[FRONT COVER]
ANNUAL REPORT
December 31, 1997
[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
diversified portfolio
of common stocks and convertible securities. Prospective portfolio investments
are selected on a
value basis, and are 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 that should allow a company to build future, incremental value
for shareholders
(i.e. an active acquisition, stock buy-back and/or cost reduction program). 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 securities will be income-
producing, and 80% of these
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 Growth - 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 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
________________________________________________________________________
[Photograph of Jennifer Ebright Goff]
Dear Friends and Fellow Shareholders:
It's deja vu: 1997 should be remembered as the year when returns weren't
supposed to happen. Over
the past forty years, the market (as measured by the S&P 500 index) has provided
an average
annualized return of 11.2%, and if you go back to 1926, the annualized return
has been closer to
10.7%. It seemed likely that after six consecutive years of positive returns and
two years of 20%-
plus gains that the market would revert to the mean and post more moderate
numbers in 1997. It was
almost inconceivable that the market could, or would, produce another 20%-plus
year, but it did!
Despite an interest rate hike early in the year, brewing tensions with Iraq and
financial turmoil in
Asia, the S&P 500 index of large company stocks finished the year up 33.4%.
As for small company stocks, they lagged their larger company brethren for the
fourth consecutive
year, with the Russell 2000 index ending 1997 up a respectable, albeit lower,
22.4%. This finish was
all the more disappointing considering the mini-small-cap rally that took place
between July and
October. During that time period, the Russell 2000 gained 14.9% versus 7.5% for
the S&P 500.
Unfortunately, much of these gains were given back in the wake of the October
"crash" and concerns
surrounding Asia. REvest, with its small company, value-oriented approach,
achieved a 23.5% gain for
its shareholders in this environment, besting the primary small-cap index for
the second year in a row.
We were very happy with our performance in 1997. As mentioned in our Semi-
Annual Report, management
decided early in the year to raise the yield of the Fund as a means of reducing
its volatility. Our
decision paid off. By mid-year, REvest was virtually even with the Russell 2000,
although the
returns were generated without the Russell's wide fluctuations in performance
(the Russell returned
- -5.2% and 16.2% in the first and second quarter, respectively, while REvest
returned 1.4% and 7.8%,
respectively). This trend continued in the second half, with the Russell up
14.9% and down 3.4% in
the third and fourth quarter, respectively, while REvest was up 11.9% and 0.9%,
respectively. Our
resiliency during downturns earned us a great deal of press in early November.
REvest was
identified by USA Today (November 3, 1997) as one of the top funds in its
category the week
following the 554-point drop in the Dow. The Fund had declined only 2.1% versus
an average of 4.8% for other funds.
So, what can we expect in 1998? Well, as always, we don't pretend to know. The
impact of the Asian
crisis is already being felt here in the States, and there are differing
opinions as to the ultimate
duration and extent of the damage. What we believe, however, are two things.
First, increased
volatility is the new constant, so you can expect REvest to maintain a higher
yielding portfolio.
With questions surrounding future earnings growth, stocks will continue to be
severely penalized for
not at least meeting analyst expectations. We at REvest try to combat this
through our in-depth
research and company visitation program. In general, we have found that more
information leads to
fewer surprises. But, a large dividend can provide a nice downside cushion in
case we miss
something. The second thing we know is that over long periods of time, value
investing has beaten
growth investing, and it has done so with less risk. Consequently, you can
expect REvest to
maintain its "fixed" style of management. We derive a great deal of comfort from
the fact that our
stocks, on average, have lower price-to-earnings and price-to-book ratios,
higher dividend yields,
higher returns on assets and equity, and lower debt levels than the average
growth stock. In short,
this means we have both a cheaper and higher quality portfolio. In times of
uncertainty, these types
of stocks have tended to outperform.
Well, it certainly has been an eventful year for REvest. On one hand, 1997
marked the passing of
Thomas R. Ebright, my father and the previous Portfolio Manager. But, on the
other hand, it saw the
possible beginnings of a brand new affiliation, which should strengthen the Fund
going forward. 1997
also marked the end of the marketing restrictions which have been in place since
the Fund's
inception, and the attainment of a three-year operating history (historical
returns are reported in
1-, 3-, 5- and 10-year increments, so psychologically, we have passed an
important milestone).
Although we still have some unfinished business to take care of early in the
year, 1998 ushers in a
whole host of new opportunities. We look forward to the challenge. 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.
February 1, 1998
Note: The S&P 500 and the Russell 2000 are unmanaged indices and include the
reinvestment of
dividends.
<PAGE>
PORTFOLIO SUMMARY
________________________________________________________________________
The following (unaudited) information provides a "bird's eye" view of the REvest
portfolio as of
December 31, 1997. 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) $ 4,065,391 10.45%
Small-Caps ($200M - $1B) 22,793,248 58.62%
Mid-Caps ($1B - $2B) 7,303,801 18.78%
Convertible Bonds 2,712,510 6.98%
Non-Convertible Bond 726,250 1.87%
Cash & Other Net Assets 1,284,340 3.30%
__________ _______
Total Net Assets $ 38,885,540 100.00%
========== =======
Industry Concentration (% of Net Assets)
_____________________________________________________________
[Pie chart]
Retail 7.3%
Services 9.8%
Technology 8.3%
Cash 3.3%
Consumer Products 14.6%
Energy 8.8%
Financial 16.2%
Health 8.7%
Industrial Cyclicals 17.0%
Real Estate 6.0%
Average Financial Characteristics of Portfolio Companies
_____________________________________________________________
Market Capitalization $731.0M
P/E Ratio 17.5x
P/B Ratio 2.1x
Return on Assets 7.7%
Return on Equity 13.8%
Compound 3-Year Growth Rate 15.7%
Gross Portfolio Yield 2.6%
<PAGE>
PORTFOLIO SUMMARY (CONTINUED)
______________________________________________________________________________
Top Ten Equity Positions Market Value % of Net Assets
_______________________________________________________________________________
1. In Focus Systems, Inc. $1,063,125 2.7%
2. Susquehanna Bancshares, Inc. 1,061,437 2.7%
3. Matthews International Corporation Class A 990,000 2.5%
4. Oxford Industries, Inc. 981,500 2.5%
5. Berry Petroleum Company Class A 976,500 2.5%
6. The Dress Barn, Inc. 970,425 2.5%
7. La-Z-Boy Incorporated 957,375 2.5%
8. Penn Virginia Corporation 944,000 2.4%
9. Greif Bros. Corporation Class A 931,300 2.4%
10. Hannaford Bros. Co. 912,188 2.3%
Top Ten Contributors to the Fund's Net Realized and Unrealized Gain on
Investment (Per Share)
______________________________________________________________________
[Bar graph]
Keystone Heritage Group, Inc. $0.20
Cohun, Inc. $0.20
Helix Technology Corp. $0.16
The Dress Barn, Inc. $0.15
Mercantile Bankshares Corp. $0.14
The Peoples State Bank $0.14
Susquehanna Bancshares, Inc. $0.13
Keystone Financial, Inc. $0.13
Matthews International Corporation $0.13
People's Heritage Financial Group, Inc. $0.13
Major Portfolio Changes (Listed in Descending Order of Value)
_____________________________________________________________
Five Largest Purchases: Five Largest Sales:
1. In Focus Systems, Inc. (+) 1. Cohu, Inc. (x)
2. VLSI Technology, Inc. (+)* 2. Keystone Heritage Group (x)
3. Airborne Freight Corporation (+)* 3. Airborne Freight Corporation (x)
4. Outboard Marine Corporation (+)* 4. Helix Technology Corporation
5. MacNeal-Schwendler Corp. (+)* 5. Storage Technology Corporation (x)
(+) Position Added (x) Position Eliminated
* Debt Security
<PAGE>
PORTFOLIO PROCESS
______________________________________________________________________________
One question we frequently get asked is "How do you go about determining
which stocks to put in your
portfolio?" To answer this question, we have put together the following
schematic to take you step-by-step through the decision-making process:
Screen for Size, Quality and Value
- - Market capitalization between $100 million and $1 billion
- - High return on assets and equity
- - Revenue and earnings growth
- - Low debt and/or high cash
- - Low Price/Earnings, Price/Book, Price/Sales, Price/Cash Flow ratios
[Down arrow]
Fundamental Analysis of Prospect Companies
- - Identify "critical issues" - Valuation
- - Vitality - Visitation
[Down arrow]
Stock Selection and Ongoing Portfolio Maintenance
- - Ongoing review of sector weightings
- - Continual monitoring of vitality factors and valuation
- - Strict sell discipline
Most prospects are identified through our own screening efforts. By selecting
various price and
performance parameters, we can reduce the large universe of companies (about
8,000) down to a
manageable short-list of candidates for further exploration. The goal is to
determine quickly
whether or not a particular company is worth spending serious research time on.
Once we have gathered all the public information, we review the material
carefully. First, we use
several valuation techniques to cross-confirm our appraisal of each prospect's
business worth, and
to determine whether there is a discrepancy between this value and the current
market price.
Assuming a discrepancy exists, we then try to determine whether the company has
a viable plan for
its future growth and development (vitality), and whether there is evidence that
its recent
initiatives have produced the intended result(s). In doing so, we try to
identify what we call
"critical issues", or those factors which affect the company or its business in
a significant way.
In essence, we are trying to ascertain whether a particular company is a "great
company" at a "great price".
Visitation is a critical element of our research process. The primary objective
here is to test our
understanding of the company by exploring the critical issues with management.
Visitation also
provides an opportunity to view company facilities first-hand, to determine
their condition, usage
and value. All these factors help improve the decision making process, reducing
its risk and the potential for error.
The limited number of companies that pass through this process, about 50-65,
become the REvest
portfolio. But, the work does not stop there. Portfolio management is a
journey, not a destination.
We continually monitor the portfolio, its prospects and weightings, to ensure
that it remains fresh
and balanced. We want to be cognizant of any change in business fundamentals or
the elimination of
the value discrepancy, so that at the appropriate time we can replace a holding
with a new idea.
<PAGE>
PERFORMANCE DISCUSSION
______________________________________________________________________________
In the first half of 1997, there was 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
20.6% and the Russell 2000 index up 10.2%. Within the small-cap universe, the
Russell 2000 Value
index outperformed the Russell 2000 Growth index, 14.8% versus 5.2%,
respectively. REvest finished
this period up 9.4%, just slightly behind its benchmark, the Russell 2000.
Things started to get interesting in the second half of the year, as the
performance gap began to
narrow. In the third quarter, the Russell 2000 returned 14.9% versus 7.5% for
the S&P 500.
Continued confidence in the underlying fundamentals of the economy and concerns
about the high price
of large-cap stocks led many investors into the smaller issues looking for
values. This trend
reversed itself in October, however, when concerns about Asia's financial
stability caused a one day
554-point decline in the Dow and an overall flight to quality.
By year-end, the performance divergence was once again well established. The
S&P 500 ended the year
up 33.4% versus 22.4% for the Russell 2000, continuing the large-cap's market
reign. And within the
small-cap universe, the Russell 2000 Value index once again outperformed the
Russell 2000 Growth
index, 31.8% versus 13.0%. REvest ended the year up 23.5%, more or less in the
middle of the pack.
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
[Flow Chart here]
S&P 500 $22,912
Russell 2000 $18,908
REvest $17,074
Year 3-Years Since
Ended Ended Inception
12/31/97 12/31/97 12/31/94*
-------- -------- ----------
REvest total return 23.5% 20.6% 16.9%
S&P 500 total return 33.4% 31.3% 27.5%
Russell 2000 total return 22.4% 22.3% 20.5%
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 12/31/97)
______________________________________________________________________________
<TABLE>
<CAPTION>
Common Stocks and Bonds- 96.7%
Shares or Principal Value Cost Value
- ------------------------- ---- -----
<S> <C> <C>
CONSUMER PRODUCTS -- 14.6%
30,000 Haggar Corp. $ 416,350 $ 472,500
35,000 *In Focus Systems, Inc. 762,625 1,063,125
22,200 La-Z-Boy Incorporated 674,354 957,375
12,600 National Presto Industries, Inc. 516,476 498,487
30,200 Oxford Industries, Inc. 592,501 981,500
34,000 Russ Berrie and Company, Inc. 586,630 892,500
18,800 The Toro Company 648,366 801,350
--------------------------
4,197,302 5,666,837
--------------------------
ENERGY -- 8.8%
25,500 *Barrett Resources Corporation 736,468 771,375
56,000 Berry Petroleum Company Class A 636,045 976,500
32,000 Penn Virginia Corporation 585,687 944,000
40,000 Snyder Oil Corporation 794,428 730,000
--------------------------
2,752,628 3,421,875
--------------------------
FINANCIAL -- 16.2%
39,000 Donegal Group Inc. 536,499 862,875
22,100 Keystone Financial, Inc. 477,520 889,525
22,000 Mercantile Bankshares Corporation 322,163 860,750
19,500 Peoples Heritage Financial Group, Inc. 296,056 897,000
25,000 The Peoples State Bank 406,250 875,000
14,600 Protective Life Corporation 389,691 872,350
27,750 Susquehanna Bancshares, Inc. 479,747 1,061,437
--------------------------
2,907,926 6,318,937
--------------------------
HEALTH -- 8.7%
24,000 Analogic Corporation 733,526 912,000
21,600 Arrow International, Inc. 611,061 799,200
19,200 Diagnostic Products Corporation 566,019 532,800
30,000 *IDEXX Laboratories, Inc. 407,875 478,125
30,000 Invacare Corporation 624,785 652,500
--------------------------
2,943,266 3,374,625
--------------------------
INDUSTRIAL CYCLICALS -- 17.0%
40,000 Baldor Electric Company 718,675 867,500
30,000 CLARCOR Inc. 626,025 888,750
45,333 *Control Devices, Inc. 419,712 725,328
27,800 Greif Bros. Corporation Class A 677,793 931,300
28,400 Kimball International, Inc. Class B 382,389 523,625
22,500 Matthews International Corporation Class A 471,056 990,000
19,000 Rayonier Inc. 698,455 808,688
23,000 Teleflex Incorporated 455,355 868,250
--------------------------
4,449,460 6,603,441
--------------------------
REAL ESTATE -- 6.0%
45,000 Cavalier Homes, Inc. 486,763 438,750
20,000 Cousins Properties Incorporated 450,267 586,250
25,400 New Plan Realty Trust 511,340 647,700
$700,000 Sizeler Property Investors, Inc. 8.00%
Conv. Sub. Deb. due 7/15/03 649,691 667,625
--------------------------
2,098,061 2,340,325
--------------------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS (AT 12/31/97 - CONTINUED)
______________________________________________________________________________
Shares or Principal Value Cost Value
- ------------------------- ---- -----
<S> <C> <C>
RETAIL -- 7.3%
21,000 Claire's Stores, Inc. $ 401,783 $ 408,187
16,400 Cracker Barrel Old Country Store, Inc. 331,834 547,350
34,200 *The Dress Barn, Inc. 318,832 970,425
21,000 Hannaford Bros. Co. 593,407 912,188
--------------------------
1,645,856 2,838,150
--------------------------
SERVICES -- 9.8%
18,000 Chemed Corporation 686,760 745,875
78,000 *Lucor, Inc. Class A 454,375 214,500
$700,000 MacNeal-Schwendler Corp. 7.875%
Conv. Sub. Deb. due 8/18/04 676,081 700,000
$547,000 Richardson Electronics, Ltd. 8.25%
Conv. Sub. Deb. due 6/15/06 474,400 503,240
$153,000 Richardson Electronics, Ltd. 7.25%
Conv. Sub. Deb. due 12/15/06 132,345 128,520
$700,000 Sequa Corporation 9.375% Sr. Sub.
Notes due 12/15/03 696,834 726,250
23,000 The Standard Register Company 498,698 799,250
--------------------------
3,619,493 3,817,635
--------------------------
TECHNOLOGY -- 8.3%
41,500 *Cirrus Logic, Inc. 643,919 440,937
38,000 *FEI Company 463,487 472,625
20,000 Helix Technology Corporation 268,480 390,000
38,500 Salient 3 Communications, Inc. Class A 514,394 476,438
$700,000 VLSI Technology, Inc. 8.25% Conv.
Sub. Notes due 10/01/05 682,731 713,125
28,000 Watkins-Johnson Company 742,960 726,250
--------------------------
3,315,971 3,219,375
--------------------------
TOTAL COMMON STOCKS AND CORPORATE BONDS 27,929,963 37,601,200
--------------------------
U.S. TREASURY OBLIGATION -- 2.6%
$1,000,000 U.S. Treasury Notes 6.00% due 10/15/99 987,266 1,005,620
--------------------------
REPURCHASE AGREEMENT -- 1.5%
State Street Bank and Trust Company, 5.15% dated
12/31/97, due 1/02/98, maturity value $600,172
(collateralized by U.S. Treasury Notes, 5.875%
due 8/31/99 valued at $612,998) 600,000 600,000
--------------------------
TOTAL INVESTMENTS -- 100.8% $29,517,229 39,206,820
============
LIABILITIES LESS CASH AND OTHER ASSETS - (0.8%) (321,280)
-----------
TOTAL NET ASSETS - 100.0% $38,885,540
============
</TABLE>
*Non-income producing.
Income Tax Information - The cost for federal income tax purposes was
$29,508,093. At December 31, 1997, net unrealized appreciation for all
securities amounted to $9,698,727, consisting of aggregate
gross unrealized appreciation of $10,363,722 and aggregate gross unrealized
depreciation of $664,995. The Fund designates $5,257,037 as a capital
gain dividend for the purpose of the dividend paid deduction.
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (AT 12/31/97)
______________________________________________________________________________
ASSETS:
Investments at value (identified cost $28,917,229) $38,606,820
Repurchase agreement (at cost and value) 600,000
Cash 21,033
Receivable for dividends and interest 101,853
__________
TOTAL ASSETS 39,329,706
__________
LIABILITIES:
Dividend payable 375,128
Payable for capital shares redeemed 13,939
Investment advisory fee payable 33,230
Accrued expenses 21,869
__________
TOTAL LIABILITIES 444,166
__________
NET ASSETS $38,885,540
===========
ANALYSIS OF NET ASSETS:
Undistributed net investment income $ 5,877
Accumulated net realized gain on investments 13,203
Net unrealized appreciation on investments 9,689,591
Capital shares 2,992
Additional paid-in capital 29,173,877
__________
NET ASSETS $38,885,540
===========
PRICING OF SHARES:
Net asset value, offering and redemption price per share
($38,885,540 DIVIDED BY 2,991,804 shares outstanding) $13.00
=======
STATEMENTS OF CHANGES IN NET ASSETS
______________________________________________________________________________
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996
___________ __________
<S> <C> <C>
Investment Operations:
Net investment income $ 720,415 $ 670,454
Net realized gain on investments 7,205,644 2,201,712
Net change in unrealized appreciation on investments 2,357,022 4,806,560
__________ __________
Net increase in net assets from investment operations 10,283,081 7,678,726
__________ __________
Dividends and Distributions:
Net investment income (647,033) (675,154)
Net realized gain on investments (4,933,401) (2,223,159)
__________ __________
Net dividends and distributions (5,580,434) (2,898,313)
__________ __________
Capital Share Transactions:
Net increase (decrease) in net assets from capital share
transactions
(7,915,954) 1,514,553
__________ __________
Net Increase (Decrease) in Net Assets (3,213,307) 6,294,966
Net Assets:
Beginning of year 42,098,847 35,803,881
__________ __________
End of year (including undistributed net investment
income of $5,877 in 1997 and distributions in excess
of net investment income of $11,703 in 1996) $38,885,540 $42,098,847
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
STATEMENT OF OPERATIONS (FOR THE YEAR ENDED 12/31/97)
______________________________________________________________________________
INVESTMENT INCOME:
Income:
Dividends $ 747,181
Interest 541,654
-----------
Total Income 1,288,835
-----------
Expenses:
Investment advisory fee 447,437
Custodian and transfer agent fees 37,019
Administrative and office facilities 23,146
Professional fees 20,017
Federal and state registration fees 11,919
Trustees' fees 8,874
Other expenses 20,008
-----------
Total Expenses 568,420
-----------
Net Investment Income 720,415
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 7,205,644
Net change in unrealized appreciation on investments 2,357,022
-----------
Net realized and unrealized gain on investments 9,562,666
-----------
NET INCREASE IN NET ASSETS FROM INVESTMENT OPERATIONS $10,283,081
===========
The accompanying notes are an integral part of the 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> Period ended
Years ended December 31, December 31,
1997 1996 1995 1994
_____________________________ _________
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.21 $10.73 $9.66 $10.00
----- ----- ----- ------
Investment Operations:
Net investment income 0.21 0.21 0.18 0.04
Net realized and unrealized gain (loss) on
investments 2.64 2.16 1.38 (0.33)
----- ----- ----- ------
Total from investment operations 2.85 2.37 1.56 (0.29)
----- ----- ----- ------
Dividends and Distributions:
Net investment income (0.19) (0.21) (0.17) (0.05)
Net realized gain on investments (1.87) (0.68) (0.32) --
----- ----- ----- ------
Total dividends and distributions (2.06) (0.89) (0.49) (0.05)
----- ----- ----- ------
Net Asset Value, End of Period $13.00 $12.21 $10.73 $9.66
----- ----- ----- ------
Total Return 23.5% 22.3% 16.2% -2.9%
Ratios/Supplemental Data:
Net Assets, End of Period (in thousands) $38,886 $42,099 $35,804 $21,676
Ratio of Expenses to Average Net Assets (a) 1.26% 1.29% 1.30% 1.42%*
Ratio of Net Investment Income to Average Net Assets 1.60% 1.78% 1.73% 1.45%*
Portfolio Turnover Rate 54% 64% 53% 5%
Average Commission Rate Paid+ $0.0594 $0.0580 -- --
</TABLE>
* Annualized.
+ Beginning in 1996, the Fund is required to disclose its average commission
rate paid per share for purchases and sales of investments.
(a) The ratio of expenses to average net assets before waiver of fees by the
investment adviser would have been 1.78% for the period ended December 31, 1994.
(c) The ratio of net investment income to average net assets before waiver of
fees by the investment adviser would have been 1.09% for the period ended
December 31, 1994.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
______________________________________________________________________________
1. Summary of Significant Accounting Policies:
The REvest Growth & Income Fund (the "Fund") is a series of The Royce Fund (the
"Trust"), a diversified open-end management investment company 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 and dividend income
is recorded on the ex-dividend date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions and unrealized
appreciation and depreciation of investments are determined on the basis of
identified cost for book and tax purposes.
c. Expenses:
Expenses directly attributable to the Fund are charged to the Fund's operations,
while expenses applicable to more than one series of the Trust are allocated in
an equitable manner.
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 distributed 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 are held by SSB&T until maturity of the repurchase agreements.
Repurchase agreements could involve certain risks in the event of default or
insolvency of SSB&T, including possible delays or restrictions upon the ability
of the Fund to dispose of the underlying securities.
2. Investment Adviser:
Under the Trust'S investment advisory agreement with Royce, Ebright &
Associates, Inc. ("RE&A"), the Fund accrued and paid RE&A fees totaling $447,437
for the year ended December 31, 1997. 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:
For the year For the year
ended ended
December 31, 1997 December 31, 1996
_________________ _________________
Shares Amount Shares Amount
------ ------ ------ ------
Sold 1,418,807 $18,205,535 417,971 $4,876,471
Issued as reinvested
dividends and
distributions 396,134 5,165,051 223,492 2,702,689
Redeemed (2,271,260) (31,286,540) (528,815) (6,064,607)
Shares redeemed within one year of opening a shareholder account are subject to
a 1.0% redemption fee.
4. Purchases and Sales of Securities:
For the year ended December 31, 1997, the cost of purchases and the proceeds
from sales of
investment securities, other than short-term securities, amounted to $23,052,537
and $36,040,587, respectively.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
______________________________________________________________________________
To the Board of Trustees of The Royce Fund and Shareholders of
The REvest Growth & Income Fund:
We have audited the accompanying statement of assets and liabilities of The
REvest Growth & Income Fund, including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the FundOs management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
REvest Growth & Income Fund as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 10, 1998
<PAGE>
HISTORICAL PRICE AND DISTRIBUTION CHART
______________________________________________________________________________
The following (unaudited) chart provides the historical prices and distributions
of the Fund since inception.
Quarter Payable Distribution Reinvest
Ended Price Date Amount Type Price
------ ----- ------- ------- ---- -----
8/01/94* 10.00*
9/30/94 10.04 None
12/31/94 9.66 12/30/94 0.050 Income 9.66
3/31/95 10.00 3/24/95 0.045 Income 9.91
6/30/95 10.55 6/30/95 0.045 Income 10.55
9/30/95 11.16 9/25/95 0.040 Income 11.20
12/31/95 10.73 1/2/96 0.040 Income 10.73
1/2/96 0.160 ST Gains 10.73
1/2/96 0.160 LT Gains 10.73
3/31/96 11.26 3/15/96 0.050 Income 11.06
6/30/96 11.65 6/14/96 0.050 Income 11.90
9/30/96 11.92 9/13/96 0.060 Income 11.77
12/31/96 12.21 1/2/97 0.050 Income 12.21
1/2/97 0.160 ST Gains 12.21
1/2/97 0.520 LT Gains 12.21
3/31/97 12.33 3/14/97 0.055 Income 12.64
6/30/97 13.24 6/13/97 0.055 Income 13.09
9/30/97 14.76 9/12/97 0.060 Income 14.68
12/31/97 13.00 1/2/98 0.020 Income 13.00
1/2/98 0.760 ST Gains 13.00
1/2/98 0.260 LT Gains (20%) 13.00
1/2/98 0.850 LT Gains (28%) 13.00
*Initial offering date and price.
Special Note: The Fund maintains a "direct" mailing list especially for its
"street name"
shareholders. This will speed up your receipt of all Fund mailings such as our
financial reports and
special interim shareholder letters. If you are not on the mailing list and
would like to be
included, please call Mike McNamara, our customer service officer, and he will
add your name.
<PAGE>
MEET THE NEWEST MEMBER OF THE REVEST STAFF
______________________________________________________________________________
[PHOTOGRAPH OF CORNELIA MORIN]
Cornelia "Neil" Morin joined REvest in February 1997 as our new Office Manager
and On-Premise
Computer Authority. Neil is responsible for coordinating inter-office
activities, as well as
maintaining the accounting system and performing most of the back office
operations specifically for
RE&A. Prior to coming to RE&A, she worked as an Environmental Scientist and
Regulatory Specialist
both independently and for ABB Environmental Services, Inc. here in Portland,
Maine. In addition,
she has five years of administrative support experience in various other
businesses. A graduate of
St. Lawrence University, Neil enjoys biking, skiing and spending time with her
husband Steve and their four year old son Joshua.
Customer Service
______________________________________________________________________________
1. If I have questions or need literature about the Fund who may I call?
Call Mike McNamara, RE&A's customer service officer, at 800-277-5573. The
RE&A office is open from 9:00am to 5:00pm (Eastern Time) every business day.
2. If I have questions about the FundOs 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 shareholders by 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>
[BACK COVER]
This report must be accompanied or preceded by a current Prospectus of the Fund.
Royce, Ebright & Associates, Inc.
Investment Adviser
50 Portland Pier
Portland, ME 04101-4721
(207) 774-7455 - (800) 277-5573
Fax (207) 772-7370
1414 Avenue of the Americas
New York, New York 10019
(800) 221-4268
A Series of The Royce Fund
