A Primer on Distributions and Dividends

In an equity mutual fund portfolio, capital gains become realized when a holding is sold at a gain, that is, at a stock price that is higher than the price at which it was purchased.

Net investment income results when dividends, interest or other income received exceed the portfolio's net expenses.

These realized capital gains and/or net investment income are then passed on to shareholders in the form of distributions. Royce Total Return Fund, Royce Dividend Value Fund and Royce Global Dividend Value Fund pay dividends, if any, from net investment income on a quarterly basis and make any distributions resulting from net realized capital gains annually in December.

Our other open-end Funds pay any dividends from net investment income and make any distributions from net realized capital gains each year in December.

Fund distributions may consist, then, of dividend income, short-term capital gains and long-term capital gains. A capital gain is classified as long term if the shares were held in the portfolio for one year or more.

In general, the taxation status of distributions as ordinary income or capital gain (each of which is taxed at a different rate) is determined at the Fund level and is not related to how long you have owned a Fund's shares. You can find more information on taxation in the prospectus and Statement of Additional Information.

Managed Distribution Policy for Royce's Closed-End Funds

Our closed-end funds each have a managed distribution policy, designed to spread any capital gain distributions more evenly over the year.

Each Fund's policy, resumed in March 2011, allows for quarterly distributions, payable to common stockholders, at a rate of 1.25% (or approximately 5% annually) of the average net asset value (NAV) of each Fund's Common Stock at the end of the prior four calendar quarters.

The distributions may include long-term capital gains, short-term capital gains, net investment income and/or return of capital for federal income tax purposes.

Why Dividend Reinvestment Is Important

A very important component of an investor's total return comes from the reinvestment of distributions. By reinvesting distributions, investors can maintain an undiluted investment in a Fund.

To get a better picture of the impact of reinvested distributions, please see the "Market Price Performance History Since Inception" charts for Royce Focus Trust, Royce Micro-Cap Trust and Royce Value Trust.