Distributions and Dividends - The Royce Funds

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 and Royce 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

Two of our three closed-end funds have a managed distribution policy (“MDP”) designed to spread any capital gain distributions more evenly over the year.

The Board of Directors from each of Royce Value Trust, and Royce Micro-Cap Trust has authorized an MDP. Under the MDP, Royce Value Trust and Royce Micro-Cap Trust pay quarterly distributions at an annual rate of 7% of the average of the prior four quarter-end net asset values.

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 Micro-Cap Trust and Royce Value Trust.

How Distributions Affect Your Mutual Fund Investment

Which Royce Funds pay distributions, and when?

Many of our open-end Funds pay year-end distributions from net realized capital gains in December, if they are available. (In addition, three of our open-end funds pay scheduled quarterly dividends derived from net investment income: Royce Total Return Fund and Royce Dividend Value Fund.)

Shareholders should carefully consider the tax implications of purchasing shares shortly before a distribution is about to be paid. At the time of your purchase, a Fund's net asset value (NAV) may include income or capital gains that have not yet been distributed. When the Fund then distributes these amounts, they are taxable to the shareholder, even though the distribution is economically a return of part of the shareholder's investment.

When these distributions are paid, three dates are important to keep in mind: Record, Ex and Payable Date.

Record Date — The distribution that an investor receives is calculated based on the number of shares that an investor owns on Record Date, typically using the share balance in an investor's account at the close of that day's business.

Ex Date — On "ex date," a Fund's net asset value (NAV) decreases by the amount of the total distribution (that is, the sum of dividends and long- and short-term capital gains) in addition to any market movement that would change the Fund's closing NAV. Occasionally, investors become a little anxious when they see the larger-than-usual decline in a fund's NAV on ex date, but typically most of the decrease is the total distribution being deducted from the fund's NAV. (Many publications that list closing NAVs place an 'x' after the fund's name on its Ex Date.) Ex Date is sometimes referred to as "Ex-Dividend Date."

Payable Date — The date on which distributions are posted to accounts for reinvestment or paid to shareholders who take distributions in cash.

At The Royce Funds, Ex and Payable Dates are usually one business day after Record Date.



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