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Value Investing In Small Companies For Over Twenty Years

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Royce Global Services Fund

Supplement to Prospectus dated April 30, 1997

At a Special Meeting held on November 25, 1997, Shareholders of Royce Global Services Fund (the "Fund") approved a proposal to change the Fund's investment objective and a related policy to permit the Fund to concentrate its investments in the financial services industry. The Fund's new investment objective is long-term capital appreciation by investing primarily in common stocks and convertible securities of companies principally engaged in the financial services industry. With this approval, the Fund's name has been changed to Royce Financial Services Fund and the Fund has amended its non-fundamental investment policies to eliminate the requirement that more than 65% of its assets be invested in securities of companies from at least three countries, which may include the United States.

You cannot open a Royce Financial Services account through this prospectus and application. Please call 1-800-221-4268 for a separate Prospectus and Application for Royce Financial Services Fund.


Royce Total Return Fund

Supplement to Prospectus dated April 30, 1997

In accordance with its dual objective of capital appreciation (realized and unrealized) and current income, Royce Total Return Fund will normally invest at least 65% of its assets in common stocks and convertible securities. At least 90% of these securities will be income-producing and at least 65% 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 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.

September 25, 1997


Royce GiftShares Fund (Investment Class)

Supplement to Prospectus dated April 30, 1997

In accordance with its investment objective of long-term capital appreciation, Royce GiftShares Fund will normally invest at least 65% 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 the Fund's assets may be invested in securities of companies with higher market capitalizations and non-convertible preferred stocks and debt securities.

September 25, 1997


Royce GiftShares Fund (Consultant Class)

Supplement to Prospectus dated June 15, 1997

In accordance with its investment objective of long-term capital appreciation, Royce GiftShares Fund will normally invest at least 65% 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 the Fund's assets may be invested in securities of companies with higher market capitalizations and non-convertible preferred stocks and debt securities.

September 25, 1997


NOTICE TO ROYCE MICRO-CAP FUND INVESTORS

In order to control asset growth, the Trust has committed to limit Royce Micro-Cap Fund's net cash inflows to $50 million in any calendar six month period. Once the $50 million is reached, the Fund will close to new investors and advisers for the remainder of the period, but will remain open to existing relationships.

The Fund's Investment Adviser has agreed to waive its management fee to the extent necessary to cap the expense ratio of Royce Micro-Cap Fund at 1.49% for 1997 and through December 31, 1998, reflecting its continued commitment to lower expense ratios.


The Royce Funds


Royce Premier Fund Royce GiftShares Fund
Royce Micro-Cap Fund Royce Total Return Fund
Pennsylvania Mutual Fund Royce Low-Priced Stock Fund
Investment Class
PMF II
Royce Global 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

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.


TOCTABLE OF CONTENTSTOC

About this Prospectus Dividends, Distributions and Taxes
Fund Expenses Net Asset Value Per Share
Financial Highlights

SHAREHOLDER GUIDE

Investment Performance and Volatility Opening an Account and Purchasing Shares
Investment Objectives Choosing a Distribution Option
Investment Policies Important Account Information
Investment Risks Redeeming Your Shares
Investment Limitations Exchange Privilege
Management of the Trust Transferring Ownership
General Information Statements and Reports
Royce GiftShares Fund Investors BackCover

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 funds@roycenet.com, and the Internet Home Page is http://www.roycefunds.com

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.


TOC

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

Annual Fund Operating Expenses

Total
Management Operating
Fees** 12b-1 Fees** Other Expenses**
after waivers)
(after waivers)
Expenses
(after waivers)
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.

1 3 5 10
Year
Years
Years
Years
Royce Premier Fund $13 $40 $69 $151
Royce Micro-Cap Fund 17 53 92 200
Pennsylvania Mutual Fund -- Investment Class 11 33 57 126
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 Royce & Associates, Inc. ("Royce") the Funds' investment adviser, and of 12b-1 fees by Royce Fund Services, Inc. ("RFS"), the Funds' distributor. For more information on GiftShares -- see "General Information." Royce and RFS 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, Royce 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.


TOC

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.
Royce Premier
________________________________
Royce Micro-Cap
________________________________
Year ended December 31,
________________________________
Year ended December 31,
________________________________
1996
1995
1994
1993
1992
1996
1995
1994
1993
1992
Net Asset Value, Beginning
of Year
$7.12 $6.48 $6.41 $5.52 $5.00 $7.53 $6.48 $6.47 $5.83 $5.00










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 0.00 (0.01)
Net realized and
unrealized gain (loss) on
investments
1.18 1.05 0.15 1.03 0.77 1.17 1.24 0.23 1.38 1.48










Total from Investment
Operations
1.28 1.15 0.21 1.05 0.79 1.16 1.24 0.23 1.38 1.47










Less Distributions
Dividends paid from net
investment income
(0.10) (0.09) (0.05) (0.02) (0.02) (0.00) (0.00) (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) (0.74) (0.64)










Total Distributions (0.59) (0.51) (0.14) (0.16) (0.27) (0.55) (0.19) (0.22) (0.74) (0.64)










Net Asset Value, End of Year $7.81
=====
$7.12
=====
$6.48
=====
$6.41
=====
$5.52
=====
$8.14
=====
$7.53
=====
$6.48
=====
$6.47
=====
$5.83
=====
Total Return 18.1%
=====
17.8%
=====
3.3%
=====
19.0%
=====
15.8%
=====
15.5%
=====
19.1%
=====
3.6%
=====
23.7%
=====
29.4%
=====
Ratios/Supplemental Data
Net Assets, End of Year
(millions)
$317 $302 $202 $47 $2 $141 $98 $27 $10 $3
Ratio of Expenses to
Average Net Assets(1)
1.25% 1.25% 1.38% 1.50% 1.77% 1.79% 1.94% 1.99% 1.99% 1.69%
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% (0.09%) (0.21%)
Portfolio Turnover Rate 34% 39% 38% 85% 116% 70% 25% 54% 116% 171%
Average Commission Rate
Paid†
$.0621 $.0476

________________

(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.

†Beginning in 1996, the Funds are required to disclose average commission rates paid per share for purchases and sales of investments.

Pennsylvania Mutual Fund -- Investment Class
PMF II
Year ended December 31,
Period ended
December 31,

1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1996
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 $5.00











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 0.00
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) 0.26











Total from Investment
Operations
0.95 1.38 (0.06) 0.90 1.18 1.84 (0.79) 1.07 1.34 0.12 0.26











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) (0.00)
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) (0.00)











Total Distributions (1.55) (1.08) (0.84) (0.59) (0.47) (0.33) (0.28) (0.63) (0.40) (1.63) (0.00)











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
=====
$5.26
=====
Total Return 12.8%
=====
18.7%
=====
-0.7%
=====
11.3%
=====
16.2%
=====
31.8%
=====
-11.5%
=====
16.7%
=====
24.6%
=====
1.4%
=====
5.2%
=====
Ratios/Supplemental Data
Net Assets, End of Year
(millions)
$457 $630 $771 $1,022 $1,102 $789 $549 $550 $444 $277 $18
Ratio of Expenses to
Average Net Assets(1)
.99% .98% .98% .98% .91% .95% .96% .97% 1.01% .99% .97%*
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% .83%*
Portfolio Turnover Rate 29% 10% 17% 24% 22% 29% 15% 23% 24% 23% 1%
Average Commission Rate
Paid†
$.0588 $.0586

___________________

(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.

†Beginning in 1996, the Funds are required to disclose average commission rates paid per share for purchases and sales of investments.

Royce GiftShares
Royce Total Return
Royce Low-Priced Stock
Royce Global Services
Year ended
December 31,

Period ended
December 31,

Year ended
December 31,

Period ended
December 31,

Year ended
December 31,

Period ended
December 31,

Year ended
December 31,

Period ended
December 31,

1996 1995(2) 1996 1995 1994 1993(3) 1996 1995 1994 1993(3) 1996 1995 1994(4)
$5.01 $5.00 $5.76 $5.12 $5.00 $5.00 $5.62 $5.07 $5.01 $5.00 $5.68 $5.06 $5.00













0.00 0.00 0.14 0.13 0.02 0.00 (0.03) (0.00) (0.03) 0.00 0.01 0.00 0.00
1.27 0.01 1.28 1.24 0.24 0.00 1.31 1.14 0.18 0.01 0.81 1.07 0.06













1.27 0.01 1.42 1.37 0.26 0.00 1.28 1.14 0.15 0.01 0.82 1.07 0.06














(0.00) (0.00) (0.16) (0.13) (0.02) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
(0.45) (0.00) (0.73) (0.60) (0.12) (0.00) (0.60) (0.59) (0.09) (0.00) (0.47) (0.45) (0.00)













(0.45) (0.00) (0.89) (0.73) (0.14) (0.00) (0.60) (0.59) (0.09) (0.00) (0.47) (0.45) (0.00)













$5.83
====
$5.01
====
$6.29
====
$5.76
====
$5.12
====
$5.00
====
$6.30
====
$5.62
====
$5.07
====
$5.01
====
$6.03
====
$5.68
====
$5.06
====
25.6%
====
0.2%
====
25.5%
====
26.9%
====
5.2%
====
0.00%
====
22.8%
====
22.5%
====
3.0%
====
0.2%
====
14.6%
====
21.2%
====
1.2%
====

$1 $.5 $6 $3 $2 $.5 $16 $4 $2 $.5 $2 $2 $.5
1.49% .70%* 1.25% 1.67% 1.96% .29%* 1.88% 1.97% 1.89% 0.29%* 1.56% 1.97% 1.78%*

(0.05%) 0%* 2.50% 2.42% 0.49% (0.29%) (0.67%) (1.11%) (1.11%) (0.29%)* 0.17% (0.58%) 0.00%*
93% 0% 111% 68% 88% 0% 137% 114% 95% 0% 81% 106% 0%

$.0566 $.0605 $.0464 $ .0591

________________

(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.


TOC

INVESTMENT
PERFORMANCE
AND VOLATILITY


Total return is the
change in value
over a given time
period, assuming
reinvestment of any
dividends and
capital gains
distributions
The Funds 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 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 in a 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 a 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 Funds' average annual total returns for the periods ended December 31, 1996 were:

One
Year

Three
Year

Five
Year

Ten
Year

Twenty
Year

Since
Inception

Inception Date
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

"Risk" may be
viewed as the
volatility of a
Fund's total returns
over time
The relative risk of investing in a particular fund should be considered in addition to the total returns of the 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 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.

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:


Standard
Deviation

Beta
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


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".


TOC

INVESTMENT
OBJECTIVES
Each Fund has different investment objectives and/or its own method of achieving its 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 Royce 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.

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.


TOC

INVESTMENT
POLICIES

The Funds invest
on a value basis

The Funds invest
primarily in small
and micro-cap
companies

Royce uses a "value" method in managing the Funds' assets. In its selection process, Royce puts primary emphasis on the understanding of various internal returns indicative of profitability, balance sheet quality, cash flows and the relationships that these factors have to the price of a given security.

Royce's value method is based on its belief that the securities of certain small 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. Royce attempts to identify and invest 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, Royce 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.

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 Royce 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, Royce 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.

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 Royce 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 Royce 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, Royce 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
RISKS

The Funds are
subject to certain
investment risks

As mutual funds investing primarily in common stocks and/or securities convertible into 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 portions of their 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. 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, Royce'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 Royce 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.

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.

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
LIMITATIONS

The Funds have
adopted certain
fundamental
limitations

Each of the Funds 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 no Fund will:

(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
Practices:

In addition to investing primarily in the equity and fixed income securities described above, the Funds may follow a number of additional investment practices.

Short-term fixed
income securities

The Funds 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 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
options

Each of the Funds other than Pennsylvania Mutual Fund may invest up to 5% of its total assets in warrants, rights and options.

Lower-rated debt
securities

Up to 20% of Royce Total Return Fund's assets may be invested 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. 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
illiquid securities

Royce Global Services Fund and PMF II may invest up to 15% of their net assets in illiquid 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. Royce, 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, Royce 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 Royce, 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

Royce 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



Royce &
Associates, Inc. is
responsible
for the investment
management of the
Funds' assets

The Trust's business and affairs are managed under the direction of its Board of Trustees. Royce & Associates, Inc., formerly named Quest Advisory Corp., the Funds' investment adviser, is responsible for the management of their assets, subject to the authority of the Board. Charles M. Royce, Royce's President, Chief Investment Officer and sole voting shareholder since 1972, is primarily responsible for managing the Funds' portfolios. He is assisted by Royce's investment staff, including W. Whitney George, Portfolio Manager and Managing Director, and by Jack E. Fockler, Jr., Managing Director.

As compensation for its services to the Funds, Royce 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 Royce 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 Royce.

Royce 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 Royce. Royce is authorized, in recognition of the value of brokerage and research services provided, to pay commissions to a broker in excess of the amount which another broker might have charged for the same transaction.

Royce Fund Services, Inc. ("RFS"), formerly named Quest Distributors, Inc., which is wholly-owned by Charles M. Royce, acts as distributor of the 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 RFS 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. RFS has committed to waive its fees through April 1998.


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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, 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 Royce-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
GIFTSHARES
FUND
INVESTORS

A Royce GiftShares Fund investment is a unique way to make a gift to a child (minor or adult) or another individual. (You may not open an account in GiftShares Fund for yourself or your spouse.) A GiftShares Fund investment is suitable for making a long-term gift which may 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.

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,
DISTRIBUTIONS
AND TAXES

Each of the Funds 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 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.

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.


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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 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 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.


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SHAREHOLDER GUIDE

OPENING AN
ACCOUNT AND
PURCHASING SHARES
Each Fund's shares are offered on a no-load basis. To open a new account other than an IRA or 403(b)(7) account or a Royce GiftShares Fund account, either by mail, by telephone or by wire, simply complete and return an Account Application. If you need assistance with the 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.

Minimum Initial
Investments
Type of Account
_________________
Minimum
_________________
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


Additional
Investments
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

NEW ACCOUNT
Please include the amount of your initial investment on the Account Application, make your check payable to The Royce Fund, and mail to:

The Royce Funds
P.O. Box 419012
Kansas City, MO 64141-6012

ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
Additional investments should include the Invest-by-Mail remittance form attached to your Fund account confirmation statements. Please make your check payable to The Royce Fund, write your account number on your check and, using the return envelope provided, mail to the address indicated on the Invest-by-Mail form.

For express or
registered mail,
send to:

The Royce Funds
c/o National Financial Data Services
1004 Baltimore, 5th Floor
Kansas City, MO 64105

All written requests should be mailed to one of the addresses indicated for new accounts.

_____________
* 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.

Purchasing By
Telephone

NEW ACCOUNT
To open an account by telephone, you.should call Investor Information (1-800-221-4268) before 4:00 p.m., Eastern time. You will be given a confirming order number for your purchase. This number must be placed on your completed Application before mailing. If a completed and signed Application is not received on an account opened by telephone, the account may be subject to backup withholding of Federal income taxes.

ADDITIONAL INVESTMENTS
TO EXISTING ACCOUNTS
Subsequent telephone purchases ($500 minimum) may also be made by calling Investor Information. For all telephone purchases, payment is due within three business days and may be made by wire or personal, business or bank check, subject to collection.

Purchasing By Wire

Before Wiring
For a new account,
please contact
Investor Information
at 1-800-221-4268

Money should be wired to:

State Street Bank and Trust Company
ABA 011000028 DDA 9904-712-8
Ref: (Name of 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 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 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.

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.


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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. Distribution options available for Royce GiftShares Fund trust accounts are dependent on the trust option selected by the donor.


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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.

Purchases Through
Service Providers

If you purchase shares of a 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 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. RFS, Royce 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
Online Access
Transactions

Neither the Funds nor their 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 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
Purchases

Your trade date is the date on which share purchases are credited to your account. If your 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
YOUR SHARES

You may redeem any portion of your account at any time. You may request a redemption in writing or by telephone. Redemption proceeds normally will be sent within two business days after the receipt of the request in Good Order.

Redeeming by Mail

Requests should be mailed to The Royce Funds, c/o NFDS, P.O. Box 419012, Kansas City, MO 64141-6012. (For express or registered mail, send your request to The Royce Funds, c/o 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
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 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 Form or call Shareholder Services at 1-800-841-1180 for an Express Service application.

Important
Redemption
Information

If you are redeeming shares recently purchased by check, Express Service Expedited Purchase or Automatic Investment Plan, the proceeds of the redemption may not be sent until payment for the purchase is collected, which may take up to fifteen calendar days. Otherwise, redemption proceeds must be sent to you within seven days of receipt of your request in Good Order.

If you experience difficulty in making a telephone redemption during periods of drastic economic or market changes, your redemption request may be made by regular or express mail. It will be processed at the net asset value next determined after your request has been received by the transfer agent in Good Order. The Trust reserves the right to revise or terminate the telephone redemption privilege at any time.

The Trust may suspend the redemption right or postpone payment at times when the New York Stock Exchange is closed or under any emergency circumstances as determined by the Securities and Exchange Commission.

Although the Trust will normally make redemptions in cash, it may cause the Funds to redeem in kind under certain circumstances.

Early Redemption
Fee

In order to discourage short-term trading, the Funds assess 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 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 Royce or members of their immediate families or employee benefit plans for them, (b) current participants in an Automatic Investment Plan or an Automatic Withdrawal Plan, (c) certain Trust-approved Group Investment Plans and charitable organizations, (d) profit-sharing trusts, corporations or other institutional investors who are investment advisory clients of Royce, (e) omnibus or similar account customers of certain Trust-approved broker-dealers and other institutions or (f) shareholders of Royce GiftShares Fund.

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 (except Royce GiftShares 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.

Royce GiftShares
Fund

Until a Royce GiftShares Fund trust terminates, only the independent trustee, as the legal 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.


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EXCHANGE
PRIVILEGE
Exchanges between series of the Trust (except Royce GiftShares Fund), and with other open-end 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
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.


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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.


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The Royce Funds
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
funds@roycenet.com


Investment Adviser
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019


Distributor
Royce Fund Services, Inc.
1414 Avenue of the Americas
New York, NY 10019


Transfer Agent
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012
Kansas City, MO 64141-6012
1-800-841-1180


Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105


Officers
Charles M. Royce, President
and Treasurer

Thomas R. Ebright, Vice President

Jack E. Fockler, Jr., Vice President

W. Whitney George, Vice President

Daniel A. O'Byrne, Vice President
and Asst. Secretary

John E. Denneen, Secretary

The Royce Funds




Royce Premier Fund


Royce Micro-Cap Fund


Pennsylvania Mutual Fund

Investment Class


PMF II


Royce GiftShares Fund


Royce Total Return Fund


Royce Low-Priced
Stock Fund


Royce Global Services Fund







Prospectus

April 30, 1997


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