[FRONT COVER]
SEMI-ANNUAL REPORT
JUNE 30, 1998
[Graphic of harvest bounty]
THE REVEST
GROWTH & INCOME
FUND
A NO-LOAD MUTUAL FUND
MANAGED IN MAINE
A VALUE-ORIENTED
INVESTMENT IN SMALL AND
MEDIUM-SIZED COMPANY EQUITIES
A SERIES OF THE ROYCE FUND
<PAGE>
PROFILE OF THE FUND
- -----------------------------------------------------------------------------
The REvest Growth & Income Fund ("REvest" or the "Fund") is an open-end,
diversified management investment company. Jennifer E. Goff, President of
Royce, Ebright & Associates, Inc. ("RE&A"), a registered investment adviser,
is responsible for the management of the Fund's portfolio, subject to the
authority of the Fund's Trustees.
REvest seeks long-term growth and secondarily current income by investing in
a broadly diversified portfolio of common stocks and convertible securities.
Prospective portfolio investments are selected on a value basis, and are
primarily limited to small and medium-sized companies, viewed by the Fund's
investment adviser as having attractive financial characteristics and/or
"vitality factors." Vitality factors are those factors (e.g., an active
acquisition program, stock buy-back program and/or cost reduction program)
that should, in the investment adviser's judgment, allow a company to build
future, incremental value for shareholders. By combining the prospect of
vitality with a value-oriented selection process, we believe we are able to
buy Great Companies at Great Prices. These tenets are elaborated upon in the
following outline:
[Graphic of back of Susan B. Anthony dollar]
- -- Small & Mid-Cap Stocks - We believe these securities have more potential
for capital appreciation because they have historically generated higher
returns for investors, and because they are generally less well-known, making
them more likely to be improperly priced by the marketplace. The Fund will
normally invest at least 90% of its assets in common stocks, convertible
preferred stocks and convertible bonds. At least 80% of these "allowable
securities" will be income-producing, and at least 80% will be issued by
companies with market capitalizations between $200 million and $2 billion.
[Graphic of back of Susan B. Anthony dollar]
- -- Value-Orientation, Plus Vitality - We look for companies with "value
discrepancies," or market prices below our assessment of their "real"
business worth. From that group, we select companies with vitality or
ongoing programs that should allow them to increase their long-term value.
REvest believes profits can come from both the continued success and growth
of each portfolio company, as well as the eventual elimination of any value
discrepancy that we believe was present at the time of purchase.
[Graphic of back of Susan B. Anthony dollar]
- -- Consistent Portfolio Character - We will automatically close the Fund to
new investors at the end of any calendar year during which its assets reach
$350 million. Since we specialize in small and medium size company equities,
we believe a larger asset base could limit our flexibility in buying and
selling for the Fund, or force us to invest in more companies than we can
closely follow. By placing practical limits on our size, we believe we can
make it possible for the adviser to actively manage the portfolio, and enable
the Fund to maintain a constant character over its lifetime.
Please keep in mind, however, that this is a "fixed" style of money
management. REvest does not change from year-to-year, or attempt in any way
to anticipate market trends. Because of this, the Fund is often out-of-sync
with the general equity markets, and short-term performance may be better or
worse than either the "market" or other less specialized funds. Management
follows this very disciplined and consistent path because it believes that in
the long run, this "fixed" characteristic can lead to premium long-term
returns.
<PAGE>
MANAGER'S LETTER
REVEST GROWTH & INCOME FUND [Graphic of back of Susan B. Anthony dollar]
- -----------------------------------------------------------------------------
Dear Friends and Fellow Shareholders:
[Photograph of Gennifer Ebright Goff]
"The more things change, the more they stay the same." This quote from an
unknown source pretty much sums up the state of the market in early 1998.
Despite some setbacks along the way, low interest rates and inflation allowed
the bull market to extend its existence into its eighth great year.
Unfortunately, as in years past, not all sectors shared equally in the good
news. Large cap stocks, represented by the S&P 500, led the charge in the
first half of the year, up 17.7%, significantly outperforming small-cap
stocks, represented by the Russell 2000, which returned 4.9% for the same
time period. As pointed out in the Performance Discussion section of this
report, much of the S&P's outperformance was the result of the Russell's
underperformance in the second quarter. Despite being up 14.0% and 10.0%,
respectively, at the end of the first quarter, the indices returned 3.3% and
- -4.7%, respectively, in the second quarter. Deepening concerns over Asia's
financial stability and its potential impact on corporate earnings growth
domestically have caused many investors to pursue a questionable "flight to
quality" into large-cap stocks, accounting for much of the divergence.
REvest, with its small-company focus, returned 1.2% for the first six months.
Although this "flight to quality" may provide higher short-term returns, we
think it does so at the expense of long-term returns. The earnings and
revenue growth of small-cap companies are still outpacing those of their
larger-cap brethren. According to The Leuthold Group ("The Numbers Game,"
June 22, 1998), small-cap stock valuations are now at a 23% discount to large-
cap stocks, despite typically higher growth rates. In addition, we believe
small-cap stocks should be less vulnerable to shocks in Asia, because of
their smaller presence there. And finally, we would be remiss if we did not
point out that, according to Barron's ("Street Cheers Record Highs, As Some
Question Sanity," July 20, 1998), seven stocks accounted for over a third of
the entire gain in the S&P 500 this year. Consequently, if you did not own
those Seven Beauties (as they are called), in the proper weighting, chances
are your returns were much lower than the S&P 500's return.
With that being said, we continue to believe that REvest is a good choice to
represent the small-cap, value portion of a fully diversified portfolio. We
have provided a 14.9% average annual total return since inception (past
performance is, of course, not indicative of future results). Within our
style, we tend to be well diversified, taking neither industry nor sector
bets on your behalf. And, we practice a "fixed" style of money management,
which helps immunize your portfolio against "style drift," or the tendency
some fund managers have of chasing stocks outside their defined parameters.
We do this, in part, so you can maintain style allocation in your portfolio
of funds more easily.
But, regardless of your ultimate allocation, we believe it is important that
your performance expectations be realistic. Although investors have been
blessed by the bull market, the market's returns over the last three years
were unusually high. As I mentioned last year, the market, as represented by
the S&P 500 index, has provided an average annualized return of close to
eleven percent since 1926. Keeping this in mind should help you maintain
perspective and patience as we potentially enter a period of more moderate
returns.
As always, we want to thank you for letting us be a part of your portfolio of
investments. Your continued support of our work through the ownership of your
shares is much appreciated.
Sincerely,
/s/ Jennifer Ebright Goff
Jennifer Ebright Goff
Portfolio Manager
President, Royce, Ebright & Associates, Inc.
August 1, 1998
Note: The S&P 500 and the Russell 2000 are unmanaged indices of domestic
large and small company common stocks, respectively. The results presented
are on a "total return" basis, which assumes the reinvestment of dividends.
<PAGE>
PORTFOLIO SUMMARY
- -----------------------------------------------------------------------------
The following (unaudited) information provides a "bird's eye" view of the
REvest portfolio as of June 30, 1998. For a more complete picture, the
Schedule of Investments and accompanying financial statements and notes
should be read in their entirety.
Portfolio Composition Value % of Net Assets
- -----------------------------------------------------------------------------
Common Stocks:
Micro-Caps (under $200M) $ 5,191,984 15.9%
Small-Caps ($200M - $1B) 17,016,943 52.1%
Mid-Caps ($1B - $2B) 6,002,050 18.4%
Convertible Bonds 2,769,662 8.5%
Non-Convertible Bond 731,500 2.2%
Cash & Other Net Assets 951,884 2.9%
------------ ------
Total Net Assets $32,664,023 100.0%
============ =======
Industry Concentration % of Net Assets
- -----------------------------------------------------------------------------
Industrial Cyclicals 17.5%
Services 12.7%
Technology 11.8%
Health 11.2%
Consumer Products 9.7%
Retail 9.3%
Financial 9.0%
Energy 8.3%
Real Estate 7.6%
Cash 2.9%
Average Financial Characteristics of Portfolio Companies
- -----------------------------------------------------------------------------
Market Capitalization $596.8M
P/E Ratio 18.2X
P/B Ratio 2.3X
Return on Assets 7.6%
Return on Equity 13.3%
Compound 5-Year Growth Rate 15.7%
Gross Portfolio Yield 2.6%
Top Ten Equity Positions Market Value % of Net Assets
- -----------------------------------------------------------------------------
1. Analogic Corporation $ 895,000 2.7%
2. Donegal Group Inc. 892,500 2.7%
3. La-Z-Boy Incorporated 847,500 2.6%
4. Matthews International
Corporation Class A 825,300 2.5%
5. Claire's Stores, Inc. 820,000 2.5%
6. CLARCOR Inc. 819,000 2.5%
7. Greif Bros. Corporation Class A 803,563 2.5%
8. Peoples Heritage Financial
Group, Inc. 803,250 2.5%
9. IDEXX Laboratories, Inc. 796,000 2.4%
10. Rayonier Inc. 782,000 2.4%
<PAGE>
Performance Discussion
REVEST GROWTH & INCOME FUND [Graphic of back of Susan B. Anthony dollar]
- -----------------------------------------------------------------------------
In the first half of 1998, there continued to be significant performance
divergence, both by capitalization-size and by style. Large-cap stocks
continued to outpace small-cap stocks, with the S&P 500 index up 17.7% and
the Russell 2000 index up 4.9%. Within the small-cap universe, the Russell
2000 Growth index outperformed the Russell 2000 Value index, 5.4% versus 4.4%
respectively. REvest finished this period up 1.2%, lagging its benchmark.
The real story here, however, is the second quarter. Although the S&P 500
outperformed the Russell 2000 in the first quarter, 14.0% versus 10.0%, the
differential between large- and small-cap stocks was relatively narrow. The
differential widened significantly, however, in the second quarter as the S&P
continued to add to its gains (up 3.3%), while the Russell lost ground (down
4.7%). In keeping with its higher yielding profile, REvest underperformed the
small company index in the first quarter, returning only 3.9%, but then
outperformed the index in the second quarter, losing only 2.6%.
What does this mean for the rest of the year? As usual, we are not sure.
Although the S&P 500 was up in the second quarter, its gains were
significantly less than the preceding quarter. This could be signaling a
change in overall market direction, as the turmoil in Asia makes its way
across the ocean. Already, earnings estimates of many large companies and the
S&P itself are being revised downward for the remainder of this year and into
1999. Perhaps the market was just taking a breather. Either way, the second
half of the year looks to be marked with as much uncertainty as the first
half. And either way, we at REvest will continue to look for high quality,
undervalued stocks which we believe can provide positive, long-term results
for our shareholders.
Comparison of Change in Value of a $10,000 Initial Investment
on 8/1/94* between The REvest Growth & Income Fund, the S&P 500 and the
Russell 2000
[LINE CHART]
Period Year Avg. Ann. Tot. Return
Ended Ended Since Inception*
6/30/98 6/30/98 6/30/98
------- ------- -------
REvest total return 1.2% 14.2% 14.9%
S&P 500 total return 17.7% 30.2% 28.8%
Russell 2000 total return 4.9% 16.5% 19.1%
The above table and preceding narrative depict the historical returns of
REvest, the S&P 500, an unmanaged index representative of large-company
stocks, and the Russell 2000, Russell 2000 Value and Growth indices,
unmanaged indices representative of small-company stocks. The Fund's present
investment philosophy was followed in each of the periods identified. All
results presented in this Report are on a "total return" basis, which assumes
that all dividends and distributions were reinvested. No redemption fees are
included because they apply only to accounts open for less than one year.
The results presented in this Report represent past performance and should
not be considered representative of the "total return" from an investment in
the Fund today. They are provided only to give an historical perspective of
the Fund. The investment return and principal value of the Fund's shares will
fluctuate so that the shares may be worth more or less than their original
cost when redeemed.
*Commencement of Operations - August 1, 1994
<PAGE>
SCHEDULE OF INVESTMENTS (AT 6/30/98 - UNAUDITED)
- -----------------------------------------------------------------------------
Common Stocks and Bonds- 97.1%
<TABLE>
<CAPTION>
Shares or Principal Amount Cost Value
- -------------------------- ---- -----
<S> <C> <C>
CONSUMER PRODUCTS - 9.7%
50,000 Haggar Corp. $ 693,850 $ 637,500
50,000 * In Focus Systems, Inc. 529,000 353,125
15,000 La-Z-Boy Incorporated 447,925 847,500
30,000 Russ Berrie and Company, Inc. 536,475 750,000
17,000 The Toro Company 588,503 582,250
--------- ---------
2,795,753 3,170,375
--------- ---------
ENERGY - 8.3%
20,000 * Barrett Resources Corporation 578,429 748,750
48,000 Berry Petroleum Company Class A 559,565 624,000
28,000 Penn Virginia Corporation 517,639 724,500
30,000 Snyder Oil Corporation 595,821 598,125
--------- ---------
2,251,454 2,695,375
--------- ---------
FINANCIAL -9.0%
22,000 Community Banks, Inc. 268,091 533,500
47,600 Donegal Group Inc. 490,996 892,500
34,000 Peoples Heritage Financial Group, Inc. 247,838 803,250
19,200 Susquehanna Bancshares, Inc. 326,655 717,600
--------- ---------
1,333,580 2,946,850
--------- ---------
HEALTH - 11.2%
20,000 Analogic Corporation 620,638 895,000
21,600 Arrow International, Inc. 611,061 592,650
23,000 Diagnostic Products Corporation 665,510 662,687
32,000 * IDEXX Laboratories, Inc. 424,891 796,000
28,000 Invacare Corporation 558,443 717,500
--------- ---------
2,880,543 3,663,837
--------- ---------
INDUSTRIAL CYCLICALS - 17.5%
25,000 Baldor Electric Company 437,951 609,375
39,000 CLARCOR Inc. 540,895 819,000
21,500 Greif Bros. Corporation Class A 501,499 803,563
30,000 Kimball International, Inc. Class B 440,573 543,750
33,600 Matthews International Corporation Class A 349,844 825,300
17,000 Rayonier Inc. 621,315 782,000
20,000 Regal-Beloit Corporation 621,400 570,000
20,000 Teleflex Incorporated 389,312 760,000
--------- ---------
3,902,789 5,712,988
--------- ---------
REAL ESTATE -7.6%
45,000 Cavalier Homes, Inc. 486,763 582,188
20,000 Cousins Properties Incorporated 450,267 597,500
25,400 New Plan Realty Trust 511,341 622,300
$700,000 Sizeler Property Investors, Inc. 8.00%
Conv. Sub. Deb. due 7/15/03 649,691 693,875
--------- ---------
2,098,062 2,495,863
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS (AT 6/30/98 - UNAUDITED)(CONTINUED)
REVEST GROWTH & INCOME FUND [Graphic of back of Susan B. Anthony dollar]
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or Principal Amount Cost Value
- -------------------------- ---- -----
<S> <C> <C>
RETAIL - 9.3%
25,100 Applebee's International, Inc. $ 573,849 $ 561,612
40,000 Claire's Stores, Inc. 687,362 820,000
15,000 Hannaford Bros. Co. 396,862 660,000
45,000 * Stein Mart, Inc. 517,500 607,500
25,000 * The Gymboree Corporation 347,470 378,906
--------- ---------
2,523,043 3,028,018
--------- ---------
SERVICES -12.7%
18,000 Chemed Corporation 686,760 613,125
45,600 * Lucor, Inc. Class A 249,850 273,600
$700,000 MacNeal-Schwendler Corp. 7.875%
Conv. Sub. Deb. due 8/18/04 676,081 702,625
$547,000 Richardson Electronics, Ltd. 8.25%
Conv. Sub. Deb. due 6/15/06 474,400 551,786
$153,000 Richardson Electronics, Ltd. 7.25%
Conv. Sub. Deb. due 12/15/06 132,345 137,126
$700,000 Sequa Corporation 9.375% Sr. Sub.
Notes due 12/15/03 696,834 731,500
26,600 * Right Management Consultants, Inc. 348,375 359,100
22,000 The Standard Register Company 478,915 778,250
--------- ---------
3,743,560 4,147,112
--------- ---------
TECHNOLOGY - 11.8%
56,666 Control Devices, Inc. 419,710 736,658
35,000 Helix Technology Corporation 500,728 525,000
30,000 * Kulicke & Soffa Industries, Inc. 573,328 510,000
45,000 * Planar Systems, Inc. 495,000 472,500
38,500 Salient 3 Communications, Inc. Class A 514,394 351,313
$700,000 VLSI Technology, Inc. 8.25% Conv.
Sub. Notes due 10/01/05 682,731 684,250
22,000 Watkins-Johnson Company 591,040 572,000
--------- ---------
3,776,931 3,851,721
--------- ---------
TOTAL COMMON STOCKS AND CORPORATE BONDS 25,305,715 31,712,139
REPURCHASE AGREEMENT - 0.6%
State Street Bank and Trust Company, 5.15% dated 6/30/98,
due 7/01/98, maturity value $200,029 (collateralized by U.S.
Treasury Bonds, 9.875% due 11/15/15,
valued at $204,706) 200,000 200,000
--------- ---------
TOTAL INVESTMENTS - 97.7% $25,505,715 31,912,139
============
CASH AND OTHER ASSETS LESS LIABILITIES - 2.3% 751,884
---------
TOTAL NET ASSETS - 100.0% $32,664,023
===========
</TABLE>
*Non-income producing.
Income Tax Information - The cost for federal income tax purposes was
$25,505,715. At June 30, 1998, net unrealized appreciation for all securities
amounted to $6,406,424, consisting of aggregate gross unrealized appreciation
of $7,071,357 and aggregate gross unrealized depreciation of $664,933.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (AT 6/30/98 - UNAUDITED)
- -----------------------------------------------------------------------------
ASSETS:
Investments at value (identified cost $25,305,715) $31,712,139
Repurchase agreement (at cost and value) 200,000
Cash 99,504
Receivable for investments sold 778,091
Receivable for dividends and interest 89,511
Prepaid expenses and other assets 2,506
----------
TOTAL ASSETS 32,881,751
----------
LIABILITIES:
Payable for investments purchased 179,887
Investment advisory fee payable 24,628
Accrued expenses 13,213
----------
TOTAL LIABILITIES 217,728
----------
NET ASSETS $32,664,023
===========
ANALYSIS OF NET ASSETS:
Undistributed net investment income $ 10,850
Accumulated net realized gain on investments 3,647,387
Net unrealized appreciation on investments 6,406,424
Capital shares 2,500
Additional paid-in capital 22,596,862
----------
NET ASSETS $32,664,023
===========
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($32,664,023 / 2,499,806 shares outstanding) $13.07
=======
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months ended Year ended
June 30, 1998 December 31,
(unaudited) 1997
---------------- ------------
<S> <C> <C>
Investment Operations:
Net investment income $ 216,323 $ 720,415
Net realized gain on investments 3,634,184 7,205,644
Net change in unrealized appreciation on investments (3,283,167) 2,357,022
---------- ----------
Net increase in net assets from investment operations 567,340 10,283,081
---------- ----------
Dividends and Distributions:
Net investment income (211,350) (647,033)
Net realized gain on investments - (4,933,401)
---------- ----------
Net dividends and distributions (211,350) (5,580,434)
---------- ----------
Capital Share Transactions:
Net decrease in net assets from capital share transactions (6,577,507) (7,915,954)
---------- ----------
Net Decrease in Net Assets (6,221,517) (3,213,307)
Net Assets:
Beginning of period 38,885,540 42,098,847
---------- ----------
End of period (including undistributed net investment income of
$10,850 and $5,877, respectively) $32,664,023 $38,885,540
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS (FOR THE SIX MONTHS ENDED 6/30/98 - UNAUDITED)
REVEST GROWTH & INCOME FUND [Graphic of back of Susan B. Anthony dollar]
- -----------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Dividends $ 285,242
Interest 165,690
------------
Total Income 450,932
------------
Expenses:
Investment advisory fee 180,715
Custodian fees 13,484
Trustees' fees 11,758
Administrative and office facilities expenses 10,630
Professional fees 8,773
Federal and state registration fees 6,270
Transfer agent fees 2,538
Other expenses 10,496
------------
Total Expenses 244,664
Fees Waived by Investment Adviser (10,055)
------------
Net Expenses 234,609
------------
Net Investment Income 216,323
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 3,634,184
Net change in unrealized appreciation on investments (3,283,167)
------------
Net realized and unrealized gain on investments 351,017
------------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $567,340
============
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
This table is presented to show selected data for a share outstanding
throughout each period, and to assist shareholders in evaluating the Fund's
performance.
<TABLE>
<CAPTION>
Six Months ended Period ended
June 30, 1998 Years ended December 31, December 31,
(unaudited) 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.00 $12.21 $10.73 $9.66 $10.00
------ ------ ------ ----- ------
Investment Operations:
Net investment income 0.08 0.21 0.21 0.18 0.04
Net realized and unrealized gain (loss) on
investments 0.07 2.64 2.16 1.38 (0.33)
------ ------ ------ ----- ------
Total from investment operations 0.15 2.85 2.37 1.56 (0.29)
------ ------ ------ ----- ------
Dividends and Distributions:
Net investment income (0.08) (0.19) (0.21) (0.17) (0.05)
Net realized gain on investments - (1.87) (0.68) (0.32) -
------ ------ ------ ----- ------
Total dividends and distributions (0.08) (2.06) (0.89) (0.49) (0.05)
------ ------ ------ ----- ------
Net Asset Value, End of Period $13.07 $13.00 $12.21 $10.73 $9.66
------ ------ ------ ----- ------
Total Return 1.2% 23.5% 22.3% 16.2% -2.9%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $32,664 $38,886 $42,099 $35,804 $21,676
Ratio of Expenses to Average Net Assets (a) 1.30%* 1.26% 1.29% 1.30% 1.42%*
Ratio of Net Investment Income to Average Net Assets 1.20%* 1.60% 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 19% 54% 64% 53% 5%
Average Commission Rate Paid+ $0.0539 $0.0594 $0.0580 - -
</TABLE>
* Annualized.
+ Beginning in 1996, funds are required to disclose average commission
rate paid per share for purchases and sales of investments.
(a) The ratio of expenses to average net assets before waiver of fees by the
investment adviser would have been 1.35% and 1.78% for the periods ended
June 30, 1998 and December 31, 1994, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------
1. Summary of Significant Accounting Policies:
The REvest Growth & Income Fund (the "Fund") is a series of The Royce Fund
(the "Trust"), a diversified open-end management investment company organized
as a Delaware business trust. The Fund commenced operations on August 1,
1994.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
a. Valuation of investments:
Securities listed on an exchange or on the Nasdaq National Market System are
valued on the basis of the last reported sale prior to the time the valuation
is made or, if no sale is reported for such day, at their bid price for
exchange-listed securities and at the average of their bid and asked prices
for Nasdaq securities. Quotations are taken from the market where the
security is primarily traded. Other over-the-counter securities for which
market quotations are readily available are valued at their bid price.
Securities for which market quotations are not readily available are valued
at their fair value under procedures established and supervised by the Board
of Trustees. Bonds and other fixed income securities may be valued by
reference to other securities with comparable ratings, interest rates and
maturities, using established independent pricing services.
b. Investment transactions and related investment income:
Investment transactions are accounted for on the trade date. Dividend income
is recorded on the ex-dividend date and any non-cash dividend income is
recorded at the fair market value of the securities received. Interest income
is recorded on the accrual basis. Realized gains and losses from investment
transactions and unrealized appreciation and depreciation of investments are
determined on the basis of identified cost for book and tax purposes.
c. Expenses:
The Fund incurs direct and indirect expenses. Expenses directly attributable
to the Fund are charged to the Fund's operations, while expenses applicable
to the Fund and other Royce Funds are allocated in an equitable manner.
Allocated personnel costs of employees of The Royce Funds are included in
administrative and office facilities expenses.
d. Taxes:
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the extent
that it distributes substantially all of its taxable income for its fiscal
year. The Schedule of Investments includes information regarding income taxes
under the caption "Income Tax Information."
e. Distributions:
The Fund declares dividends on a quarterly basis and capital gain
distributions annually. These dividends and distributions are recorded on the
ex-date and are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Permanent book and
tax basis differences relating to shareholder distributions will result in
reclassifications within the capital accounts. Undistributed net investment
income may include temporary book and tax basis differences, which will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributable in the following year.
f. Repurchase agreements:
The Fund enters into repurchase agreements with respect to its portfolio
securities solely with State Street Bank and Trust Company ("SSB&T"), the
custodian of its assets. The Fund restricts repurchase agreements to
maturities of no more than seven days. Securities pledged as collateral for
repurchase agreements, which are held by SSB&T until maturity of the
repurchase agreements, are marked-to-market daily and maintained at a value
at least equal to the principal amount of the repurchase agreement
(including accrued interest). Repurchase agreements could involve certain
risks in the event of default or insolvency of SSB&T, including possible
delays or restrictions upon the ability of the Fund to dispose of the
underlying securities.
2. Investment Adviser:
Under the Trust's investment advisory agreement with Royce, Ebright &
Associates, Inc. ("RE&A"), the Fund recorded advisory fees totaling $170,660
(net of voluntary waivers of $10,055) for the six months ended June 30, 1998.
The agreement provides for fees equal to 1.0% per annum of the first $50
million of the Fund's average net assets and 0.75% per annum of any
additional average net assets over $50 million. These fees are computed daily
and are payable monthly to RE&A.
3. Fund Shares:
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest of the Fund, with a par value of $.001. Share
transactions were as follows:
Six Months ended
June 30, 1998 Year ended
(unaudited) December 31, 1997
________________ ________________
Shares Amount Shares Amount
------ ------ ------ ------
Sold 99,778 $ 1,263,819 1,418,807 $ 18,205,535
Issued as reinvested
dividends and
distributions 14,855 196,801 396,134 5,165,051
Redeemed (606,631) (8,038,127) (2,271,260) (31,286,540)
Shares redeemed within one year of opening a shareholder account are subject
to a 1.0% redemption fee, payable to the Fund.
4. Purchases and Sales of Securities:
For the six months ended June 30, 1998, the cost of purchases and the
proceeds from sales of investment securities, other than short-term
securities, amounted to $6,669,901 and $13,915,599, respectively.
5. Reorganization:
On April 16, 1998, the Board of Trustees approved an Agreement and Plan of
Reorganization (the "Agreement") pursuant to which the Fund's assets would be
acquired, and its liabilities assumed, by The REvest Value Fund, a series of
The Winter Harbor Fund, a newly-formed Delaware business trust. The Agreement
is subject to shareholder approval at a Special Meeting, currently expected
to be held in September 1998. Based on the opinion of counsel, the
reorganization, if approved by shareholders, will qualify as a tax-free
reorganization for Federal income tax purposes, with no gain or loss
recognized by the Fund or its shareholders.
<PAGE>
CHANGE OF ADDRESS
REVEST GROWTH & INCOME FUND [Graphic of back of Susan B. Anthony dollar]
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Earlier this year, Royce, Ebright & Associates, Inc. moved its offices to
another location within the Portland Financial District. This new location is
in the same building as our potential new partners and should better
facilitate any future working relationship. Please make a note of the
following change in address:
Royce, Ebright & Associates, Inc.
511 Congress Street, 9th Floor
Portland, Maine 04101
The telephone and fax numbers remain unchanged.
FAREWELL TO MIKE
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Michael McNamara, our customer service officer, will be leaving us at the end
of August to pursue his MBA full-time. We want to thank him for this three
years of tireless service and wish him all the best of luck in the future.
Corneila "Neil" Morin, our Office Manager and On-Premise Computer Authority,
will replace him as Vice President, Operations and Customer Service. We would
like to congratulate her on her promotion.
CUSTOMER SERVICE
- -----------------------------------------------------------------------------
1. If I have questions or need literature about the Fund who may I call?
Call Mike McNamara or Neil Morin at 800-277-5573. The RE&A office is
open from 9:00 am to 5:30 pm (Eastern Time) every business day.
2. If I have questions about the Fund's investments who should I call?
Call Jennifer Goff, the Fund's portfolio manager, at 800-277-5573. We're
one of a small number of funds where the manager is available to talk
directly to investors. If Jen's traveling she'll return your call when she
returns to the office. We try to treat our investors as true partners with
us, in the Fund.
3. How often does the Fund mail out statements?
Cumulative year-to-date statements are mailed out after each transaction
and after each dividend. Tax information is mailed by January 31st of each
year. The Fund distributes formal Semi-Annual and Annual Reports which are
mailed to each shareholder in August and February.
4. Is it correct that there are no sales charges or 12b-1 fees?
Yes, not one penny of your investment goes to any sales charge or 12b-1
fee. The Fund is one of the so-called "pure" no-load Funds.You will rarely,
if ever, see the Fund advertised to investors. We believe that the Fund
should sell itself because it does a good job for its investors.
5. Is the Fund available for IRA investments and other retirement plans?
Yes, the Fund offers both IRA and 403(b)(7) plans to its investors.
Because of the Fund's philosophy and long-term approach to investing, we
believe that it may be an appropriate vehicle for all types of retirement
plans.
6. When does the Fund pay income and capital gain distributions?
The Fund makes quarterly income distributions and an annual capital gain
distribution at the end of December. A preliminary, non-binding estimate
of the amount of the year-end distributions is available to sh
calling the RE&A office any time after the Thanksgiving holiday.
Distributions are automatically reinvested unless we receive other
instructions from the shareholder.
7. Why does the Fund impose a 1% redemption fee during the first year
following the opening of a shareholder account?
This fee is charged to discourage short-term trading in the Fund's
shares. When short-term investors trade in and out of a mutual fund, they
increase the costs of operations for the permanent shareholders. This
activity can also disrupt the investment plan for the portfolio and reduce
overall returns. When charged, the 1% fee recovers the costs of this
disruption for the rest of the shareholders.
<PAGE>
This report must be accompanied or preceded by a current Prospectus of the
Fund.
Royce, Ebright & Associates, Inc.
Investment Adviser
511 Congress Street, 9th Floor
Portland, ME 04101-4721
(207) 774-7455 (800) 277-5573
Fax (207) 772-7370
REVEST GROWTH & INCOME FUND
1414 Avenue of the Americas
New York, New York 10019
(800) 221-4268
A Series of The Royce Fund
