ERV
PENNSYLVANIA MUTUAL FUND
RULE 18f-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940 (the
"Investment Company Act") permits mutual funds to issue multiple
classes of shares. Under Rule 18f-3(d), each mutual fund that
seeks to rely upon Rule 18f-3 is required to (i) create a plan (a
"18f-3 Plan") setting forth the differences among each class of its
shares, (ii) receive the approval of a majority of its Board of
Trustees (including a majority of the non-interested trustees) that
the 18f-3 Plan, including the expense allocation between each class
of shares, is in the best interests of each class individually and
the fund as a whole and (iii) file a copy of the 18f-3 Plan with
the Securities and Exchange Commission (the "Commission") as an
exhibit to the fund's registration statement. The following 18f-3
Plan is for Pennsylvania Mutual Fund (the "Fund"), a series of The
Royce Fund, and describes the differences between the classes of
the Fund's shares.
The Fund offers two classes of its shares--Consultant Class
shares and Investment Class shares. The shares of each class may
be purchased at a price equal to the next determined net asset
value per share of such class, subject to any sales loads and
ongoing asset-based charges described below.
Consultant Class shares (i) are sold to investors who are
customers of certain broker-dealers that have entered into
agreements with, and that are compensated by the distributor of,
The Royce Fund's shares and (ii) are subject to 12b-1 fees. Such
12b-1 fees are payable by Consultant Class shares to such
distributor under The Royce Fund's distribution plan pursuant to
Rule 12b-1 under the Investment Company Act (the "12b-1 Plan").
Information regarding the 12b-1 Plan and the 12b-1 fees payable by
Consultant Class shares is set forth in the Fund's current
Prospectus for such shares and in the Statement of Additional
Information for The Royce Fund. Consultant Class shares sold to new
investors after a future date set by The Royce Fund's Board of
Trustees may, as set forth in the 12b-1 Plan, bear a front-end
and/or contingent deferred sales load.
Investment Class shares (i) are not distributed through such
compensated broker-dealers and (ii) are not subject to any 12b-1
fees.
Each Consultant Class and Investment Class share of the Fund
represents a pari passu interest in the Fund's investment portfolio
and other assets and has the same redemption, voting and other
rights. Each class bears those identifiable expenses incurred
solely for shareholders of such class, including (but not limited
to) (i)printing and distributing prospectuses, periodic reports and
proxy statements to shareholders,(ii)Commission and Blue Sky
registration fees,(iii) transfer agency and other shareholder
services and (iv)litigation or other legal expenses. Thus,
Consultant Class shares bear the expenses of ongoing 12b-1 fees and
have exclusive voting rights with respect to the 12b-1 Plan, and
the 12b-1 fees that are imposed on Consultant Class shares are
imposed directly against that class and not against all of the
Fund's assets, so that such fees will not affect the net asset
value of any other class.
Net investment income dividends and capital gains distributions
paid by the Fund on each class of its shares will be calculated in
the same manner at the same time and will differ only to the extent
that 12b-1 fees relating to the Consultant Class or any other
expenses incurred solely for a particular class are borne
exclusively by that class.
Exchange Privilege. Shareholders of each class of shares of
the Fund have an exchange privilege with the other series of The
Royce Fund. There is currently no limitation on the number of times
a shareholder may exercise the exchange privilege. The exchange
privilege may be modified or terminated in accordance with the rules
of the Commission.
Allocation of Income, Gains, Losses and Expenses. Income,
gains and losses of the Fund are allocated pro rata according to the
net assets of each class. Expenses not incurred by a specific class
of the Fund are allocated according to the net assets or number of
shareholder accounts, each on a pro rata basis, of each class.
Amending 12b-1 Plan. The Fund will not implement any amendment
to its 12b-1 Plan for the Consultant Class that would materially
increase the amount that may be borne by such class unless the
holders of such class of shares, voting separately as a class,
approve the proposal.
This Plan shall become effective on the date on which the
Fund's post-effective amendment including a Prospectus for its
Consultant Class shares shall become effective.
THE ROYCE FUND
March 20, 1997 By:S/CHARLES M. ROYCE
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<NAME> ROYCE EQUITY INCOME FUND
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<NAME> THE ROYCE FUND
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<CIK> 0000709364
<NAME> THE ROYCE FUND
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<NAME> ROYCE TOTAL RETURN FUND
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<CIK> 0000709364
<NAME> THE ROYCE FUND
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<CIK> 0000709364
<NAME> THE ROYCE FUND
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<NAME> THE ROYCE FUND
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<CIK> 0000709364
<NAME> THE ROYCE FUND
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