As filed with the Securities and Exchange Commission on July 31,1996
1940 Act File No. 811-07537
1933 Act File No. 333-1073
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
Pre-Effective Amendment No. 2 /X /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 2 / X /
(Check appropriate box or boxes)
ROYCE CAPITAL TRUST
(Exact name of Registrant as specified in charter)
1414 Avenue of the Americas, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code:(212) 355-7311
Charles M. Royce, President
Royce Capital Trust
1414 Avenue of the Americas, New York, New York 10019
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as
practicable after this Registration Statement becomes effective
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933, or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Total number of pages:
Index to Exhibits is located on page:
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
Item of Form N-1A CAPTION or Location in Prospectus
Part A
I. Cover Page....................................... Cover Page
II. Synopsis....................................... FUND EXPENSES
III. Condensed Financial Information... *
IV. General Description of Registrant.. INVESTMENT OBJECTIVES,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
GENERAL INFORMATION
V. Management of the Fund..............MANAGEMENT OF THE TRUST,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance.................. *
VI. Capital Stock and Other Securities. GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
SHAREHOLDER GUIDE
VII. Purchase of Securities Being
Offered .......................NET ASSET VALUE PER SHARE,
SHAREHOLDER GUIDE
VIII. Redemption or Repurchase.........SHAREHOLDER GUIDE
IX. Pending Legal Proceedings........ *
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
Part B
X. Cover Page................................ Cover Page
XI. Table of Contents.................. TABLE OF CONTENTS
<PAGE>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
Part B
XII. General Information and History.... *
XIII. Investment Objectives and Policies. INVESTMENT POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund...............MANAGEMENT OF THE TRUST
XV. Control Persons and Principal
Holders of Securities..........MANAGEMENT OF THE TRUST,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services ......................MANAGEMENT OF THE TRUST,
INVESTMENT ADVISORY SERVICES,
CUSTODIAN,
INDEPENDENT ACCOUNTANTS
XVII. Brokerage Allocation and Other
Practices.......................PORTFOLIO TRANSACTIONS
XVIII. Capital Stock and Other Securities..DESCRIPTION OF THE TRUST
XIX. Purchase, Redemption and Pricing
of Securities Being Offered. PRICING OF SHARES BEING
OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status.........................TAXATION
XXI. Underwriters....................... *
XXII. Calculation of Performance Data.... PERFORMANCE DATA
XXIII. Financial Statements.................FINANCIAL STATEMENTS
* Not applicable.
<PAGE>
Royce Capital Trust
Royce Premier Portfolio
Royce Equity Income Portfolio
Royce Micro-Cap Portfolio
PROSPECTUS -- August 1, 1996
Royce Premier Portfolio, Royce Equity Income Portfolio and Royce Micro-Cap
Portfolio (the "Funds") are series of Royce Capital Trust (the "Trust").
Shares of the Funds are offered to life insurance companies ("Insurance
Companies") for allocation to certain separate accounts established for the
purpose of funding qualified and non-qualified variable annuity contracts and
variable life insurance contracts ("Variable Contracts"), and may also be
offered directly to certain pension plans and retirement plans and accounts
permitting accumulation of assets on a tax-deferred basis ("Retirement
Plans"). Certain Funds may not be available in connection with a particular
Variable Contract, and certain Variable Contracts may limit allocations among
the Funds. See the accompanying Variable Contract disclosure documents for
any restrictions on purchases or allocations.<PAGE>
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" containing further information about
the Funds and the Trust has been filed with the Securities and Exchange
Commission. The Statement is dated August 1, 1996 and has been incorporated
by reference into this Prospectus. A copy may be obtained without charge by
writing to the Trust, by calling Investor Information at 1 (800) 221-4268 or
by writing or calling your Insurance Company.
TABLE OF CONTENTS Page
Fund Expenses. . . . . . . . . . . 2
Investment Performance . . . . . . 3
Investment Objectives. . . . . . . 4
Investment Policies. . . . . . . . 4
Investment Risks . . . . . . . . . 5
Page
Investment Limitations . . . . . . 6
Management of the Trust. . . . . . 8
General Information. . . . . . . . 9
Dividends, Distributions and Taxes . . . . .10
Net Asset Value Per Share. . . . . 11
Shareholder Guide. . . . . . . . . 11
LIKE ALL MUTUAL FUNDS, 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.
<PAGE>
FUND EXPENSES
Transaction expenses are charges paid when shares of the Funds are purchased
or sold.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases or
Reinvested Dividends. . . . . . . . . . . . . . . . . . None
Deferred Sales Load on Redemptions. . . . . . . . . . . None
Each Fund pays its own operating expenses, including the investment
management fee to Quest Advisory Corp. ("Quest"), the investment adviser to
the Funds. Expenses are factored into a Fund's net asset value daily. The
following expenses are estimates for the first year of operation.
Annual Fund Operating Expenses
Royce Royce Royce
Premier Equity Income Micro-Cap
Portfolio Portfolio Portfolio
Management Fees
(after waivers). . . . . .00% .00% .00%
12b-1 Fees . . . . . . None None None
Other Expenses. . . . . 1.99% 1.99% 1.99%
Total Operating Expenses
(after waivers). . . . . 1.99% 1.99% 1.99%
The purpose of the above table is to assist you in understanding the various
costs and expenses that you would bear directly or indirectly as an investor
in the Funds. Management fees would be 1.00%, 1.00% and 1.50% and total
operating expenses would be 2.99%, 2.99% and 3.49% for each of the Funds
without the waivers of management fees by Quest. Quest has voluntarily
committed to waive its fees through December 31, 1997 to the extent necessary
to maintain total operating expenses of each Fund at or below 1.99%.
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.
1 Year 3 Years
Royce Premier Portfolio. . . . . . . . . $20 $62
Royce Equity Income Portfolio. . . . . . 20 62
Royce Micro-Cap Portfolio. . . . . . . . 20 62
These examples should not be considered representations of past or future
expenses or performance. Actual expenses may be higher or lower than
those shown.
Additional expenses are incurred under the Variable Contracts and the
Retirement Plans. These expenses are not described in this Prospectus.
Variable Contract owners and Retirement Plan participants should consult the
Variable Contract disclosure documents or Retirement Plan information
regarding these expenses.
<PAGE>
INVESTMENT
PERFORMANCE
Total return is the
change in value over
a given time period,
assuming reinvestment
of any dividends and
capital gains
distributions
From time to time, the Funds may communicate 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, which assume the reinvestment of all net
investment income dividends and capital gains distributions, are historical
measures of past performance and are not intended to indicate future
performance.
Total returns quoted for the Funds include the effect of deducting each
Fund's operating expenses, but will not include charges and expenses
attributable to a particular Variable Contract or Retirement Plan. Because
shares of the Funds may be purchased only through a Variable Contract or an
eligible Retirement Plan, an individual owning a Variable Contract or
participating in a Retirement Plan should carefully review the Variable
Contract disclosure documents or Retirement Plan information for information
on relevant charges and expenses. Excluding these charges and expenses from
quotations of each Fund's performance has the effect of increasing the
performance quoted. These charges and expenses should be considered when
comparing a Fund's performance to other investment vehicles.
Although the Trust is newly-organized and the Funds do not yet have their own
performance records, each Fund has the same investment objectives and follows
substantially the same investment policies as a corresponding Royce retail
fund. The Royce retail funds have the same investment adviser as the
corresponding Funds offered in this Prospectus.
Set forth in the table below is total return information for each of the
Royce retail funds corresponding to the Funds offered in this Prospectus,
calculated as described above. Such information has been obtained from Quest
and updates the information set forth in the current prospectus of each fund.
Investors should not consider this performance data as an indication of the
future performance of the Funds offered in this Prospectus. The performance
figures below reflect the deduction of the historical fees and expenses paid
by the Royce retail funds, and not those to be paid by these Funds. The
figures also do not reflect the deduction of charges or expenses attributable
to Variable Contracts. As discussed above, investors should refer to the
applicable Variable Contract disclosure documents for information on such
charges and expenses. Additionally, although it is anticipated that each
Fund and its corresponding retail fund will hold similar securities
selections, their investment results are expected to differ. In particular,
differences in asset size and in cash flow resulting from purchases and
redemptions of Fund shares may result in different security selections,
differences in the relative weightings of securities or differences in the
price paid for particular portfolio holdings.
<PAGE>
The average annual total returns for the corresponding Royce retail funds for
the periods ended June 30, 1996 were:
One Three Five Since Inception
Year Year Year Inception Date
Royce Premier Fund . . . 11.9% 12.7% -- 13.8% December 31, 1991
Royce Equity Income Fund 13.2% 8.3% 12.0% 9.6% January 2, 1990
Royce Micro-Cap Fund . . 18.6% 15.6% -- 19.0% December 31, 1991
The above total returns reflect partial waivers of management fees. Without
such waivers, the average annual total returns would have been lower.
INVESTMENT
OBJECTIVES
Each Fund has different investment objectives and/or its own method of
achieving its objectives and is designed to meet different investment 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 Portfolio'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 Quest as having superior financial
characteristics and/or unusually attractive business prospects.
Royce Equity Income Portfolio seeks reasonable income by investing primarily
in dividend-paying common and preferred stocks and debt securities
convertible into common stocks. In choosing these securities, Quest will
also consider their potential for capital appreciation.
Royce Micro-Cap Portfolio seeks long-term capital appreciation, primarily
through investments in common stocks and convertible securities of small and
micro-cap companies. Production of income is incidental to this objective.
These investment objectives are fundamental and may not be changed without
the approval of a majority of the Fund's outstanding voting shares.<PAGE>
INVESTMENT
POLICIES
The Funds invest on a
"value" basis
The Funds invest
primarily in small
companies
Quest will use a "value" method in managing the Funds' assets. In its
selection process, Quest puts primary emphasis on various internal returns
indicative of profitability, balance sheet quality, cash flows and the
relationships that these factors have to the current price of a given
security.
Quest'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". Quest will attempt 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 Portfolio
Normally, Royce Premier Portfolio 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
<PAGE>
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, Quest will put
primary emphasis on companies 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, will also be used in selecting investments for the
Fund.
Royce Equity Income Portfolio
In accordance with its objective of seeking reasonable income, Royce Equity
Income Portfolio will normally invest at least 80% of its assets in common
stocks, convertible preferred stocks and convertible bonds. At least 90% of
these securities will be income-producing, 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 the securities of companies with higher stock
market capitalizations, non-dividend-paying common stocks and non-convertible
preferred stocks and debt securities. Quest will seek to invest the Fund's
portfolio in a manner that produces a composite yield which is higher than
the composite yield of the stocks in the Standard & Poor's 500 Composite
Stock Price Index (the "S&P 500 Index") and will consider the capital
appreciation potential of the securities it selects for the Fund's portfolio.
Royce Micro-Cap Portfolio
At least 80% of the assets of Royce Micro-Cap Portfolio will normally be
invested in common stocks and securities convertible into common stocks of
small and micro-sized 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 the Fund's assets may be invested
in the securities of companies with higher stock market capitalizations and
non-convertible preferred stocks and debt securities.<PAGE>
<PAGE>
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 will 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 and
have lower trading volumes than the larger capitalization stocks included in
the S&P 500 Index. Accordingly, Quest's investment method requires a
long-term investment horizon, and the Funds should not be used to play
short-term swings in the market.
Although Royce Premier Portfolio is diversified within the meaning of the
<PAGE>
Investment Company Act of 1940 (the "1940 Act"), it will normally be invested
in a limited number of securities. This Fund's relatively limited portfolio
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 Fund invests in a limited number of securities, it may be
more susceptible to any single corporate, economic, political or regulatory
occurrence than a more widely diversified fund.
In addition, Royce Micro-Cap Portfolio may invest in many 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
limited trading volumes and be subject to more abrupt or erratic market
movements than the securities of larger, more established companies or the
market averages in general, and Quest may be required to deal with only a few
market-makers when purchasing and selling these securities. Companies in
which Royce Micro-Cap Portfolio is 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, the
Fund may involve considerably more risk than a mutual fund investing in the
more liquid equity securities of larger companies traded on the New York or
American Stock Exchanges.
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 75% of its assets, invest more than 5% of its assets in the
securities of any one issuer, excluding obligations of the U.S.
Government;
(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 objectives may not be achieved.
Securities lending
Each of the Funds may lend up to 25% of its assets to qualified institutional
investors for the purpose of realizing additional income. Loans of securities
of a Fund 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.
Foreign securities
Each of the Funds may invest up to 10% of its assets in debt and/or equity
securities of foreign issuers. Foreign investments involve certain risks, such
as political or economic instability of the issuer or of the country of
issue, fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to greater
fluctuations in price than the securities of U.S. corporations, and there may
be less publicly available information about their operations. Foreign
companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors such as the Funds.
Lower-rated debt securities
Each of the Funds may also 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.
Warrants, rights
and options
Each Fund may invest up to 5% of its total assets in warrants, rights and
options.
Portfolio turnover
Although the Funds generally will seek to invest for the long term, they
retain the right to sell securities regardless of how long they have been
held. Portfolio turnover rates for the Funds 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.
<PAGE>
State insurance
restrictions
The Funds are sold to the Insurance Companies in connection with Variable
Contracts, and will seek to be available under Variable Contracts sold in a
number of jurisdictions. Certain states have regulations or guidelines
concerning concentration of investments and other investment techniques. If
applied to the Funds, the Funds may be limited in their ability to engage in
certain techniques and to manage their portfolios with the flexibility
provided herein. In order to permit a Fund to be available under Variable
Contracts sold in certain states, the Trust may make commitments for the Fund
that are more restrictive than the investment policies and limitations
described above and in the Statement of Additional Information. If the Trust
determines that such a commitment is no longer in the Fund's best interests,
the commitment may be revoked by terminating the availability of the Fund to
Variable Contract owners residing in such states.
MANAGEMENT OF
THE TRUST
Quest Advisory Corp.
is responsible for the
management of the
Funds' portfolios
The Trust's business and affairs are managed under the direction of its Board
of Trustees. Quest, the Funds' investment adviser, is responsible for the
management of the Funds' portfolios, subject to the authority of the Board of
Trustees. Quest, which was organized in 1967, is also the investment adviser
to The Royce Fund and to other investment and non-investment company
accounts. Charles M. Royce, Quest's President, Chief Investment Officer and
sole voting shareholder since 1972, is primarily responsible for supervising
Quest's investment management activities. Mr. Royce is assisted by Jack E.
Fockler, Jr. and W. Whitney George, Vice Presidents of Quest, both of whom
participate in the investment management activities, with their specific
responsibilities varying from time to time.
As compensation for its services to the Funds, Quest is entitled to receive
annual advisory fees of 1% of the average net assets of Royce Premier
Portfolio and Royce Equity Income Portfolio and 1.5% of the average net
assets of Royce Micro-Cap Portfolio. These fees are payable monthly from the
assets of the Funds involved and are higher (substantially higher in the case
of Royce Micro-Cap Portfolio) than those paid by most other mutual funds with
similar investment objectives.
Quest will select the brokers who will execute the purchases and sales of the
Funds' portfolio securities and may place orders with brokers who provide
brokerage and research services to Quest. Quest 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.
From time to time, Quest may pay amounts to Insurance Companies or other
organizations that provide administrative services for the Funds or that
provide services relating to the Funds to owners of Variable Contracts and/or
participants in Retirement Plans. These services may include, among other
things: sub-accounting services; answering inquiries regarding the Funds;
transmitting, on behalf of the Funds, proxy statements, shareholder reports,
<PAGE>
updated prospectuses and other communications regarding the Funds; and such
other related services as the Trust, owners of Variable Contracts and/or
participants in Retirement Plans may request. The amounts of any such
payments will be determined by the nature and extent of the services provided
by the Insurance Company or other organization. Payment of such amounts by
Quest will not increase the fees paid by the Funds or their shareholders.
GENERAL
INFORMATION
Royce Capital Trust (the "Trust") is a Delaware business trust registered
with the Securities and Exchange Commission as a 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.
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, then only shareholders of
that series are entitled to vote on that matter.
Pursuant to current interpretations of the 1940 Act, the Insurance Companies
will solicit voting instructions from Variable Contract owners with respect
to any matters that are presented to a vote of shareholders and will vote all
shares held by the separate accounts in proportion to the voting instructions
received. The exercise of voting rights on shares held by Retirement Plans
will be governed by the terms of such plans. Some Retirement Plans may
pass-through voting to plan participants, while shares held by other
Retirement Plans may be voted by the trustees of the Retirement Plan or by a
named fiduciary or an investment manager. Retirement Plan participants
should consult their plan documents for information.
Each Fund sells its shares only to certain qualified retirement plans and to
variable annuity and variable life insurance separate accounts of insurance
companies that are unaffiliated with Quest and that may be unaffiliated with
one another. The Funds currently do not foresee any disadvantages to
policyowners arising out of the fact that each Fund offers its shares to such
entities. Nevertheless, the Trustees intend to monitor events in order to
identify any irreconcilable material conflicts that may arise due to future
differences in tax treatment or other considerations and to determine what
action, if any, should be taken in response to such conflicts. If a conflict
occurs, the Trustees may require one or more insurance company separate
accounts or plans to withdraw its investments in one or more of the Funds and
to substitute shares of another Fund. As a result, a Fund may be forced to
sell securities at disadvantageous prices. In addition, the Trustees may
refuse to sell shares of any Fund to any separate account or qualified plan
or may suspend or terminate the offering of shares of any Fund if such action
is required by law or regulatory authority or is deemed by the Trust to be in
the best interests of the shareholders of the Fund.
<PAGE>
The custodian for the portfolio 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.
DIVIDENDS,
DISTRIBUTIONS
AND
TAXES
Royce Equity Income Portfolio will pay quarterly dividends from net
investment income. Royce Premier and Micro-Cap Portfolios will pay dividends
from their net investment income (if any) annually in December. Each Fund
will distribute its net realized capital gains in December. Dividends and
distributions will be automatically reinvested in additional shares of the
Funds.
Each Fund intends to qualify and to remain qualified for taxation as a
"regulated investment company" under the Internal Revenue Code, so that it
will not be subject to Federal income taxes to the extent that its income is
distributed to its shareholders. In addition, each Fund intends to qualify
under the Internal Revenue Code with respect to the diversification
requirements related to the tax-deferred status of insurance company separate
accounts. By meeting these and other requirements, the participating
Insurance Companies, rather than the owners of the Variable Contracts, should
be subject to tax on distributions received with respect to Fund shares. The
tax treatment on distributions made to an Insurance Company will depend on
the Insurance Company's tax status.
Shares of the Funds may be purchased through Variable Contracts. As a
result, it is anticipated that any net investment income dividends or capital
gains distributions from a Fund will be exempt from current taxation if left
to accumulate within a Variable Contract. Dividends and distributions made
by the Funds to the Retirement Plans are not taxable to the Retirement Plans
or to the participants thereunder. The Funds will be managed without regard
to tax ramifications. Withdrawals from such Contracts may be subject to
ordinary income tax plus a 10% penalty tax if made before age 59 1/2.
The tax status of your investment in the Funds depends on the features of
your Variable Contract or Retirement Plan. For further information, please
refer to the prospectus or disclosure documents of your Variable Contract or
information provided by your Retirement Plan. Prospective investors are
encouraged to consult their tax advisers.
The above discussion is only a summary of some of the important tax
considerations generally affecting the Funds and their shareholders; see the
Statement of Additional Information for additional discussion.
<PAGE>
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 the 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 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 will be 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
will be taken from the market where the security is primarily traded. Other
over-the counter securities for which market quotations are readily available
will be valued at their bid price. Securities for which market quotations
are not readily available will be 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.
SHAREHOLDER GUIDE
The Trust will provide Insurance Companies and Retirement Plans with
information Monday through Friday, except holidays, from 9:00 a.m. to 5:00
p.m. (Eastern time). For information, prices, literature or to obtain
information regarding the availability of Fund shares or how Fund shares are
redeemed, call the Trust at 1-800-221-4268.
Purchasing and
Redeeming Shares
of the Funds
Shares of the Funds will be sold on a continuous basis to separate accounts
of Insurance Companies or to Retirement Plans. Stock certificates will not
be issued; share activity will be recorded in book entry form only. Investors
may not purchase or redeem shares of the Funds directly, but only through the
separate accounts of Insurance Companies or through qualified Retirement
Plans. You should refer to the applicable Separate Account Prospectus or
your Plan documents for information on how to purchase or surrender a
contract, make partial withdrawals of contract values, allocate contract
values to one or more of the Funds, change existing allocations among
investment alternatives, including the Funds, or select specific Funds as
investment options in a Retirement Plan. No sales charge is imposed upon the
purchase or redemption of shares of the Funds. Sales charges for the
Variable Contracts or Retirement Plans are described in the relevant Separate
Account Prospectuses or plan documents.
If the Board of Trustees determines that it would be detrimental to the best
interest of the Fund's remaining shareholders to make payment in cash, a Fund
may pay redemption proceeds in whole or in part by a distribution in kind.
<PAGE>
Fund shares are purchased or redeemed at the net asset value per share next
computed after receipt of a purchase or redemption order by a Fund's transfer
agent or an authorized service agent or sub-agent. Payment for redeemed
shares will generally be made within three business days following the date
of request for redemption. However, payment may be postponed under unusual
circumstances, such as when normal trading is not taking place on the New
York Stock Exchange, an emergency as defined by the Securities and Exchange
Commission exists or as permitted by the Securities and Exchange Commission.
Shareholder Communications
Owners of Variable Contracts and Retirement Plans and their administrators
will receive annual and semi-annual reports, including the financial
statements of the Funds that they have authorized for investment. Each
report will also show the investments owned by each Fund and the market
values thereof, as well as other information about the Funds and their
operations. The Trust's fiscal year ends December 31.
<PAGE>
Royce Capital Trust
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
Royce Capital Trust
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
Royce Premier Portfolio
Transfer Agent
State Street Bank and Trust Company Royce Equity Income Portfolio
c/o NFDS
P.O. Box 419012 Royce Micro-Cap Portfolio
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
John D. Diederich, 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
Prospectus
August 1, 1996
<PAGE>
ROYCE CAPITAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
ROYCE CAPITAL TRUST (the "Trust"), a Delaware business trust
organized in January 1996, is a professionally managed, open-end
registered investment company, which has three portfolios or
series ("Funds"). Each Fund has distinct investment objectives
and/or policies, and a shareholder's interest is limited to the
Fund in which the shareholder owns shares. The three Funds are:
Royce Premier Portfolio
Royce Equity Income Portfolio
Royce Micro-Cap Portfolio
Shares of the Funds are offered to life insurance companies
("Insurance Companies") for allocation to certain separate
accounts established for the purpose of funding qualified and non-
qualified variable annuity contracts and variable life insurance
contracts ("Variable Contracts"), and may also be offered
directly to certain pension plans and retirement plans and
accounts permitting accumulation of assets on a tax-deferred
basis ("Retirement Plans").
This Statement of Additional Information is not a
prospectus, but should be read in conjunction with the Trust's
current Prospectus dated August 1, 1996. To obtain an additional
copy of the Prospectus, please call Investor Information at 1-800-
221-4268 or contact your Insurance Company.
Investment Adviser
Quest Advisory Corp. ("Quest")
Transfer Agent Custodian
State Street Bank and Trust Company State Street Bank and Trust Company
c/o National Financial Data Services
August 1, 1996
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS 2
RISK FACTORS AND SPECIAL CONSIDERATIONS 4
MANAGEMENT OF THE TRUST 8
PRINCIPAL HOLDERS OF SHARES 10
INVESTMENT ADVISORY SERVICES 10
CUSTODIAN 11
INDEPENDENT ACCOUNTANTS 12
PORTFOLIO TRANSACTIONS 12
CODE OF ETHICS AND RELATED MATTERS 13
PRICING OF SHARES BEING OFFERED 14
REDEMPTIONS IN KIND 14
TAXATION 14
DESCRIPTION OF THE TRUST 16
PERFORMANCE DATA 18
FINANCIAL STATEMENT 23
INVESTMENT POLICIES AND LIMITATIONS
The following investment policies and limitations supplement
those set forth in the Funds' Prospectus. Unless otherwise
noted, whenever an investment policy or limitation states a
maximum percentage of a Fund's assets that may be invested in any
security or other asset or sets forth a policy regarding quality
standards, the percentage limitation or standard will be
determined immediately after giving effect to the Fund's
acquisition of the security or other asset. Accordingly, any
subsequent change in values, net assets or other circumstances
will not be considered in determining whether the investment
complies with the Fund's investment policies and limitations.
A Fund's fundamental investment policies cannot be changed
without the approval of a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940
(the "1940 Act")) of the Fund. Except for the fundamental
investment restrictions set forth below, the investment policies
and limitations described in this Statement of Additional
Information are operating policies and may be changed by the
Board of Trustees without shareholder approval. However,
shareholders will be notified prior to a material change in an
operating policy affecting their Fund.
No Fund may, as a matter of fundamental policy:
1. Issue any senior securities;
2. Purchase securities on margin or write call options on its
portfolio securities;
3. Sell securities short;
4. Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes in an amount not exceeding
5% of its assets;
5. Underwrite the securities of other issuers;
6. Invest more than 10% of its assets in the securities of
foreign issuers;
7. Invest in restricted securities or in repurchase agreements
which mature in more than seven days;
8. Invest more than 10% of its assets in securities without
readily-available market quotations (i.e., illiquid securities);
9. Invest, with respect to 75% of its assets, more than 5% of
its assets in the securities of any one issuer (except U.S.
Government securities);
10. Invest more than 25% of its assets in any one industry;
<PAGE>
11. Acquire more than 10% of the outstanding voting securities
of any one issuer;
12. Purchase or sell real estate or real estate mortgage loans
or invest in the securities of real estate companies unless
such securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other securities,
whether or not such purchases are made upon the original
issuance of such securities, and except that the Funds may
loan up to 25% of their respective assets to qualified
brokers, dealers or institutions for their use relating to
short sales or other securities transactions (provided that
such loans are fully collateralized at all times);
15. Invest in companies for the purpose of exercising control of
management; or
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers, employees or
investment adviser, as principal for their own accounts.
No Fund may, as a matter of operating policy:
1. Invest more than 5% of its assets in
securities of unseasoned issuers, including their
predecessors, which have been in operation for
less than three years;
2. Invest in oil, gas or other mineral
leases or development programs;
3. Invest more than 5% of its net assets in
lower-rated (high-risk) non-convertible debt
securities;
4. Enter into repurchase agreements with
any party other than the custodian of its assets;
5. Invest more than 2% of its net assets, valued at
the lower of cost or market, in warrants that are not
listed on the New York or American Stock Exchanges; or
6. Invest more than 5% of its total assets
in warrants, rights and options.
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Funds' Rights as Stockholders
As noted above, no Fund may invest in a company for the
purpose of exercising control of management. However, a Fund may
exercise its rights as a stockholder and communicate its views on
important matters of policy to management, the board of directors
and/or stockholders if Quest or the Board of Trustees determine
that such matters could have a significant effect on the value of
the Fund's investment in the company. The activities that a Fund
may engage in, either individually or in conjunction with others,
may include, among others, supporting or opposing proposed
changes in a company's corporate structure or business
activities; seeking changes in a company's board of directors or
management; seeking changes in a company's direction or policies;
seeking the sale or reorganization of a company or a portion of
its assets; or supporting or opposing third party takeover
attempts. This area of corporate activity is increasingly prone
to litigation, and it is possible that a Fund could be involved
in lawsuits related to such activities. Quest will monitor such
activities with a view to mitigating, to the extent possible, the
risk of litigation against the Funds and the risk of actual
liability if a Fund is involved in litigation. However, no
guarantee can be made that litigation against a Fund will not be
undertaken or liabilities incurred.
A Fund may, at its expense or in conjunction with others,
pursue litigation or otherwise exercise its rights as a security
holder to seek to protect the interests of security holders if
Quest and the Trust's Board of Trustees determine this to be in
the best interests of a Fund's shareholders.
Securities Lending
The Funds may lend up to 25% of their respective assets to
brokers, dealers and other financial institutions. Securities
lending allows a Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since
there may be delays in the recovery of loaned securities or even
a loss of rights in collateral supplied should the borrower fail
financially, loans will be made only to parties that participate
in a Global Securities Lending Program monitored by the Funds'
custodian and who are deemed by it to be of good standing.
Furthermore, such loans will be made only if, in Quest's
judgment, the consideration to be earned from such loans would
justify the risk.
Quest understands that it is the current view of the staff
of the Securities and Exchange Commission that a Fund may engage
in such loan transactions only under the following conditions:
(i) the Fund must receive 100% collateral in the form of cash or
cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (ii) the borrower must increase the collateral whenever
the market value of the securities loaned (determined on a daily
basis) rises above the value of the collateral; (iii) after
giving notice, the Fund must be able to terminate the loan at any
time; (iv) the Fund must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to
any dividends, interest or other distributions on the securities
loaned and to any increase in market value; (v) the Fund may pay
only reasonable custodian fees in connection with the loan; and
(vi) the Fund must be able to vote proxies on the securities
loaned, either by terminating the loan or by entering into an
alternative arrangement with the borrower.
<PAGE>
Lower-Rated (High-Risk) Debt Securities
Each Fund may invest up to 5% of its net assets in lower-
rated (high-risk) non-convertible debt securities. They may be
rated from Ba to Ca by Moody's Investors Service, Inc. or from BB
to D by Standard & Poor's Corporation or may be unrated. These
securities have poor protection with respect to the payment of
interest and repayment of principal and may be in default as to
the payment of principal or interest. These securities are often
considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay.
The market prices of lower-rated (high-risk) debt securities may
fluctuate more than those of higher-rated debt securities and may
decline significantly in periods of general economic difficulty,
which may follow periods of rising interest rates.
While the market for lower-rated (high-risk) corporate debt
securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic
increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods
of economic recession. In fact, from 1989 to 1991, the
percentage of lower-rated (high-risk) debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may
be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the
former are sold. If market quotations cease to be readily
available for a lower-rated (high-risk) debt security in which a
Fund has invested, the security will then be valued in accordance
with procedures established by the Board of Trustees. Judgment
plays a greater role in valuing lower-rated (high-risk) debt
securities than is the case for securities for which more
external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions
may affect a Fund's ability to dispose of lower-rated (high-risk)
debt securities.
Since the risk of default is higher for lower-rated (high-
risk) debt securities, Quest's research and credit analysis may
play an important part in managing securities of this type for
the Funds. In considering such investments for the Funds, Quest
will attempt to identify those issuers of lower-rated (high-risk)
debt securities whose financial condition is adequate to meet
future obligations, has improved or is expected to improve in the
future. Quest's analysis may focus on relative values based on
such factors as interest or dividend coverage, asset coverage,
earnings prospects and the experience and managerial strength of
the issuer.
Foreign Investments
Each Fund may invest up to 10% of its assets in the
securities of foreign issuers. Foreign investments can involve
significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in or indexed to
foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets
can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to
obtain reliable information regarding an
<PAGE>
issuer's financial
condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than
U.S. markets. Foreign issuers, brokers and securities markets
may be subject to less government supervision. Foreign security
trading practices, including those involving the release of
assets in advance of payment, may involve increased risks in the
event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to
enforce legal rights in foreign countries.
Investing abroad also involves different political and
economic risks. Foreign investments may be affected by actions
of foreign governments adverse to the interests of U.S.
investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on
U.S. investment or on the ability to repatriate assets or convert
currency into U.S. dollars or other government intervention.
There may be a greater possibility of default by foreign
governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local
political, economic or social instability, military action or
unrest or adverse diplomatic developments. There is no assurance
that Quest will be able to anticipate these potential events or
counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may
have relatively unstable governments, economies based on
only a few industries and securities markets that trade a small
number of securities.
American Depositary Receipts ("ADRs") are certificates held
in trust by a bank or similar financial institution evidencing
ownership of securities 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.
ADR facilities may be established as either unsponsored or
sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the
practices of market participants. A depository may establish an
unsponsored facility without participation by (or even
necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depository requests a letter
of non-objection from such issuer prior to the establishment of
the facility. Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depository usually charges fees
upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-
cash distributions and the performance of other services. The
depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities.
Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the
deposited securities enters into a deposit agreement with the
depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited
securities generally will bear some of the costs relating to the
facility (such as deposit and withdrawal fees).
<PAGE>
Under the terms
of most sponsored arrangements, depositories agree to distribute
notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the
ADR holders at the request of the issuer of the deposited
securities.
Repurchase Agreements
In a repurchase agreement, a Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell
that security to the seller at an agreed upon price on an agreed
upon date within a number of days (usually not more than seven)
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the
agreed upon resale price and marked to market daily) of the
underlying security.
The Funds may engage in repurchase agreements with respect
to any U.S. Government security. While it does not presently
appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to a Fund
in connection with bankruptcy proceedings), it is the policy of
the Trust to enter into repurchase agreements only with its
custodian, State Street Bank and Trust Company, and having a term
of seven days or less.
Warrants, Rights and Options
The Funds may invest up to 5% of their assets in warrants,
rights and options. A warrant, right or call option entitles the
holder to purchase a given security within a specified period for
a specified price and does not represent an ownership interest.
A put option gives the holder the right to sell a particular
security at a specified price during the term of the option.
These securities have no voting rights, pay no dividends and have
no liquidation rights. In addition, their market prices do not
necessarily move parallel to the market prices of the underlying
securities.
The sale of warrants, rights or options held for more than
one year generally results in a long-term capital gain or loss to
the Fund, and the sale of warrants, rights or options held for
one year or less generally results in a short term capital gain
or loss. The holding period for securities acquired upon
exercise of a warrant, right or call option, however, generally
begins on the day after the date of exercise, regardless of how
long the warrant, right or option was held. The securities
underlying warrants, rights and options could include shares of
common stock of a single company or securities market indices
representing shares of the common stocks of a group of companies,
such as the S & P 600, an unmanaged market-weighted index.
Investing in warrants, rights and call options on a given
security allow the Fund to hold an interest in that security
without having to commit assets equal to the market price of the
underlying security and, in the case of securities market
indices, to participate in a market without having to purchase
all of the securities comprising the index. Put options, whether
on shares of common stock of a single company or on a securities
market index, would permit the Fund to protect the value of a
portfolio security against a decline in its market price and/or
to benefit
<PAGE>
from an anticipated decline in the market price of a
given security or of a market. Thus, investing in warrants,
rights and options permits the Fund to incur additional risk
and/or to hedge against risk.
* * *
Quest believes that Royce Micro-Cap Portfolio is suitable
for investment only by persons who can invest without concern for
income, and that such Fund and Royce Premier Portfolio are
suitable for those who are in a financial position to assume
above-average investment risks in search for long-term capital
appreciation.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to
each Trustee and officer of the Trust:
Position
Name, Address and Held Principal Occupations During
Age with the Past 5 Years
Trust
Charles M. Royce* Trustee, President, Secretary, Treasurer
(56) President and sole director and sole
1414 Avenue of and voting shareholder of Quest
the Americas Treasurer Advisory Corp. ("Quest"), the
New York, NY Trust's investment adviser;
10019 Trustee, President and Treasurer
of The Royce Fund ("TRF"), an
open-end diversified management
investment company of which
Quest is the principal
investment adviser; Director,
President and Treasurer of Royce
Value Trust, Inc. ("RVT") and,
since September 1993, Royce
Micro-Cap Trust, Inc. ("OTCM"),
closed-end diversified
management investment companies
of which Quest is the investment
adviser (TRF, RVT and OTCM
collectively, "The Royce
Funds"); Secretary and sole
director and shareholder of
Quest Distributors, Inc.
("QDI"), the distributor of
TRF's shares; and managing
general partner of Quest
Management Company ("QMC"), a
registered investment adviser,
and its predecessor.
Richard M. Galkin Trustee Private investor and president
(58) of Richard M. Galkin Associates,
5284 Boca Marina Inc., tele-communications
Circle South consultants.
Boca Raton, FL
33487
<PAGE>
Position
Name, Address and Held Principal Occupations During
Age with the Past 5 Years
Trust
Stephen L. Isaacs Trustee Director of Columbia University
(56) Development Law and Policy
60 Haven Street, Program; Professor at Columbia
Fl. B-2 University; and President of
New York, NY Stephen L. Isaacs Associates,
10032 Consultants.
David L. Meister Trustee Consultant to the communications
(56) industry since January 1993;
111 Marquez Place Executive officer of Digital
Pacific Planet Inc. from April 1991 to
Palisades, CA December 1992.
90272
W. Whitney Trustee Vice President (since August
George* (37) and Vice 1993) and senior analyst of
1414 Avenue of President Quest, having been employed by
the Americas Quest since October 1991; Vice
New York, NY President of The Royce Funds
10019 since April 1995; and general
partner of QMC and its
predecessor since January 1992.
John D. Diederich Vice Director of Operations of TRF
(45) President and RVT since April 1993; and of
1414 Avenue of OTCM since September 1993;
the President of QDI since November
Americas 1995; and President of Fund/Plan
New York, NY Services, Inc. from January 1988
10019 to December 1992.
Jack E. Fockler, Vice Vice President (since August
Jr.* (37) President 1993) and senior associate of
1414 Avenue of Quest, having been employed by
the Quest since October 1989; Vice
Americas President of The Royce Funds
New York, NY since April 1995; Vice President
10019 of QDI since November 1995; and
general partner of QMC since
July 1993.
Daniel A. Vice Vice President of Quest since
O'Byrne* (34) President May 1994, having been employed
1414 Avenue of and by Quest since October 1986; and
the Assistant Vice President of The Royce
Americas Secretary Funds since July 1994.
New York, NY
10019
John E. Denneen* Secretary Associate General Counsel and
(29) Chief Compliance Officer of
1414 Avenue of Quest since May 1996; Secretary
the of The Royce Funds since June
Americas 1996; and Associate of Seward &
New York, NY Kissel from September 1992 to
10019 May 1996.
________________________________
*An "interested person" under Section 2(a)(19) of the 1940
Act.
<PAGE>
All of the Trust's Trustees except W. Whitney George are
also trustees of TRF and directors of RVT and OTCM.
The Board of Trustees has an Audit Committee, comprised of
Richard M. Galkin, Stephen L. Isaacs and David L. Meister. The
Audit Committee is responsible for the selection and nomination
of independent auditors for the Funds and for conducting post-
audit reviews of their financial conditions with such auditors.
For the year ended December 31, 1995, the following Trustees
received compensation from the Trust and the other funds in the
group of registered investment companies comprising The Royce
Funds for services as a trustee/director on such funds' Boards:
Aggregate Compensation Total Compensation
Name from Trust from The Royce Funds
Richard M. Galkin $- 0 - $60,000
Stephen L. Isaacs $- 0 - $60,000
David L. Meister $- 0 - $60,000
Each of the non-affiliated Trustees will receive a fee of $500
per year for serving on the Trust's Board of Trustees.
PRINCIPAL HOLDERS OF SHARES
As of July 26,1996, Quest Advisory Corp. Money Purchase Pension
Plan owned of record 40,000 shares of the Trust, consisting of
20,000 shares of Royce Premier Portfolio and 20,000 shares of
Royce Micro-Cap Portfolio representing 100% of the Trust's then
outstanding shares. All of these shares were beneficially owned
by Charles M. Royce.
INVESTMENT ADVISORY SERVICES
Services Provided by Quest
As compensation for its services under its Investment Advisory
Agreement with the Trust, Quest is entitled to receive the
following fees:
Fund Percentage Per Annum of Fund's Average
Net Assets
Royce Premier Portfolio 1.00%
Royce Equity Income Portfolio 1.00%
Royce Micro-Cap Portfolio 1.50%
Such fees, which are payable monthly from the assets of the Fund
involved, are higher
<PAGE>
(substantially higher in the case of Royce
Micro-Cap Portfolio) than those paid by most other mutual funds
with similar investment objectives.
Under the Investment Advisory Agreement, Quest (i)
determines the composition of each Fund's portfolio, the nature
and timing of the changes in it and the manner of implementing
such changes, subject to any directions it may receive from the
Trust's Board of Trustees; (ii) provides each Fund with
investment advisory, research and related services for the
investment of its funds; (iii) furnishes, without expense to the
Trust, the services of such of its executive officers and full-
time employees as may be duly elected executive officers or
Trustees of the Trust; and (iv) pays any additional expenses
incurred by the Trust in connection with promoting the sale of
its shares and all expenses incurred in performing its investment
advisory duties under the Investment Advisory Agreement.
The Trust pays all administrative and other costs and
expenses attributable to its operations and transactions,
including, without limitation, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office
space and facilities; auditing; preparation, printing and
distribution of its prospectuses to existing shareholders, proxy
statements, shareholders reports and notices; supplies and
postage; Federal and state registration fees; Federal, state and
local taxes; non-affiliated Trustees' fees; and brokerage
commissions.
Portfolio Management
The Funds' portfolios and the portfolios of Quest's other
accounts are managed by Quest's senior investment staff,
including Charles M. Royce, Quest's Chief Investment Officer, who
is primarily responsible for supervising its investment
management activities. Mr. Royce is assisted by Jack E. Fockler,
Jr. and W. Whitney George, Vice Presidents of Quest, each of whom
participate in such activities, with their specific
responsibilities varying from time to time. In the event of any
significant change in Quest's senior investment staff, the
members of the Trust's Board of Trustees who are not interested
persons of the Trust will consider what action, if any, should be
taken in connection with the Trust's management arrangements.
Certain information concerning Messrs. Royce, Fockler and
George is set forth above under "MANAGEMENT OF THE TRUST".
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the
custodian for the securities, cash and other assets of each Fund
and the transfer agent and dividend disbursing agent for the
shares of each Fund, but it does not participate in any Fund's
investment decisions. The Trust has authorized State Street to
deposit certain domestic and foreign portfolio securities in
several central depository systems and to use foreign sub-
custodians for certain foreign portfolio securities, as allowed
by Federal law. State Street's main office is at 225 Franklin
Street, Boston, Massachusetts 02107. All mutual fund transfer,
dividend disbursing and shareholder service activities are
performed by State Street's agent, National Financial Data
Services, at 1004 Baltimore, Kansas City, Missouri 64105.
<PAGE>
State Street is responsible for the calculation of each
Fund's daily net asset value per share and for the maintenance of
its portfolio and general accounting records and also provides
certain shareholder services.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., whose address is One Post Office
Square, Boston, Massachusetts, 02109, are the independent
accountants of the Trust. The balance sheets of the Funds
included in the Statement of Additional Information have been
examined by Coopers & Lybrand L.L.P., as set forth in their
report with respect thereto and are included in reliance upon
such report and upon the authority of such firm as experts in
accounting and auditing.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect
the purchases and sales of each Fund's portfolio securities. No
broker is selected to effect a securities transaction for a Fund
unless such broker is believed by Quest to be capable of
obtaining the best price and execution for the security involved
in the transaction. In addition to considering a broker's
execution capability, Quest generally considers the brokerage and
research services which the broker has provided to it, including
any research relating to the security involved in the transaction
and/or to other securities. Such services may include general
economic research, market and statistical information, industry
and technical research, strategy and company research, and may be
written or oral. Quest determines the overall reasonableness of
brokerage commissions paid, after considering the amount another
broker might have charged for effecting the transaction and the
value placed by Quest upon the brokerage and/or research services
provided by such broker, viewed in terms of either that
particular transaction or Quest's overall responsibilities with
respect to its accounts.
Quest is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement
with the Trust, to pay a brokerage commission in excess of that
which another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and
research services provided by the broker.
Brokerage and research services furnished by brokers through
whom a Fund effects securities transactions may be used by Quest
in servicing all of its accounts and those of QMC, and not all of
such services may be used by Quest in connection with the Trust
or any one of its Funds.
Consistent with achieving the best price and execution,
Quest may also consider sales by a broker-dealer of Variable
Contracts that permit allocation of contract value to one or more
of the Funds as a factor in the selection of broker-dealers to
execute portfolio transactions for the Funds. In no event will a
Fund's brokerage business be placed with QDI.
Even though investment decisions for each Fund are made
the other Funds and the other independently from those for
<PAGE>
accounts managed by Quest and QMC, securities of the same issuer
are frequently purchased, held or sold by more than one Quest/QMC
account because the same security may be suitable for all of
them. When the same security is being purchased or sold for more
than one Quest/QMC account on the same trading day, Quest seeks
to average the transactions as to price and allocate them as to
amount in a manner believed to be equitable to each. Such
purchases and sales of the same security are generally effected
pursuant to Quest/QMC's Trade Allocation Guidelines and
Procedures. Under such Guidelines and Procedures, unallocated
orders are placed with and executed by broker-dealers during the
trading day. The securities purchased or sold in such
transactions are then allocated to one or more of Quest's and
QMC's accounts at or shortly following the close of trading,
using the average net price obtained. Such allocations are done
based on a number of judgmental factors that Quest and QMC
believe should result in fair and equitable treatment to those of
their accounts for which the securities may be deemed suitable.
In some cases, this procedure may adversely affect the price paid
or received by a Fund or the size of the position obtainable for
a Fund.
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI, QMC and The Royce Funds have adopted a Code of
Ethics under which directors, officers, employees and partners of
Quest, QDI and QMC ("Quest-related persons") and interested
trustees/directors, officers and employees of The Royce Funds are
prohibited from personal trading in any security which is then
being purchased or sold or considered for purchase or sale by a
Royce Fund or any other Quest or QMC account. Such persons are
permitted to engage in other personal securities transactions if
(i) the securities involved are United States Government debt
securities, municipal debt securities, money market instruments,
shares of affiliated or non-affiliated registered open-end
investment companies or shares acquired from an issuer in a
rights offering or under an automatic dividend reinvestment plan
or employer-sponsored automatic payroll deduction cash purchase
plan or (ii) they first obtain permission to trade from Quest's
Compliance Officer and an executive officer of Quest. The Code
contains standards for the granting of such permission, and it is
expected that permission to trade will be granted only in a
limited number of instances.
Quest's and QMC's clients include several private investment
companies in which Quest or QMC has (and, therefore, Charles M.
Royce, Jack E. Fockler, Jr. and/or W. Whitney George may be
deemed to beneficially own) a share of up to 15% of the company's
realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests.
The Code of Ethics does not restrict transactions effected by
Quest or QMC for such private investment company accounts.
Transactions for such private investment company accounts are
subject to Quest's and QMC's allocation policies and procedures.
See "Portfolio Transactions".
As of June 30, 1996, Quest-related persons, interested
trustees/directors, officers and employees of The Royce Funds and
members of their immediate families beneficially owned shares of
The Royce Funds having a total value of approximately $ 22.4
million, and Quest's and QMC's equity interests in such private
investment companies totalled approximately $3.5 million.
<PAGE>
PRICING OF SHARES BEING OFFERED
The purchase and redemption price of each Fund's shares is
based on the Fund's current net asset value per share. See "Net
Asset Value Per Share" in the Funds' Prospectus.
As set forth under "Net Asset Value Per Share", the Funds'
custodian determines the net asset value per share of each Fund
at the close of regular trading on the New York Stock Exchange on
each day that the Exchange is open. The Exchange is open on all
weekdays which are not holidays. Thus, it is closed on Saturdays
and Sundays and on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
REDEMPTIONS IN KIND
It is possible that conditions may arise in the future which
would, in the judgment of the Board of Trustees or management,
make it undesirable for a Fund to pay for all redemptions in
cash. In such cases, payment may be made in portfolio securities
or other property of the Fund. However, the Trust has obligated
itself under the 1940 Act to redeem for cash all shares presented
for redemption by any one shareholder up to $250,000 (or 1% of
the Fund's net assets if that is less) in any 90-day period.
Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value
per share for purposes of such redemption. Shareholders
receiving such securities would incur brokerage costs when these
securities are sold.
TAXATION
Shares of the Funds are offered to separate accounts of
Insurance Companies that fund Variable Contracts and may be
offered to certain Retirement Plans, which are pension plans and
retirement arrangements and accounts permitting the accumulation
of funds on a tax-deferred basis. See the disclosure documents
for the Variable Contracts or the plan documents for the
Retirement Plans for a discussion of the special taxation of
insurance companies with respect to the separate accounts and the
Variable Contracts, and the holders thereof, or the special
taxation of Retirement Plans and the participants therein.
Each Fund intends to qualify and to remain qualified each
year for the tax treatment applicable to a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). To so qualify, a Fund must comply with
certain requirements of the Code relating to, among other things,
the source of its income and the diversification of its assets.
As a regulated investment company, a Fund will not be
subject to Federal income tax on net investment income and
capital gains (short- and long-term), if any, that it distributes
to its shareholders if at least 90% of its net investment income
and net short-term capital gains for the taxable year are
distributed, but will be subject to tax at regular corporate
rates on any income
<PAGE>
or gains that are not distributed. In
general, dividends will be treated as paid when actually
distributed, except that dividends declared in October, November
or December and made payable to shareholders of record in such a
month will be treated as having been paid by the Fund (and
received by shareholders) on December 31, provided the dividend
is paid in the following January. Each Fund intends to satisfy
the distribution requirements in each taxable year.
The Funds will not be subject to the 4% Federal excise tax
imposed on registered investment companies that do not distribute
substantially all of their income and gains each calendar year
because such tax does not apply to a registered investment
company whose only shareholders are segregated asset accounts of
life insurance companies held in connection with variable annuity
and/or variable life insurance policies or Retirement Plans.
Each Fund will maintain accounts and calculate income by
reference to the U.S. dollar for U.S. Federal income tax
purposes. Investments calculated by reference to foreign
currencies will not necessarily correspond to a Fund's
distributable income and capital gains for U.S. Federal income
tax purposes as a result of fluctuations in foreign currency
exchange rates. Furthermore, if any exchange control regulations
were to apply to a Fund's investments in foreign securities, such
regulations could restrict that Fund's ability to repatriate
investment income or the proceeds of sales of securities, which
may limit the Fund's ability to make sufficient distributions to
satisfy the 90% distribution requirements.
Income earned or received by a Fund from investments in
foreign securities may be subject to foreign withholding taxes
unless a withholding exemption is provided under an applicable
treaty. Any such taxes would reduce that Fund's cash available
for distribution to shareholders.
If a Fund invests in stock of a so-called passive foreign
investment company ("PFIC"), such Fund may be subject to Federal
income tax on a portion of any "excess distribution" with respect
to, or gain from the disposition of, such stock. The tax would
be determined by allocating such distribution or gain ratably to
each day of the Fund's holding period for the stock. The amount
so allocated to any taxable year of the Fund prior to the taxable
year in which the excess distribution or disposition occurs would
be taxed to the Fund at the highest marginal income tax rate in
effect for such years, and the tax would be further increased by
an interest charge. The amount allocated to the taxable year of
the distribution or disposition would be included in the Fund's
investment company taxable income and, accordingly, would not be
taxable to the Fund to the extent distributed by the Fund as a
dividend to shareholders. In lieu of being taxable in the manner
described above, such Fund may be able to elect to include
annually in income its pro rata share of the ordinary earnings
and net capital gain (whether or not distributed) of the PFIC.
In order to make this election, the Fund would be required to
obtain annual information from the PFICs in which it invests,
which in many cases may be difficult to obtain. Alternatively,
if eligible, the Fund may be able to elect to mark to market its
PFIC stock, resulting in the stock being treated as sold at fair
market value on the last business day of each taxable year. Any
resulting gain would be reported as ordinary income, and any
resulting loss would not be recognized.
Investments of a Fund in securities issued at a discount or
providing for deferred interest payments or payments of interest
in kind (which investment are subject to special tax rules under
the Code) will affect the amount, timing and character of
distributions to shareholders. For
<PAGE>
example, a Fund which
acquires securities issued at a discount will be required to
accrue as ordinary income each year a portion of the discount
(even though the Fund may not have received cash interest
payments equal to the amount included in income) and to
distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid
income taxes. In order to generate sufficient cash to make
distributions necessary to satisfy the 90% distribution
requirement and to avoid income taxes, the Fund may have to
dispose of securities that it would otherwise have continued to
hold.
Each Fund must and the Funds intend to comply with Section
817(h) of the Code and the regulations issued thereunder, which
impose certain diversification requirements on the segregated
asset accounts investing in the Funds. These requirements, which
are in addition to the diversification requirements applicable to
the Funds under the 1940 Act and under the regulated investment
company provisions of the Code, may limit the types and amounts
of securities in which the Funds may invest. Failure to meet the
requirements of Section 817(h) could result in current taxation
of the holder of the Variable Contract on the income of the
Variable Contract.
The foregoing is only a general summary of some of the
important Federal income tax considerations generally affecting
the Funds and their shareholders. No attempt is made to present
a complete explanation of the Federal tax treatment of the Funds'
activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for
Variable Contracts are not intended as a substitute for careful
tax planning. Accordingly, potential investors are urged to
consult their own tax advisers for more detailed information and
for information regarding any state, local or foreign taxes
applicable to the Variable Contracts and the holders thereof.
DESCRIPTION OF THE TRUST
Trust Organization
The Trust was established as a Delaware business trust,
effective January 11, 1996. A copy of the Trust's Certificate of
Trust is on file with the Secretary of State of Delaware, and a
copy of its Trust Instrument, its principal governing document,
is available for inspection by shareholders at the Trust's office
in New York, New York.
The Trust has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited
number of series and/or classes without shareholder approval.
(The Trust presently has three series, each of which has only one
class of shares.) These shares are entitled to one vote per
share (with proportional voting for fractional shares) on such
matters as shareholders are entitled to vote. Shares vote by
individual series, except as otherwise required by the 1940 Act
or when the Trustees determine that the matter affects
shareholders of more than one series.
There will normally be no meeting of shareholders for the
purpose of electing Trustees unless and until such time as less
than a majority of the current five Trustees remain in office, at
which time the Trustees then in office will call a shareholders
meeting for the election of trustees. In addition, Trustees may
be removed from office by written consents signed by the
<PAGE>
holders
of 66 2/3% of the outstanding shares of the Trust and filed with
the Trust's custodian or by a vote of the holders of 66 2/3% of
the outstanding shares of the Trust at a meeting duly called for
the purpose, which meeting will be held upon the written request
of the holders of at least 10% of the Trust's outstanding shares.
Upon the written request by 10 or more shareholders of the Trust,
who have been shareholders for at least 6 months and who hold
shares constituting at least 1% of the Trust's outstanding
shares, stating that such shareholders wish to communicate with
the Trust's other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider the removal
of a Trustee, the Trust is required to provide a lists of its
shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders). Except as provided
above the Trustees may continue to hold office and appoint their
successors.
Shares are freely transferable, are entitled to
distributions as declared by the Trustees and, in liquidation of
the Trust, are entitled to receive the net assets of their
series. Shareholders have no preemptive rights. The Trust's
fiscal year ends on December 31.
The separate accounts of Insurance Companies and the
trustees of qualified plans invested in the Funds, rather than
individual contract owners or plan participants, are the
shareholders of the Funds. However, each Insurance Company or
qualified plan will vote such shares as required by law and
interpretations thereof, as amended or changed from time to time.
Under current law, an Insurance Company is required to request
voting instructions from its contract owners and must vote Fund
shares held by each of its separate accounts in proportion to the
voting instructions received. Additional information about voting
procedures is contained in the applicable separate account
prospectuses.
Shareholder Liability
Generally, Trust shareholders will not be personally liable
for the obligations of the Trust under Delaware law. The
Delaware Business Trust Act provides that a shareholder of a
Delaware business trust is entitled to the same limited liability
extended to stockholders of private corporations for profit
organized under the Delaware General Corporation Law. No similar
statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the
extent that the Trust or a shareholder of the Trust is subject to
the jurisdiction of courts in those states, the courts may not
apply Delaware law and may thereby subject the Trust's
shareholders to liability. To guard against this possibility,
the Trust Instrument (i) requires that every written obligation
of the Trust contain a statement that such obligation may be
enforced only against the Trust's assets (however, the omission
of this disclaimer will not operate to create personal liability
for any shareholder); and (ii) provides for indemnification out
of a Fund's property of any Fund shareholder held personally
liable for the Fund's obligations. Thus, the risk of a Fund
shareholder incurring financial loss beyond its investment
because of shareholder liability is limited to circumstances in
which: (i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the
Fund itself would be unable to meet its obligations. In light of
Delaware law, the nature of the Trust's business and the nature
of its assets, management believes that the risk of personal
liability to a shareholder is extremely remote.
<PAGE>
PERFORMANCE DATA
The Funds' performances may be quoted in various ways. All
performance information supplied for the Funds will be historical
and is not intended to indicate future returns. Each Fund's
share price and total returns fluctuate in response to market
conditions and other factors, and the value of a Fund's shares
when redeemed may be more or less than their original cost. The
Funds' performance figures do not reflect expenses of the
separate accounts of Insurance Companies, expenses imposed under
the Variable Contracts or expenses imposed by the Retirement
Plans.
Total Return Calculations
Total returns quoted will reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value
per share (NAV) over a stated period. Average annual total
returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the
rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years
would produce an average annual total return of 7.18%, which is
the steady annual rate of return that would equal 100% growth on
a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance
is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as
opposed to the actual year-to-year performance of the Fund.
In addition to average annual total returns, a Fund's
unaveraged or cumulative total returns, reflecting the simple
change in value of an investment over a stated period, may be
quoted. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments or a
series of redemptions, over any time period. Total returns may
be broken down into their components of income and capital
(including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their
contributions to total return. Total returns and other
performance information may be quoted numerically or in a table,
graph or similar illustration.
Comparative Results
The Funds total returns may be compared to the records of
various indices of securities prices over the same periods,
including the Standard & Poor's 500 Composite Stock Price Index
(S&P 500) the Standard & Poor's SmallCap 600 Stock Price Index
(S&P 600) and the Russell 2000 Index (Russell 2000).
The S&P 500 is an unmanaged index of common stocks
frequently used as a general measure of stock market performance.
The Index's performance figures reflect changes of market prices
and quarterly reinvestment of all distributions.
The S&P 600 is an unmanaged market-weighted index consisting
of 600 domestic stocks chosen for market size, liquidity and
industry group representation. As of December 31, 1995,
<PAGE>
the weighted mean market value of a company in this Index was
approximately $640 million.
The Russell 2000, prepared by the Frank Russell Company,
tracks the return of the common stocks of the 2,000 smallest out
of the 3,000 largest publicly-traded U.S.-domiciled companies by
market capitalization. The Russell 2000 tracks the return on
these stocks based on price appreciation or depreciation and
includes dividends.
The Funds have the ability to invest in securities not
included in these indices, and their investment portfolios may or
may not be similar in composition to the indices. Figures for
the indices are based on the prices of unmanaged groups of
stocks, and unlike the Funds, their returns do not include the
effect of paying brokerage commissions and the other costs and
expenses of investing in a mutual fund.
The Funds' performances may be compared in advertisements to
the performance of other mutual funds in general or to the
performance of particular types of mutual funds, especially those
with similar investment objectives. Such comparisons may be
expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. ("Lipper"), an independent service that monitors
the performance of registered investment companies.
Money market funds and municipal funds are not included in
the Lipper survey. The Lipper performance analysis ranks funds
on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees
payable by shareholders into consideration and is prepared
without regard to tax consequences.
The Lipper General Equity Funds Average can be used to show
how the Funds' performances compare to a broad-based set of
equity funds. The Lipper General Equity Funds Average is an
average of the total returns of all equity funds (excluding
international funds and funds that specialize in particular
industries or types of investments) tracked by Lipper. As of
December 31, 1995, the average included 181 capital appreciation
funds, 654 growth funds, 355 small company growth funds, 495
growth and income funds and 146 equity income funds. Capital
appreciation, growth and small company growth funds usually
invest principally in common stocks, with long-term growth as a
primary goal. Growth and income and equity income funds tend to
be more conservative in nature and usually invest in a
combination of common stocks, bonds, preferred stocks and other
income-producing securities. Growth and income and equity income
funds generally seek to provide their shareholders with current
income as well as growth of capital, unlike growth funds which
may not produce income.
Ibbotson Associates (Ibbotson) provides historical returns
of the capital markets in the United States. The Funds'
performance may be compared to the long-term performance of the
U.S. capital markets in order to demonstrate general long-term
risk versus reward investment scenarios. Performance comparisons
could also include the value of a hypothetical investment in
common stocks, long-term bonds or U.S. Treasury securities.
Ibbotson calculates total returns in the same manner as the
Funds.
The capital markets tracked by Ibbotson are common stocks,
small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds,
U.S. Treasury bills and the U.S. rate of inflation. These
capital markets are based on the returns of several different
<PAGE>
indices. For common stocks, the S&P 500 is used. For small
capitalization stocks, return is based on the return achieved by
Dimensional Fund Advisors (DFA) Small Company Fund. This fund is
a market-value-weighted index of the ninth and tenth deciles of
the New York Stock Exchange (NYSE), plus stocks listed on the
American Stock Exchange (AMEX) and over-the-counter (OTC) with
the same or less capitalization as the upper bound of the NYSE
ninth decile. As of December 31, 1995, DFA contained
approximately 2,700 stocks, with a median market capitalization
of about $102 million.
U.S. Treasury bonds are securities backed by the credit and
taxing power of the U.S. government and, therefore, present
virtually no risk of default. Although such government
securities fluctuate in price, they are highly liquid and may be
purchased and sold with relatively small transaction costs
(direct purchase of U.S. Treasury securities can be made with no
transaction costs). Returns on intermediate-term government
bonds are based on a one-bond portfolio constructed each year,
containing a bond that is the shortest non-callable bond
available with a maturity of not less than five years. This bond
is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio
constructed each year, containing a bond that meets several
criteria, including having a term of approximately 20 years. The
bond is held for the calendar year and returns are recorded.
Returns on U.S. Treasury bills are based on a one-bill portfolio
constructed each month, containing the shortest term bill having
not less than one month to maturity. The total return on the
bill is the month-end price divided by the previous month-end
price, minus one. Data up to 1976 is from the U.S. Government
Bond file at the University of Chicago's Center for Research in
Security Prices; The Wall Street Journal is the source
thereafter. Inflation rates are based on the Consumer Price
Index.
Quest may, from time to time, compare the performance of
common stocks, especially small capitalization stocks, to the
performance of other forms of investment over periods of time.
From time to time, in reports and promotional literature,
the Funds' performances also may be compared to other mutual
funds tracked by financial or business publications and
periodicals, such as The BARDS Report, KIPLINGER's, INDIVIDUAL
INVESTOR, MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL
TIMES, FORTUNE, MUTUAL FUNDS MAGAZINE and THE WALL STREET
JOURNAL. In addition, financial or business publications and
periodicals, as they relate to fund management, investment
philosophy and investment techniques, may be quoted.
Morningstar, Inc.'s proprietary risk ratings may be quoted
in advertising materials. For the three years ended December 31,
1995, the average risk score for the 1,394 equity funds rated by
Morningstar with a three-year history was 1.00; the average risk
score for the 171 small company funds rated by Morningstar with a
three-year history was 1.04; and the average risk score for the
67 equity income funds rated by Morningstar with a three-year
history was 0.62.
The Funds' performances may also be compared to those of
other compilations or indices.
Advertising for the Funds may contain examples of the
effects of periodic investment plans, including the principle of
dollar cost averaging. In such a program, an investor invests a
fixed dollar amount in a fund at periodic intervals, thereby
purchasing fewer shares when prices
<PAGE>
are high and more shares when
prices are low. While such a strategy does not assure a profit
or guard against loss in a declining market, the investor's
average cost per share can be lower than if fixed numbers of
shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue
purchasing shares during periods of low price levels.
Risk Measurements
Quantitative measures of "total risk," which quantify the
total variability of a portfolio's returns around or below its
average return, may be used in advertisements and in
communications with current and prospective shareholders. These
measures include standard deviation of total return and the
Morningstar risk statistic. Such communications may also include
market risk measures, such as beta, and risk-adjusted measures of
performance, such as the Sharpe Ratio, Treynor Ratio, Jensen's
Alpha and Morningstar's star rating system.
Standard Deviation. The risk associated with a fund or
portfolio can be viewed as the volatility of its returns,
measured by the standard deviation of those returns. For
example, a fund's historical risk could be measured by computing
the standard deviation of its monthly total returns over some
prior period, such as three years. The larger the standard
deviation of monthly returns, the more volatile - i.e., spread
out around the fund's average monthly total return, the fund's
monthly total returns have been over the prior period. Standard
deviation of total return can be calculated for funds having
different objectives, ranging from equity funds to fixed income
funds, and can be measured over different time frames. The
standard deviation figures presented would be annualized
statistics based on the trailing 36 monthly returns.
Approximately 68% of the time, the annual total return of a fund
will differ from its mean annual total return by no more than
plus or minus the standard deviation figure. 95% of the time, a
fund's annual total return will be within a range of plus or
minus 2x the standard deviation from its mean annual total
return.
Beta. Beta measures the sensitivity of a security's or
portfolio's returns to the market's returns. It measures the
relationship between a fund's excess return (over 3-month T-
bills) and the excess return of the benchmark index (S&P 500 for
domestic equity funds). The market's beta is by definition equal
to 1. Portfolios with betas greater than 1 are more volatile than
the market, and portfolios with betas less than 1 are less
volatile than the market. For example, if a portfolio has a beta
of 2, a 10% market excess return would be expected to result in a
20% portfolio excess return, and a 10% market loss would be
expected to result in a 20% portfolio loss (excluding the effects
of any firm-specific risk that has not been eliminated through
diversification).
Morningstar Risk. The Morningstar proprietary risk
statistic evaluates a fund's downside volatility relative to that
of other funds in its class based on the under-performances of
the fund relative to the riskless T-bill return. It then
compares this statistic to those of other funds in the same broad
investment class.
Sharpe Ratio. Also known as the Reward-to-Variability
Ratio, this is the ratio of a fund's average return in excess of
the risk-free rate of return ("average excess return") to the
standard deviation of the fund's excess returns. It measures the
returns earned in excess of those that could have been earned on
<PAGE>
a riskless investment per unit of total risk assumed.
Treynor Ratio. Also known as the Reward-to-Volatility
Ratio, this is the ratio of a fund's average excess return to the
fund's beta. It measures the returns earned in excess of those
that could have been earned on a riskless investment per unit of
market risk assumed. Unlike the Sharpe Ratio, the Treynor Ratio
uses market risk (beta), rather than total risk (standard
deviation), as the measure of risk.
Jensen's Alpha. This is the difference between a fund's
actual returns and those that could have been earned on a
benchmark portfolio with the same amount of risk - i.e., the same
beta, as the portfolio. Jensen's Alpha measures the ability of
active management to increase returns above those that are purely
a reward for bearing market risk.
Morningstar Star Ratings. Morningstar, Inc. is a mutual fund
rating service that rates mutual funds on the basis of risk-
adjusted performance. Ratings may change monthly. Funds with at
least three years of performance history are assigned ratings
from one star (lowest) to five stars (highest). Morningstar
ratings are calculated from the funds' three-, five- and ten-year
average annual returns (when available). Funds' returns are
adjusted for fees and sales loads. Ten percent of the funds in an
investment category receive five stars, 22.5% receive four stars,
35% receive three stars, 22.5% receive two stars and the bottom
10% receive one star.
None of these quantitative risk measures taken alone can be
used for a complete analysis and, when taken individually, can be
misleading at times. However, when considered in some
combination and with the total returns of a fund, they can
provide the investor with additional information regarding the
volatility of a fund's performance. Such risk measures will
change over time and are not necessarily predictive of future
performance or risk.
<PAGE>
REPORT OF THE INDEPENDENT ACCOUNTANTS
To The Board of Trustees of Royce Capital Trust and Shareholder
of Royce Premier Portfolio and Royce Micro-Cap Portfolio:
We have audited the accompanying statements of assets and
liabilities of Royce Premier Portfolio and Royce Micro-Cap
Portfolio of the Royce Capital Trust, as of July 26, 1996. These
financial statements are the responsibility of the trust's
management. Our responsibility is to express an opinion on
financial statements based on our audit.
We have conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the statement of assets and liabilities is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall statement of assets and
liabilities. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Royce Premier Portfolio and Royce Micro-Cap Portfolio of the
Royce Capital Trust as of July 26, 1996, in conformity with
generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
July 29, 1996
<PAGE>
ROYCE CAPITAL TRUST, INC.
STATEMENT OF ASSETS AND LIABILITIES
July 26, 1996
Royce Royce
Premier Micro-Cap
Portfolio Portfolio
ASSETS
Cash $100,000 $100,000
Deferred organization expenses (Note 2) 10,000 10,000
LIABILITIES
Payable for deferred organization expenses (Note 2) 10,000 10,000
Net assets $100,000 $100,000
Shares of beneficial interest issued and outstanding,
$0.001 par value 20,000 20,000
Net asset value per share $5.00 $5.00
<PAGE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
Note 1
Royce Premier Portfolio and Royce Micro-Cap Portfolio
(the "Funds") are series of Royce Capital Trust (the
"Trust"), a Delaware business trust registered with the
Securities and Exchange Commission as a diversified, open-
end management investment company. The Funds have had no
operations to date other than those relating to organization
and registration and the sale and issuance of shares of
beneficial interest to a tax deferred plan for the benefit
of the principal shareholder of Quest Advisory Corp., the
Funds' investment adviser.
Note 2
Costs incurred by each Fund in connection with its
organization, estimated at $10,000, will be deferred and
amortized on a straight-line basis for a five year period
beginning at the commencement of operation of each Fund.
Quest Advisory Corp. has advanced certain of the Funds'
organization costs incurred to date; the Funds will
reimburse Quest Advisory Corp. for the amount of these
advances after the commencement of operations.
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements included in Prospectus (Part A):
None
Financial statements included in Statement of Additional
Information (Part B):
Statement of Assets and Liabilities of Royce
Premier, and Micro-Cap Portfolios at July 26, 1996;
and
Notes to Statement of Assets and Liabilities --
Report of Independent Accountants dated July 26,
1996.
Financial statements, schedules and historical
information other than those listed above have been
omitted since they are either inapplicable or are not
required.
(b) Exhibits:
The exhibits required by Items (1) through (9) and (12)
through (16), to the extent applicable to the Registrant, have been
filed with the Registrant's initial Registration Statement (No.
333-1073) and are incorporated by reference herein.
(5) Form of Investment Advisory Agreement between
the Registrant and Quest Advisory Corp.
(9) (a) Form of Transfer Agent Agreement between the
Registrant and State Street Bank and Trust Company.
(b) Form of Fund Participation Agreement for the Registrant.
(10) Opinion and consent of counsel.
(11) Consent of the Registrant's independent public
accountants.
(13) Form of Subscription Agreement for the initial
purchase of shares of Royce Premier and Royce
Micro-Cap Portfolios.
(17) Financial Data Schedule.
Item 25. Persons Controlled by or Under Common Control With
Registrant
There are no persons directly or indirectly controlled by
or under common control with the Registrant.
<PAGE>
Item 26. Number of Holders of Securities
As of July 26, 1996, the number of record holders of
shares of each Fund of the Registrant was as follows:
Title of Fund Number of Record Holders
Royce Premier Portfolio 1
Royce Equity Income Portfolio 0
Royce Micro-Cap Portfolio 1
Item 27. Indemnification
(a) Article IX of the Trust Instrument of the Registrant
provides as follows:
"ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. All persons contracting
with or having any claim against the Trust or a particular Series
shall look only to the assets of the Trust or such Series for
payment under such contract or claim; and neither the Trustees nor
any of the Trust's officers, employees or agents, whether past,
present or future, shall be personally liable therefor. Every
written instrument or obligation on behalf of the Trust or any
Series shall contain a statement to the foregoing effect, but the
absence of such statement shall not operate to make any Trustee or
officer of the Trust liable thereunder. None of the Trustees or
officers of the Trust shall be responsible or liable for any act or
omission or for neglect or wrongdoing by him or by any agent,
employee, investment adviser or independent contractor of the
Trust, but nothing contained in this Trust Instrument or in the
Delaware Act shall protect any Trustee or officer of the Trust
against liability to the Trust or to Shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office.
Section 2. Indemnification. (a) Subject to the exceptions
and limitations contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or an
officer, employee or agent of the Trust ("Covered
Person") shall be indemnified by the Trust or the
appropriate Series to the fullest extent permitted by law
against liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved
as a party or otherwise by virtue of his being or having
been a Covered Person and against amounts paid or
incurred by him in the settlement thereof;
(ii) as used herein, the words "claim," "action," "suit,"
or "proceeding" shall
<PAGE>
apply to all claims, actions, suits
or proceedings (civil, criminal or other, including
appeals), actual or threatened, and the words "liability"
and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Covered Person:
(i) who shall, in respect of the matter involved, have
been adjudicated by a court or body before which the
proceeding was brought to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties
involved in the conduct of his office; or
(ii) in the event of a settlement, unless there has been
a determination that such Covered Person did not engage
in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct
of his office, (A) by the court or other body approving
the settlement, (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust
nor are parties to the matter based upon a review of
readily available facts (as opposed to a full trial-type
inquiry) or (C) by written opinion of independent legal
counsel based upon a review of readily available facts
(as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights to
which any Covered Person may now or hereafter be entitled and shall
inure to the benefit of the heirs, executors and administrators of
a Covered Person.
(d) To the maximum extent permitted by applicable law,
expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in subsection (a) of this Section may be paid by the
Trust or applicable Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf
of such Covered Person that such amount will be paid over by him to
the Trust or applicable Series if it is ultimately determined that
he is not entitled to indemnification under this Section; provided,
however, that either (i) such Covered Person shall have provided
appropriate security for such undertaking, (ii) the Trust is
insured against losses arising out of any such advance payments, or
(iii) either a majority of a quorum of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion shall have
determined, based upon a review of readily available facts (as
opposed to a full trial-type inquiry) that there is reason to
believe that such Covered Person will not be disqualified from
indemnification under this Section.
(e) Any repeal or modification of this Article IX by the
Shareholders of the Trust, or adoption or modification of any other
provision of the Trust Instrument or By-laws inconsistent with this
Article, shall be prospective only, to the extent that such repeal
or modification would, if applied retrospectively, adversely affect
any limitation on the liability of any Covered Person or
indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification
or adoption.
<PAGE>
Section 3. Indemnification of Shareholders. If any
Shareholder or former Shareholder of the Trust or of any Series
shall be held personally liable solely by reason of his being or
having been a Shareholder and not because of his acts or omissions
or for some other reason, the Shareholder or former Shareholder (or
his heirs, executors, administrators or other legal representatives
or, in the case of any entity, its general successor) shall be
entitled out of the assets of the Trust or belonging to the
applicable Series to be held harmless from and indemnified against
all loss and expense arising from such liability. The Trust, for
itself or on behalf of the affected Series, shall, upon request by
such Shareholder, assume the defense of any claim made against such
Shareholder for any act or obligation of the Trust or the Series
and satisfy any judgment thereon from the assets of the Trust or
the Series."
(b) Paragraph 8 of the Investment Advisory Agreement by
and between the Registrant and Quest Advisory Corp. provides as
follows:
"8. Protection of the Adviser. The Adviser
shall not be liable to the Fund or to any portfolio
series thereof for any action taken or omitted to be
taken by the Adviser in connection with the performance
of any of its duties or obligations under this Agreement
or otherwise as an investment adviser of the Fund or such
series, and the Fund or each portfolio series thereof
involved, as the case may be, shall indemnify the Adviser
and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in
settlement) incurred by the Adviser in or by reason of
any pending, threatened or completed action, suit,
investigation or other proceeding (including an action or
suit by or in the right of the Fund or any portfolio
series thereof or its security holders) arising out of or
otherwise based upon any action actually or allegedly
taken or omitted to be taken by the Adviser in connection
with the performance of any of its duties or obligations
under this Agreement or otherwise as an investment
adviser of the Fund or such series. Notwithstanding the
preceding sentence of this Paragraph 8 to the contrary,
nothing contained herein shall protect or be deemed to
protect the Adviser against or entitle or be deemed to
entitle the Adviser to indemnification in respect of, any
liability to the Fund or to any portfolio series thereof
or its security holders to which the Adviser would
otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its
duties and obligations under this Agreement.
Determinations of whether and the extent to
which the Adviser is entitled to indemnification
hereunder shall be made by reasonable and fair means,
including (a) a final decision on the merits by a court
or other body before whom the action, suit or other pro-
ceeding was brought that the Adviser was not liable by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties, or (b) in
the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the
Adviser was not liable by reason of such misconduct by
(i) the vote of a majority of a quorum of the Trustees of
the Fund who are neither "interested persons" of the Fund
(as defined in Section 2(a)(19) of the Investment Company
Act of 1940) nor parties to the action, suit or other
proceeding, or (ii) an independent legal counsel in a
written opinion."
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the filings on Schedule D to the
Application on Form ADV, as amended, of Quest Advisory Corp. for
Registration as Investment Adviser under the Investment Advisers
Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any principal
underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company Act
of 1940, are maintained at the following locations:
Royce Capital Trust
1414 Avenue of the Americas
10th Floor
New York, New York 10019
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts
trust company ("State Street"), will provide certain
management-related services to the Registrant pursuant to a
Custodian Contract between the Registrant and State Street. Under
such Custodian Contract, State Street, among other things, will
contract with the Registrant to keep books of accounts and render
such statements as agreed to in the then current mutually-executed
Fee Schedule or copies thereof from time to time as requested by
the Registrant, and will assist generally in the preparation of
reports to holders of shares of the Registrant, to the Securities
and Exchange Commission and to others, in the auditing of accounts
and in other ministerial matters of like nature as agreed to
between the Registrant and State Street. All of these services
will be rendered pursuant to instructions received by State Street
from the Registrant in the ordinary course of business.
Item 32. Undertakings
The Registrant hereby undertakes to file a Post-Effective
Amendment for Royce Premier, Royce Equity Income and Royce Micro-
Cap Portfolios, using financial statements which need not be
certified, within four to six months from the effective date of
this registration statement.
The Registrant hereby undertakes to call a special
meeting of its shareholders upon the written request of
shareholders owning at least 10% of the outstanding shares of the
<PAGE>
Registrant for the purpose of voting upon the question of the
removal of a trustee or trustees and, upon the written request of
10 or more shareholders of the Registrant who have been such for at
least 6 months and who own at least 1% of the outstanding shares of
the Registrant, to provide a list of shareholders or to disseminate
appropriate materials at the expense of the requesting
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of
New York and State of New York on the 31st day of July, 1996.
ROYCE CAPITAL TRUST
By: /s/ Charles M. Royce
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
/s/ Charles M. Royce President, Treasurer 7/31/96
Charles M. Royce and Trustee
(Principal Executive,
Financial and Accounting
Officer)
/s/ Richard M. Galkin Trustee 7/31/96
Richard M. Galkin
/s/ W. Whitney George Trustee 7/31/96
W. Whitney George
/s/ Stephen L. Isaacs Trustee 7/31/96
Stephen L. Isaacs
/s/ David L. Meister Trustee 7/31/96
David L. Meister
---------------------------
NOTICE
A copy of the Trust Instrument of Royce Capital Trust is
available for inspection at the office of the Registrant, and
notice is hereby given that this instrument is executed on behalf
of the Registrant by an officer of the Registrant as an officer and
not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of
the Registrant.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
(5) Form of Investment Advisory Agreement between
the Registrant and Quest Advisory Corp.
(9)(a) Form of Transfer Agent Agreement between
the Registrant and State Street Bank and
Trust Company
(9)(b) Form of Fund Participation Agreement for
the Registrant
(10) Opinion and consent of counsel
(11) Consent of the Registrant's independent public
accountants
(13) Subscription Agreement for the
initial purchase of shares of Royce Premier,
and Royce Micro-Cap Portfolios
(17) Financial Data Schedule
<PAGE>
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
BETWEEN
ROYCE CAPITAL TRUST
AND
QUEST ADVISORY CORP.
Agreement made this ____ day of _____________ 1996, by and
between ROYCE CAPITAL TRUST, a Delaware business trust (the
"Fund"), and QUEST ADVISORY CORP., a New York corporation (the
"Adviser").
The Fund and the Adviser hereby agree as follows in respect of
Royce Premier Portfolio, Royce Equity Income Portfolio and Royce
Micro-Cap Portfolio, each a series of the Fund (the "Series"):
1. Duties of the Adviser. The Adviser shall, during the term
and subject to the provisions of this Agreement, (a) determine the
composition of the portfolio of the Series, the nature and timing
of the changes therein and the manner of implementing such changes,
and (b) provide the Series with such investment advisory, research
and related services as the Series may, from time to time, reason-
ably require for the investment of its funds. The Adviser shall
perform such duties in accordance with the applicable provisions of
the Fund's Trust Instrument, By-laws and current prospectus and any
directions it may receive from the Fund's Trustees. The Adviser
shall also comply with its covenants and agreements contained in
the Adviser's and the Fund's application to the Securities and
Exchange Commission for an exemptive order regarding the use of the
Fund's shares as a funding medium for insurance company variable
contracts.
2. Expenses Payable by the Series. Except as otherwise
provided in Paragraphs 1 and 3 hereof, the Fund shall be responsi-
ble for effecting sales and redemptions of the Series' shares, for
determining the net asset value thereof and for all of the Series'
other operations and shall cause the Series to pay all administra-
tive and other costs and expenses attributable to its operations
and transactions, including, without limitation, transfer agent and
custodian fees; legal, administrative and clerical services; rent
for its office space and facilities; auditing; preparation,
printing and distribution of its prospectuses to existing
shareholders, proxy statements, shareholders reports and notices;
supplies and postage; Federal and state registration fees; Federal,
state and local taxes; non-affiliated Trustees' fees; and brokerage
commissions.
<PAGE>
3. Expenses Payable by the Adviser. The Adviser shall
furnish, without expense to the Fund or to the Series, the services
of those of its executive officers and full-time employees who may
be duly elected executive officers or Trustees of the Fund, subject
to their individual consent to serve and to any limitations imposed
by law, and shall pay all the salaries and expenses of such
persons. For purposes of this Agreement, only a president, a
treasurer or a vice-president in charge of a principal business
function shall be deemed to be an executive officer. The Adviser
shall also pay all expenses which it may incur in performing its
duties under Paragraph 1 hereof and shall reimburse the Fund for
any space leased by the Fund and occupied by the Adviser. In the
event the Fund shall qualify shares of the Series for sale in any
jurisdiction, the applicable statutes or regulations of which
expressly limit the amount of the Series' total annual expenses,
the Adviser agrees to reduce its annual investment advisory fee for
the Series, to the extent that such total annual expenses (other
than brokerage commissions and other capital items, interest,
taxes, distribution fees, extraordinary items and other excludable
items, charges, costs and expenses) exceed the limitations imposed
on the Series by the most stringent regulations of any such
jurisdiction.
4. Compensation of the Adviser. The Fund agrees to cause the
Series to pay to the Adviser, and the Adviser agrees to accept as
compensation for the services provided by the Adviser hereunder,
fees equal to 1.00% per annum of the average net assets of Royce
Premier Portfolio and Royce Equity Income Portfolio, and a fee
equal to 1.50% per annum of the average net assets of Royce Micro-
Cap Portfolio, at the close of business on each day that the value
of their respective net assets is computed during the year.
However, the Fund and the Adviser may agree in writing to
temporarily or permanently reduce such fees. Such compensation
shall be accrued on the Series' books at the close of business on
each day that the value of their net assets is computed during each
year and shall be payable to the Adviser monthly, on the last day
of each month, and adjusted as of year-end if required.
5. Excess Brokerage Commissions. The Adviser is hereby
authorized, to the fullest extent now or hereafter permitted by
law, to cause the Series to pay a member of a national securities
exchange, broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission
another member of such exchange, broker or dealer would have
charged for effecting that transaction, if the Adviser determines
in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and/or research services
provided by such member, broker or dealer, viewed in terms of
either that particular transaction or its overall responsibilities
with respect to all of its accounts.
6. Limitations on the Employment of the Adviser. The
services of the Adviser to the Series shall not be deemed
exclusive, and the Adviser may engage in any other business or
render similar or different services to others so long as its
services to the Series hereunder are not impaired thereby, and
nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Adviser to engage in any other
business or to devote his or her time
<PAGE>
and attention in part to any other business, whether of a similar or
dissimilar nature. So long as this Agreement or any extension,
renewal or amendment remains in effect, the Adviser shall be the only
investment adviser for the Series, subject to the Adviser's right to
enter into sub-advisory agreements. The Adviser assumes no
responsibility under this Agreement other than to render the services
called for hereunder, and shall not be responsible for any action of
or directed by the Fund's Trustees, or any committee thereof, unless
such action has been caused by the Adviser's gross negligence,
willful malfeasance, bad faith or reckless disregard of its
obligations and duties under this Agreement.
7. Responsibility of Dual Directors, Officers and/or
Employees. If any person who is a director, officer or employee of
the Adviser is or becomes a Trustee, officer and/or employee of the
Fund and acts as such in any business of the Fund pursuant to this
Agreement, then such director, officer and/or employee of the
Adviser shall be deemed to be acting in such capacity solely for
the Fund, and not as a director, officer or employee of the Adviser
or under the control or direction of the Adviser, although paid by
the Adviser.
8. Protection of the Adviser. The Adviser shall not be
liable to the Fund or to any portfolio series thereof for any
action taken or omitted to be taken by the Adviser in connection
with the performance of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the Fund or such
series, and the Fund or each portfolio series thereof involved, as
the case may be, shall indemnify the Adviser and hold it harmless
from and against all damages, liabilities, costs and expenses (in-
cluding reasonable attorneys' fees and amounts reasonably paid in
settlement) incurred by the Adviser in or by reason of any pending,
threatened or completed action, suit, investigation or other
proceeding (including an action or suit by or in the right of the
Fund or any portfolio series thereof or its security holders)
arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by the Adviser in connection
with the performance of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the Fund or such
series. Notwithstanding the preceding sentence of this Paragraph
8 to the contrary, nothing contained herein shall protect or be
deemed to protect the Adviser against or entitle or be deemed to
entitle the Adviser to indemnification in respect of, any liability
to the Fund or to any portfolio series thereof or its security
holders to which the Adviser would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the per-
formance of its duties or by reason of its reckless disregard of
its duties and obligations under this Agreement.
Determinations of whether and the extent to which the Adviser
is entitled to indemnification hereunder shall be made by reason-
able and fair means, including (a) a final decision on the merits
by a court or other body before whom the action, suit or other pro-
ceeding was brought that the Adviser was not liable by reason of
willful misfeasance, bad faith, gross negligence or reckless dis-
regard of its duties, or (b) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that
the Adviser was not liable by reason of such misconduct by (i) the
vote of a majority of a quorum of the Trustees of the Fund
<PAGE>
who are neither "interested persons" of the Fund (as defined in
Section 2(a)(19) of the Investment Company Act of 1940) nor parties
to the action, suit or other proceeding, or (ii) an independent legal
counsel in a written opinion.
9. Effectiveness, Duration and Termination of Agreement.
This Agreement shall become effective immediately as to a Series
upon approval by a majority of the outstanding voting securities of
the Series. This Agreement shall remain in effect until April 30,
1998, and thereafter shall continue automatically for successive
annual periods, provided that such continuance is specifically
approved at least annually by (a) the vote of the Fund's Trustees,
including a majority of such Trustees who are not parties to this
Agreement or "interested persons" (as such term is defined in
Section 2(a)(19) of the Investment Company Act of 1940) of any such
party, cast in person at a meeting called for the purpose of voting
on such approval, or (b) the vote of a majority of the outstanding
voting securities of the Series and the vote of the Fund's
Trustees, including a majority of such Trustees who are not parties
to this Agreement or "interested persons" (as so defined) of any
such party. This Agreement may be terminated at any time as to a
Series, without the payment of any penalty, on 60 days' written
notice by the vote of a majority of the outstanding voting
securities of the Series, or by the vote of a majority of the
Fund's Trustees or by the Adviser, and will automatically terminate
in the event of its "assignment" (as such term is defined for
purposes of Section 15(a)(4) of the Investment Company Act of
1940); provided, however, that the provisions of Paragraph 8 of
this Agreement shall remain in full force and effect, and the
Adviser shall remain entitled to the benefits thereof,
notwithstanding any such termination. The Adviser or Charles M.
Royce may, upon termination of this Agreement, require the Fund to
refrain from using the name "Royce" in any form or combination in
its name or in its business, and the Fund shall, as soon as
practicable following its receipt of any such request from the
Adviser or Charles M. Royce, so refrain from using such name.
Any notice under this Agreement shall be given in writing,
addressed and delivered or mailed, postage prepaid, to the other
party at its principal office.
10. Shareholder Liability. Notice is hereby given that this
Agreement is entered into on the Fund's behalf by an officer of the
Fund in his capacity as an officer and not individually, and that
the obligations of or arising out of this Agreement are not binding
upon any of the Fund's Trustees, officers, employees, agents or
shareholders individually, but are binding only upon the assets and
property of the Series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
ROYCE CAPITAL TRUST
By: _______________________________
__________________, President
QUEST ADVISORY CORP.
By: _______________________________
__________________, President
<PAGE>
Exhibit 9(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
ROYCE CAPITAL TRUST
and
STATE STREET BANK AND TRUST COMPANY
DOMESTIC\TRUST\SERIES
TA95TS.DOC
<PAGE>
TABLE OF CONTENTS
Page
1. Duties of the Bank 1
2. Fees and Expenses 3
3. Bank as Trustee or Custodian of
Retirement Plans 4
4. National Securities Clearing Corporation
Participation 4
5. Wire Transfer Operating Guidelines 5
6. Data Access and Proprietary Information 6
7. Indemnification 7
8. Standard of Care 9
9. Covenants of the Fund and the Bank 9
10. Representations and Warranties of the Bank 10
11. Representations and Warranties of the Fund 10
12. Termination of Agreement 10
13. Additional Funds 11
14. Assignment 11
15. Amendment 11
16. Massachusetts Law to Apply 12
17. Force Majeure 12
18. Consequential Damages 12
<PAGE>
19. Limitation of Shareholder Liability 12
20. Merger of Agreement 12
21. Survival 12
22. Severability 13
23. Counterparts 13
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the day of
, 1996, by and between ROYCE CAPTIAL TRUST, a Delaware business
trust, having its principal office and place of business at 1414
Avenue of the Americas, New York, New York 10019 (the "Fund"), and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank");
WHEREAS, the Bank has been appointed by each of the
investment companies (including each series thereof) listed on
Schedule A (the "Fund(s)"), each an open-end diversified
management investment company registered under the Investment
Company Act of 1940, as amended, as transfer agent, dividend
disbursing agent and shareholder servicing agent in connection
with certain activities, and the Bank has accepted each such
appointment;
WHEREAS, the Bank has entered into a Transfer Agency and
Service Agreement with each of the Funds (including each series
thereof) listed on Schedule A pursuant to which the Bank is
responsible for certain transfer agency and dividend disbursing
functions for each Fund's authorized and issued shares of common
stock or shares of beneficial interest as the case may be
("Shares") and each Fund's shareholders ("Shareholders").
WHEREAS, the Fund desires to appoint the Bank as its transfer
agent, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Duties of the Bank
1.1 Subject to the terms and conditions set forth in this
Agreement, the Bank shall act as the Fund's transfer agent for
Shares in connection with any accumulation plan, open-account,
dividend reinvestment plan, retirement plan or similar plan
provided to Shareholders and set out in each Fund's currently
effective prospectus and statement of additional information
("Prospectus"), including without limitation any periodic
investment plan or periodic withdrawal program. In accordance
with procedures established from time to time by agreement between
each Fund and the Bank, the Bank shall provide the services listed
in this Section 1.
(a) The Bank shall:
(i) receive for acceptance, orders for the
purchase of Shares, and promptly deliver payment
and appropriate documentation thereof to the
Custodian of each Fund authorized pursuant to the
Certificate of Trust and Trust Instrument of each
Fund (the "Custodian");
<PAGE>
(ii) pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares
in the appropriate Shareholder account;
(iii) receive for acceptance redemption
requests and redemption directions and deliver the
appropriate documentation thereof to the Custodian;
(iv) in respect to the transactions in items
(i), (ii) and (iii) above, the Bank shall execute
transactions directly with broker-dealers
authorized by each Fund;
(v) at the appropriate time as and when it
receives monies paid to it by the Custodian with
respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) effect transfers of Shares by the
registered owners thereof upon receipt of
appropriate instructions;
(vii) prepare and transmit payments for
dividends and distributions declared by each Fund;
(viii) issue replacement certificates for
those certificates alleged to have been lost,
stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and each Fund, and the Bank at
its option, may issue replacement certificates in
place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) maintain records of account for and
advise each Fund and its Shareholders as to the
foregoing; and
(x) Record the issuance of Shares of each
Fund and maintain pursuant to Rule 17Ad-10(e) of
the Securities Exchange Act of 1934 as amended (the
"Exchange Act of 1934") a record of the total
number of Shares of each Fund which are authorized,
based upon data provided to it by each Fund, and
issued and outstanding. The Bank shall also
provide each Fund on a regular basis with the total
number of Shares which are authorized and issued
and outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such
Shares, which functions shall be the sole
responsibility of each Fund.
1.2 (a) For Reports, the Bank shall:
<PAGE>
(i) maintain all Shareholder accounts,
prepare meeting, proxy, and mailing lists, withhold
taxes on U.S. resident and non-resident alien
accounts, prepare and file U.S. Treasury Department
reports required with respect to dividends and
distributions by federal authorities for all
Shareholders, prepare confirmation forms and
statements of account to Shareholders for all
purchases and redemptions of Shares and other
confirmable transactions in Shareholder account
information.
(b) For blue sky reporting the Bank shall provide a
system that will enable each Fund to monitor the total
number of Shares sold in each State, and each Fund
shall:
(i) identify to the Bank in writing those
transactions and assets to be treated as exempt
from blue sky reporting for each State; and
(ii) verify the establishment of transactions
for each State on the system prior to the activity
for each State, the responsibility of the Bank for
each Fund's blue sky State Registration status is
solely limited to the initial establishment of
transactions subject to blue sky compliance by the
Fund and the reporting of such transactions to the
Fund as provided above.
1.3 Per the attached service responsibility schedule procedures
as to who shall provide certain of these services in Section
1 may be established from time to time by agreement between
the Fund and the Bank. The Bank may at times perform only a
portion of these services and the Fund or its agent may
perform these services on each Fund's behalf.
1.4 The Bank shall provide additional services on behalf of the
Fund (i.e., escheat services) that may be agreed upon in
writing between the Bank and the Fund.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement,
each Fund agrees to pay the Bank an annual maintenance fee
for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may
be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, each
Fund agrees to reimburse the Bank for out-of-pocket expenses,
including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating
proxies, records storage, or advances incurred by the Bank
for the items set out in the fee schedule attached hereto.
In addition, any other expenses incurred by the Bank at the
request or with the consent of the Fund, will be reimbursed
by the Fund.
<PAGE>
2.3 Each Fund agrees to pay all fees and reimbursable expenses
within five days following the receipt of the respective
billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7)
days prior to the mailing date of such materials.
3. Bank as Trustee or Custodian of Retirement Plans
As agreed upon in writing between the parties, the Bank and
Fund agree that the Bank may serve as the named custodian or
trustee of individual retirement accounts established under
section 408 of the Internal Revenue Code (the"Code"), tax-
sheltered annuity plans established under section 403(b) of
the Code, qualified plans under section 401(a) of the Code,
or money purchase plans, pension plans, or profit sharing
plans with a cash deferred arrangement under section 401(k)
of the Code (collectively "Retirement Plans").
4. National Securities Clearing Corporation Participation
4.1 Each Fund intends to participate in the National Securities
Clearing Corporation ("NSCC") program for the automated
registration input process provided by the NSCC's Fund/Serv
system and the centralized and standardized communication
system for the exchange of customer level information and
activity through the NSCC's Networking system. Each Fund
hereby instructs the Bank and its service agent to process
transactions in the Shareholder accounts for those broker-
dealers who are transmitting on behalf of each Fund through
the NSCC's Fund/Serv and Networking system. The Bank is
hereby instructed to process such shareholder transactions
solely on the instructions of the transmitting broker-
dealers.
4.2 Each Fund has presented the Bank with the ICI Model
Networking Agreement (the "Networking Agreement") and hereby
instructs and authorizes State Street to execute and
implement the Networking Agreement in order to facilitate
such processing. Pursuant to the Networking Agreement, the
broker-dealer engaged by each Fund to participate in
Networking on behalf of each Fund is entitled to
indemnification from the Bank.
4.3 The Bank is entitled to indemnification from each Fund under
the terms of Section 7 of this Agreement. Each Fund agrees
that upon the filing of a claim by a broker-dealer under the
Networking Agreement against the Bank or its sub-contractors
hereunder each Fund shall indemnify the Bank pursuant to this
Agreement. Notwithstanding anything in the Networking
Agreement, each Fund and the Bank agree that the Bank shall
have no more liability to either the Fund or the broker-
dealer than it has to a Fund under this Agreement.
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code
5.1 The Bank is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance
with the selected security procedure (the "Security
Procedure")
<PAGE>
chosen for funds transfer and in the amount of
money that the Bank has been instructed to transfer. The
Bank shall execute payment orders in compliance with the
Security Procedure and with the Fund's instructions on the
execution date provided that such payment order is received
by the customary deadline for processing such a request,
unless the payment order specifies a later time. All payment
orders and communications received after this time frame will
be deemed to have been received the next business day.
5.2 Each Fund acknowledges that the Security Procedure it has
designated on the Fund Selection Form was selected by the
Fund from security procedures offered by the Bank. Each Fund
shall restrict access to confidential information relating to
the Security Procedure to authorized persons as communicated
to the Bank in writing. Each Fund must notify the Bank
immediately if it has reason to believe unauthorized persons
may have obtained access to such information or of any change
in the Fund's authorized personnel. The Bank shall verify
the authenticity of all such instructions according to the
Security Procedure.
5.3 The Bank shall process all payment orders on the basis of the
account number contained in the payment order. In the event
of a discrepancy between any name indicated on the payment
order and the account number, the account number shall take
precedence and govern.
5.4 When a Fund initiates or receives Automated Clearing House
("ACH") credit and debit entries pursuant to these guidelines
and the rules of the National Automated Clearing House
Association and the New England Clearing House Association,
the Bank will act as an Originating Depository Financial
Institution and/or receiving Depository Financial
Institution, as the case may be, with respect to such
entries. Credits given by the Bank with respect to an ACH
credit entry are provisional until the Bank receives final
settlement for such entry from the Federal Reserve Bank. If
the Bank does not receive such final settlement, each Fund
agrees that the Bank shall receive a refund of the amount
credited to the Fund in connection with such entry, and the
party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
5.5 The Bank reserves the right to decline to process or delay
the processing of a payment order which (a) is in excess of
the collected balance in the account to be charged at the
time of the Bank's receipt of such payment order; (b) if
initiating such payment order would cause the Bank, in the
Bank's sole judgment, to exceed any volume, aggregate dollar,
network, time, credit or similar limits upon wire transfers
which are applicable to the Bank; or (c) if the Bank, in good
faith, is unable to satisfy itself that the transaction has
been properly authorized.
5.6 The Bank shall use reasonable efforts to act on all
authorized requests to cancel or amend payment orders
received in compliance with the Security Procedure provided
that such requests are received in a timely manner affording
the Bank reasonable opportunity to act. However, the Bank
assumes no liability if the request for amendment or
cancellation cannot be satisfied.
<PAGE>
5.7 The Bank shall assume no responsibility for failure to detect
any erroneous payment order provided that the Bank complies
with the payment order instructions as received and the Bank
complies with the Security Procedure. The Security Procedure
is established for the purpose of authenticating payment
orders only and not for the detection of errors in payment
orders.
5.8 The Bank shall assume no responsibility for lost interest
with respect to the refundable amount of any unauthorized
payment order unless the Bank is notified of the unauthorized
payment order within thirty (30) days or notification by the
Bank of the acceptance of such payment order. In no event
(including failure to execute a payment order) shall the Bank
be liable for special, indirect or consequential damages,
even if advised of the possibility of such damages.
5.9 Confirmation of Bank's execution of payment orders shall
ordinarily be provided within 24 hours notice of which may be
delivered through the Bank's proprietary information systems,
or by facsimile or call-back. Client must report any
objections to the execution of an order within 30 days.
6. Data Access and Proprietary Information
6.1 Each Fund acknowledges that the data bases, computer
programs, screen formats, report formats, interactive design
techniques, and other information furnished to the Fund by
the Bank are provided solely in connection with the services
rendered under this Agreement and constitute copyrighted
trade secrets or proprietary information of substantial value
to the Bank. Such databases, programs, formats, designs,
techniques and other information are collectively referred to
below as "Proprietary Information". Each Fund agrees that it
shall treat all Proprietary Information as proprietary to the
Bank and further agrees that it shall not divulge any
Proprietary Information to any person or organization except
as expressly permitted hereunder. Each Fund agrees for
itself and its employees and agents:
(a) to use such programs and databases (i) solely on
the Fund's computers, or (ii) solely from equipment at
the locations agreed to between the Fund and the Bank
and (iii) in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way
(other than in the normal course of performing
processing on the Fund's computers) any part of any
Proprietary Information;
(c) to refrain from obtaining unauthorized access to
any programs, data or other information not owned by the
Fund, and if such access is accidentally obtained, to
respect and safeguard the same Proprietary Information;
(d) to refrain from causing or allowing information
transmitted from the Bank's computer to the Fund's
terminal to be retransmitted to any other computer
terminal or other device
<PAGE>
except as expressly permitted
by the Bank, such permission not to be unreasonably
withheld;
(e) that the Fund shall have access only to those
authorized transactions as agreed to between the Fund
and the Bank; and
(f) to honor reasonable written requests made by the
Bank to protect at the Bank's expense the rights of the
Bank in Proprietary Information at common law and under
applicable statutes.
Each party shall make reasonable efforts to advise its employees
of their obligations pursuant to Section 6.
7. Indemnification
7.1 The Bank shall not be responsible for, and each Fund shall
indemnify and hold the Bank harmless from and against, any
and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or
attributable to:
(a) all actions of the Bank or its agent or
subcontractors required to be taken pursuant to this
Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct;
(b) the Fund's lack of good faith, negligence or
willful misconduct;
(c) the reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the Bank or its
agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person
or firm on behalf of the Fund including but not limited
to any previous transfer agent or registrar excluding
the Bank;
(d) the reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or
requests of the Fund; and
(e) the offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations or the securities laws or regulations of any
state that such Shares be registered in such state or in
violation of any stop order or other determination or
ruling by any federal agency or any state with respect
to the offer or sale of such Shares in such state.
7.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect
to any matter arising in connection with the services to be
performed
<PAGE>
by the Bank under this Agreement, and the Bank and
its agents or subcontractors shall not be liable and shall be
indemnified by the Fund for any action taken or omitted by it
in reliance upon such instructions or upon the opinion of
such counsel.
The Bank, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document
furnished by or on behalf of the Fund, reasonably believed to
be genuine and to have been signed by the proper person or
persons, or upon any instruction, information, data, records
or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and
shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from
the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund,
and the proper countersignature of any former transfer agent
or former registrar, or of a co-transfer agent or
co-registrar.
7.3 In order that the indemnification provisions contained in
this Section 7 shall apply, upon the assertion of a claim for
which the Fund may be required to indemnify the Bank, the
Bank shall promptly notify the Fund of such assertion, and
shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to
defend against said claim in its own name or in the name of
the Bank.
The Bank shall in no case confess any claim or make any
compromise in any case in which the Fund may be required to
indemnify the Bank except with the Fund's prior written
consent.
8. Standard of Care
The Bank shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the
accuracy of all services performed under this Agreement, but
assumes no responsibility and shall not be liable for loss or
damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct or that of its
employees.
9. Covenants of the Fund and the Bank
9.1 The Fund shall promptly furnish to the Bank the following:
(a) a certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of the
Bank and the execution and delivery of this Agreement.
<PAGE>
(b) a copy of the Declaration of Trust and By-Laws of
the Fund and all amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for
safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation
or use, and for keeping account of, such certificates, forms
and devices.
9.3 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the
Investment Company Act of 1940, as amended, and the Rules
thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Fund
and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with
its request.
9.4 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other
party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed
to any other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to
notify the Fund and to secure instructions from an
authorized officer of the Fund as to such inspection. The
Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the
Shareholder records to such person.
10. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
(a) it is a trust company duly organized and existing
and in good standing under the laws of The Commonwealth
of Massachusetts;
(b) it is duly qualified to carry on its business in
The Commonwealth of Massachusetts;
(c) it is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform this
Agreement;
(d) all requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
<PAGE>
(e) it has and will continue to have access to the
necessary facilities, equipment and personnel to perform
its duties and obligations under this Agreement; and
(f) it is registered as a transfer agent under Section
17A(c)(2) of the Exchange Act.
11. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
(a) it is a business trust duly organized and existing
and in good standing under the laws of the State of
Delaware;
(b) it is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and
perform this Agreement;
(c) all corporate proceedings required by said
Declaration of Trust and By-Laws have been taken to
authorize it to enter into and perform this Agreement.
12. Termination of Agreement
12.1 This Agreement shall continue for a period of
years (the "Initial Term") and be renewed or terminated as
stated below.
12.2 This Agreement shall terminate upon the termination of the
Transfer Agency Agreement between the Funds and the Bank.
12.3 This Agreement may be terminated or renewed after the Initial
Term by either party upon ninety (90) days written notice to
the other.
12.4 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of
records and material will be borne by the Fund.
Additionally, the Bank reserves the right to charge for any
other reasonable expenses associated with such termination
and/or a charge equivalent to the average of three (3)
months' fees.
13. Additional Funds
13.1 If the Fund and the Bank wish the Bank to act as transfer
agent for additional investment companies registered under
the Investment Company Act of 1940 as amended or series shall
be Funds hereunder.
<PAGE>
13.2 The parties will amend Schedule A and duly authorized
officers of each party shall agree in writing for the Bank to
act as transfer agent for such new funds (including series
thereof) under this Agreement.
14. Assignment
14.1 Except as provided in Section 14.3 below, neither this
Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the
other party.
14.2 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors
and assigns.
14.3 The Bank may, without further consent on the part of the
Fund, subcontract for the performance hereof with (a) Boston
Financial Data Services, Inc., a Massachusetts corporation
("BFDS") which is duly registered as a transfer agent
pursuant to Section 17A(c)(2) of the Exchange Act of 1934, as
amended ("Section 17A(c)(2)"), (b) National Financial Data
Services, Inc., a subsidiary of BFDS duly registered as a
transfer agent pursuant to Section 17A(c)(2) or (c) a BFDS
affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any
such subcontractor as it is for its own acts and omissions.
15. Amendment
This Agreement may be amended or modified by a written
agreement executed by both parties.
16. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The
Commonwealth of Massachusetts.
17. Force Majeure
In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts
of God, strikes, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
18. Consequential Damages
Neither party to this Agreement shall be liable to the other
party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any
act or failure to act hereunder.
<PAGE>
19. Limitations of Shareholder Liability
Each party hereby expressly acknowledges that recourse
against the Funds shall be subject to those limitations
provided by governing law and the Declaration of Trust of the
Funds, as applicable, and agrees that obligations assumed by
the Funds pursuant to the Transfer Agency Agreement shall be
limited in all cases to the Funds and their respective
assets. Each party shall not seek satisfaction from the
Shareholders or any individual Shareholder of the Funds, nor
shall any party seek satisfaction of any obligations from the
Trustees or any individual Trustee of the Funds.
20. Merger of Agreement
This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
21. Survival
All provisions regarding indemnification, warranty,
liability, and limits thereon, and confidentiality and\or
protection of proprietary rights and trade secrets shall
survive the termination of this Agreement.
22. Severability
If any provision or provisions of this Agreement shall be
held invalid, unlawful, or unenforceable, the validity,
legality and enforceability of the remaining provisions shall
not in any way be affected or impaired.
23. Counterparts
This Agreement may be executed by the parties hereto on any
number of counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf by and through
their duly authorized officers, as of the day of , 199 .
FUND
BY:
TITLE:
ATTEST:
STATE STREET BANK AND TRUST COMPANY
BY:
TITLE: Executive Vice President
ATTEST:
w:\hayes\royce\transfer.doc
<PAGE>
SCHEDULE A
ROYCE CAPITAL TRUST
Royce Premier Portfolio
Royce Equity Income Portfolio
Royce Micro-Cap Portfolio
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
<PAGE>
Service Performed Responsibility
Bank Fund
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Section 1.2 (a),
(b) and (c) of the Agreement.
FUND
BY:
TITLE:
ATTEST:
STATE STREET BANK AND TRUST COMPANY
BY:
TITLE: Executive Vice President
ATTEST:
<PAGE>
Exhibit 9(b)
ROYCE CAPITAL TRUST
FORM OF
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the day of , 199 by and between
ROYCE CAPITAL TRUST ("TRUST"), a Delaware business trust, and
(the "COMPANY"), a life insurance company organized under the laws of the
State of .
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"),
as an open-end, diversified management investment company; and
WHEREAS, TRUST is organized as a series fund comprised of several Funds
("Funds"), those currently available are listed on Appendix A hereto as such
Appendix may be amended from time to time; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating
Insurance Companies") and also offers its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, TRUST received an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Funds of the TRUST to be sold to and held by variable annuity
and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans
("Exemptive Order"); and
WHEREAS, the COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having TRUST as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares
to the COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the COMPANY
and TRUST agree as follows:
<PAGE>
Article I. sale of trust shares
1.1 TRUST agrees to make available to the Separate Accounts of the
COMPANY shares of the selected Funds as listed on Appendix B (as such
Appendix may be amended from time to time) for investment of purchase
payments of Variable Contracts allocated to the designated Separate Accounts
as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to the COMPANY those shares of the selected
Funds of TRUST which the COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
1.2, the COMPANY shall be the designee of TRUST for receipt of such orders
from the designated Separate Account and receipt by such designee shall
constitute receipt by TRUST; provided that the COMPANY receives the order by
4:00 p.m. New York time and TRUST receives notice from the COMPANY by
telephone or facsimile (or by such other means as TRUST and the COMPANY may
agree in writing) of such order by 9:00 a.m. New York time on the next
following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which TRUST calculates its net
asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on the COMPANY's request, any full or
fractional shares of TRUST held by the COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or
its designee of the request for redemption, in accordance with the provisions
of this Agreement and TRUST's Registration Statement. For purposes of this
Section 1.3, the COMPANY shall be the designee of TRUST for receipt of
requests for redemption from the designated Separate Account and receipt by
such designee shall constitute receipt by TRUST; provided that the COMPANY
receives the request for redemption by 4:00 p.m. New York time and TRUST
receives notice from the COMPANY by telephone or facsimile (or by such other
means as TRUST and the COMPANY may agree in writing) of such request for
redemption by 9:00 a.m. New York time on the next following Business Day.
1.4 TRUST shall furnish, on or before the ex-dividend date, notice to
the COMPANY of any income dividends or capital gain distributions payable on
the shares of any Fund of TRUST. The COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Fund's shares in additional shares of the Fund. TRUST shall notify the
COMPANY or its designee of the number of shares so issued as payment of such
dividends and distributions.
1.5 TRUST shall make the net asset value per share for the selected
Fund(s) available to the COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use
its best efforts to make such net asset value available by 6:30 p.m. New
York time. In the event that TRUST is unable to meet the 6:30 p.m. time
stated herein, it shall provide additional time for the COMPANY to place
orders for the purchase and redemption of shares. Such additional time shall
be equal to the additional time which TRUST takes to make the net asset value
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available to the COMPANY. If TRUST provides the COMPANY with materially
incorrect share net asset value information through no fault of the COMPANY,
the COMPANY on behalf of the Separate Accounts, shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect the
correct share net asset value. Any material error in the calculation of net
asset value per share, dividend or capital gain information shall be reported
promptly upon discovery to the COMPANY. Neither the Trust, the Funds, the
Funds' investment adviser, nor any of their affiliates shall be liable for
any information provided to COMPANY pursuant to this Agreement which
information is based on incorrect information furnished by COMPANY or any
other Participating Insurance Company to TRUST or the Funds' investment
adviser.
1.6 At the end of each Business Day, the COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit
values for the day. Using these unit values, the COMPANY shall process each
such Business Day's Separate Account transactions based on requests and
premiums received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. New York time) to determine the net dollar
amount of TRUST shares which shall be purchased or redeemed at that day's
closing net asset value per share. The net purchase or redemption orders so
determined shall be transmitted to TRUST by the COMPANY by 9:00 a.m. New York
time on the Business Day next following the COMPANY's receipt of such
requests and premiums in accordance with the terms of Sections 1.2 and 1.3
hereof.
1.7 If the COMPANY's order requests the purchase of TRUST shares, the
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by the
COMPANY. If the COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to the COMPANY, TRUST shall use its best
efforts to wire the redemption proceeds to the COMPANY by the next Business
Day, unless doing so would require TRUST to dispose of Fund securities or
otherwise incur additional costs. In any event, proceeds shall be wired to
the COMPANY within three Business Days or such longer period permitted by the
'40 Act or the rules, orders or regulations thereunder and TRUST shall notify
the person designated in writing by the COMPANY as the recipient for such
notice of such delay by 3:00 p.m. New York time the same Business Day that
the COMPANY transmits the redemption order to TRUST. If the COMPANY's order
requests the application of redemption proceeds from the redemption of shares
to the purchase of shares of another Fund set forth on Appendix B hereto,
TRUST shall so apply such proceeds the same Business Day that the COMPANY
transmits such orders to TRUST.
1.8 TRUST agrees that all shares of the Funds of TRUST will be sold only
to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of
the Funds of TRUST will not be sold directly to the general public.
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1.9 TRUST may refuse to sell shares of any Fund to any person, or
suspend or terminate the offering of the shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Trustees of the TRUST (the "Board"),
acting in good faith and in light of its duties under federal and any
applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Funds.
1.10 Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the COMPANY or the Separate
Accounts. Shares ordered from Fund will be recorded in appropriate book
entry titles for the Separate Accounts.
1.11 The COMPANY agrees and acknowledges that the TRUST's adviser, Quest
Advisory Corp. ("Quest"), is the sole owner of the name and mark "Royce" and
that all use of any designation comprised in whole or part of Royce (a "Royce
Mark") under this Agreement shall inure to the benefit of Quest. Except as
provided in Sections 3.4 and 4.1, the COMPANY shall not use any Royce Mark on
its own behalf or on behalf of the Separate Accounts or Variable Contracts in
any registration statement, advertisement, sales literature or other materials
relating to the Separate Accounts or Variable Contracts without the prior
written consent of Quest. Upon termination of this Agreement for any reason,
the Company shall cease all use of any Royce Mark as soon as reasonably
practicable.
Article II. representations and warranties
2.1 The COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws.
2.2 The COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the '40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 The COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "'33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state
laws and further that the sale of the Variable Contracts shall comply in all
material respects with state insurance law suitability requirements.
2.4 The COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that
it will maintain such treatment and that it will notify TRUST immediately
<PAGE>
upon having a reasonable basis for believing that the Variable Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and TRUST shall be
registered under the '40 Act prior to and at the time of any issuance or sale
of such shares. TRUST, subject to Section 1.9 above, shall amend its
registration statement under the '33 Act and the '40 Act from time to time as
required in order to effect the continuous offering of its shares. TRUST
shall register and qualify its shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by TRUST.
2.6 TRUST represents and warrants that each Fund will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify the COMPANY immediately upon having a
reasonable basis for believing any Fund has ceased to comply or might not so
comply and will immediately take all reasonable steps to adequately diversify
the Fund to achieve compliance.
2.7 TRUST represents and warrants that each Fund invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment
for each taxable year and will notify the COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
Article III. prospectus and proxy statements
3.1 TRUST shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Funds, preparation and filing of the documents listed in this Section 3.1 and
all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 At least annually, TRUST or its designee shall provide the COMPANY,
free of charge, with as many copies of the current prospectus for the shares
of the Funds as the COMPANY may reasonably request for distribution to
existing Variable Contract owners whose Variable Contracts are funded by such
shares. TRUST or its designee shall provide the COMPANY, at the COMPANY's
expense, with as many copies of the current prospectus for the shares as the
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. If requested by the COMPANY in lieu thereof, TRUST or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of the COMPANY, as a
diskette in the form sent to the financial printer) and other assistance as
is reasonably necessary in order for the parties hereto once a year (or more
<PAGE>
frequently if the prospectus for the shares is supplemented or amended) to
have the prospectus for the Variable Contracts and the prospectus for the
TRUST shares printed together in one document. The expenses of such printing
will be apportioned between (a) the COMPANY and (b) TRUST in proportion to
the number of pages of the Variable Contract and shares' prospectus, taking
account of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; TRUST to bear the cost of printing the
shares' prospectus portion of such document for distribution only to owners
of existing Variable Contracts funded by the TRUST shares and the COMPANY to
bear the expense of printing the portion of such documents relating to the
Separate Account; provided, however, the COMPANY shall bear all printing
expenses of such combined documents where used for distribution to prospective
purchasers or to owners of existing Variable Contracts not funded by the
shares. In the event that the COMPANY requests that TRUST or its designee
provide TRUST's prospectus in a "camera ready" or diskette format, TRUST
shall be responsible for providing the prospectus in the format in which it
is accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus in such format (e.g. typesetting expenses), and
COMPANY shall bear the expense of adjusting or changing the format to conform
with any of its prospectuses.
3.3 The obligations of TRUST and COMPANY with respect to the TRUST's
and Variable Contracts' prospectuses set forth in Section 3.2 shall apply in
the same manner to the TRUST's and Variable Contracts' statements of
additional information; provided, that such statements of additional
information need only be duplicated unless TRUST and COMPANY agree that such
documents should be printed.
3.4 TRUST will provide COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Funds promptly after the
filing of each such document with the SEC or other regulatory authority. The
COMPANY will provide TRUST with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly
after the filing of each such document with the SEC or other regulatory
authority.
Article IV. sales materials
4.1 The COMPANY will furnish, or will cause to be furnished, to TRUST,
each piece of sales literature or other promotional material in which TRUST
or its investment adviser is named, at least fifteen (15) Business Days prior
to its intended use. No such material will be used if TRUST objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST will furnish, or will cause to be furnished, to the COMPANY,
each piece of sales literature or other promotional material in which the
COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if the COMPANY
<PAGE>
objects to is use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information
or make any representations on behalf of the COMPANY or concerning the
COMPANY, the Separate Accounts, or the Variable Contracts issued by the
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by the COMPANY or its designee, except
with the written permission of the COMPANY.
4.4 The COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning
TRUST other than the information or representations contained in a
registration statement or prospectus for TRUST, as such registration
statement and prospectus may be amended or supplemented from time to time, or
in sales literature or other promotional material approved by TRUST or its
designee, except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use,
in a newspaper, magazine or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures or
other public media), sales literature (such as any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, or reprints or excerpts of any other advertisement, sales literature,
or published article), educational or training materials or other
communications distributed or made generally available to some or all agents
or employees, registration statements, prospectuses, statements of additional
information, shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under National Association of
Securities Dealers, Inc. rules, the '40 Act or the '33 Act.
Article V. potential conflicts
5.1 The parties acknowledge that TRUST has received an Exemptive Order
from the SEC granting relief from various provisions of the '40 Act and the
rules thereunder to the extent necessary to permit TRUST shares to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated Participating Insurance Companies and
Qualified Plans. The Exemptive Order requires TRUST and each Participating
Insurance Company to comply with conditions and undertakings substantially as
provided in this Section 5. The TRUST will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes
the same conditions and undertakings as are imposed on the COMPANY hereby.
<PAGE>
5.2 The Board will monitor TRUST for the existence of any irreconcilable
material conflict between and among the interests of Variable Contract owners
of all separate accounts and of plan participants of Qualified Plans
investing in TRUST, and determine what action, if any, should be taken in
response to such conflicts. An irreconcilable material conflict may arise for
a variety of reasons, which may include: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of TRUST are being
managed; (e) a difference in voting instructions given by variable annuity
and variable life insurance Contract owners; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
Variable Contract owners and (g) if applicable, a decision by a Qualified
Plan to disregard the voting instructions of plan participants.
5.3 The COMPANY will report any potential or existing conflicts to the
Board. The COMPANY will be responsible for assisting the Board in carrying
out its duties in this regard by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. The
responsibility includes, but is not limited to, an obligation by the COMPANY
to inform the Board whenever it has determined to disregard Variable Contract
owner voting instructions. These responsibilities of the COMPANY will be
carried out with a view only to the interests of the Variable Contract
owners.
5.4 If a majority of the Board or majority of its disinterested
trustees, determines that a material irreconcilable conflict exists,
affecting the COMPANY, the COMPANY, at its expense and to the extent
reasonably practicable (as determined by a majority of the Board's
disinterested trustees), will take any steps necessary to remedy or eliminate
the irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the Separate Accounts from TRUST or any Fund
thereof and reinvesting those assets in a different investment medium, which
may include another Fund of TRUST, or another investment company; (b)
submitting the question as to whether such segregation should be implemented
to a vote of all affected Variable Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity or
variable life insurance Contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected Variable Contract owners the option of making such a change; and
(c) establishing a new registered management investment company or managed
separate account. If an irreconcilable material conflict arises because of
the COMPANY's decision to disregard Variable Contract owner voting
instructions, and that decision represents a minority position or would
preclude a majority vote, the COMPANY may be required, at the election of
TRUST to withdraw the Separate Account's investment in TRUST, and no charge
or penalty will be imposed as a result of such withdrawal. To the extent
permitted by applicable law, the COMPANY shall bear the responsibility of
taking remedial action in the event of Board determination of the existence
of a material irreconcilable conflict and the cost of such remedial action
and this responsibility shall be carried out with a view only to the
interests of the Variable Contract owners.
<PAGE>
For purposes of this Section 5.4, a majority of the disinterested members
of the Board shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict but in no event will TRUST or
its investment adviser (or any other investment adviser of TRUST) be required
to establish a new funding medium for any Variable Contract. Further, the
COMPANY shall not be required by this Section 5.4 to establish a new funding
medium for any Variable Contracts if any offer to do so has been declined by a
vote of a majority of Variable Contract owners materially and adversely
affected by the irreconcilable conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to the COMPANY.
5.6 No less than annually, the COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations. Such reports, materials and data
shall be submitted more frequently if deemed appropriate by the Board.
Article VI. voting
6.1 The COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the '40
Act as requiring pass-through voting privileges for Variable Contract
owners. Accordingly, the COMPANY, where applicable, will vote shares of the
Fund held in its Separate Accounts in a manner consistent with voting
instructions timely received from its Variable Contract owners. The COMPANY
will be responsible for assuring that each of its Separate Accounts that
participates in TRUST calculates voting privileges in a manner consistent
with other Participating Insurance Companies. The COMPANY will vote shares
for which it has not received timely voting instructions, as well as shares
it owns, in the same proportion as its votes those shares for which it has
received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
'40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then TRUST, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule
6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent
such Rules are applicable.
Article VII. indemnification
7.1 Indemnification by the COMPANY. The COMPANY agrees to indemnify
and hold harmless TRUST, and each of its Trustees, principals, officers,
employees and agents and each person, if any, who controls TRUST within the
meaning of Section 15 of the '33 Act (collectively, the "Indemnified Parties"
<PAGE>
for purposes of this Article VII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the COMPANY, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale or
acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Variable Contracts or contained in
the Variable Contracts or in sales literature generated or approved
by COMPANY on behalf of the Variable Contracts or Separate Accounts
(or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the COMPANY by or on behalf of TRUST for use in the registration
statement or prospectus for the Variable Contracts or in the Variable
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable
Contracts or TRUST shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of TRUST not
supplied by the COMPANY, or persons under its control) or wrongful
conduct of the COMPANY or persons under its control, with respect to
the sale or distribution of the Variable Contracts or TRUST shares;
or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or
sales literature of TRUST or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to TRUST by or on behalf of the
COMPANY; or
(d) arise as a result of any failure by the COMPANY to provide
substantially the services and furnish the materials under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the COMPANY in this Agreement
or arise out of or result from any other material breach of this
Agreement by the COMPANY.
<PAGE>
7.2 The COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
7.3 The COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the COMPANY
of any such claim shall not relieve the COMPANY from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against an Indemnified Party, the COMPANY shall be
entitled to participate at its own expense in the defense of such action. The
COMPANY also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the COMPANY
to such party of the COMPANY's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the COMPANY will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
7.4 Indemnification by TRUST. TRUST agrees to indemnify and hold
harmless the COMPANY and each of its directors, officers, employees, and
agents and each person, if any, who controls the COMPANY within the meaning
of Section 15 of the '33 Act (collectively, the "Indemnified Parties" for the
purposes of this Article VII) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
TRUST which consent shall not be unreasonably withheld) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute, or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of TRUST (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this Agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to
TRUST by or on behalf of the COMPANY for use in the registration
statement or prospectus for TRUST or in sales literature (or any
<PAGE>
amendment or supplement) or otherwise for use in connection with the
sale of the Variable Contracts or TRUST shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Contracts not supplied by TRUST or persons under its
control) or wrongful conduct of TRUST or persons under its control,
with respect to the sale or distribution of the Variable Contracts or
TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or
sales literature covering the Variable Contracts, or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
COMPANY for inclusion therein by or on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST to provide
substantially the services and furnish the materials under the terms
of this Agreement; or (ii) a failure by a Fund(s) invested in by the
Separate Account to comply with the diversification requirements of
Section 817(h) of the Code; or (iii) a failure by a Fund(s) invested
in by the Separate Account to qualify as a "regulated investment
company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by TRUST in this Agreement or
arise out of or result from any other material breach of this
Agreement by TRUST.
7.5 TRUST shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
7.6 TRUST shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified TRUST in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify TRUST of any such claim shall not
relieve TRUST from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, TRUST shall be entitled to participate at its own expense
<PAGE>
in the defense thereof. TRUST also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from TRUST to such party of TRUST election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and TRUST will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
Article VIII. term; termination
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following provisions:
(a) At the option of the COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by
the parties;
(b) At the option of the COMPANY, if TRUST shares are not reasonably
available to meet the requirements of the Variable Contracts as
determined by the COMPANY. Prompt notice of election to terminate
shall be furnished by the COMPANY, said termination to be effective
ten days after receipt of notice unless TRUST makes available a
sufficient number of shares to reasonably meet the requirements of
the Variable Contracts within said ten-day period;
(c) At the option of the COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the expected
or anticipated ruling, judgment or outcome of which would, in the
COMPANY's reasonable judgment, materially impair TRUST's ability to
meet and perform TRUST's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by the COMPANY
with said termination to be effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal
proceedings against the COMPANY by the SEC, the National Association
of Securities Dealers, Inc. or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of which would,
in TRUST's reasonable judgment, materially impair the COMPANY's
ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by TRUST
with said termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law
precludes the use of such shares as the underlying investment medium
of Variable Contracts issued or to be issued by the COMPANY.
<PAGE>
Termination shall be effective upon such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to qualify
as annuity contracts or life insurance contracts, as applicable,
under the Code, or if TRUST reasonably believes that the Variable
Contracts may fail to so qualify. Termination shall be effective
upon receipt of notice by the COMPANY;
(g) At the option of the COMPANY, upon TRUST's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of the COMPANY within ten days after written notice of
such breach is delivered to TRUST;
(h) At the option of TRUST, upon the COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of TRUST within ten days after written notice of such
breach is delivered to the COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law. Termination shall be effective immediately upon
such occurrence without notice;
(j) In the event this Agreement is assigned without the prior written
consent of the COMPANY and TRUST, termination shall be effective
immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section 8.2
hereof, TRUST at the option of the COMPANY will continue to make available
additional TRUST shares, as provided below, pursuant to the terms and
conditions of this Agreement, for all Variable Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts or the COMPANY, whichever shall have legal authority to do
so, shall be permitted to reallocate investments in TRUST, redeem investments
in TRUST and/or invest in TRUST upon the payment of additional premiums under
the Existing Contracts.
Article IX. notices
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party set
forth below or at such other address as such party may from time to time
specify in writing to the other party.
<PAGE>
If to TRUST:
Royce Capital Trust
1414 Avenue of the Americas
New York, New York 10019
Attn: Howard J. Kashner, Esq.
If to the COMPANY:
Attention:
Notice shall be deemed given on the date of receipt by the addresses as
evidenced by the return receipt.
Article X. miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of [New York]
. It shall also be subject to the provisions of the federal securities laws
and the rules and regulations thereunder and to any orders of the SEC
granting exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Fund nor the Trustees or officers of TRUST or
any Fund shall be personally liable hereunder. No Fund shall be liable for
the liabilities of any other Fund. All persons dealing with TRUST or a Fund
must look solely to the property of TRUST or that Fund, respectively, for
enforcement of any claims against TRUST or that Fund. It is also understood
that each of the Funds shall be deemed to be entering into a separate
Agreement with the COMPANY so that it is as if each of the Funds had signed a
separate Agreement with the COMPANY and that a single document is being
signed simply to facilitate the execution and administration of the
Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the National
Association of Securities Dealers, Inc. and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
<PAGE>
connection with any investigation or inquiry relating to this Agreement or
the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by
TRUST and the COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
ROYCE CAPITAL TRUST
By:
Name:
Title:
[NAME OF INSURANCE COMPANY]
By:
Name:
Title:
<PAGE>
APPENDIX A
Trust and its Funds
Royce Capital Trust:
Royce Premier Portfolio
Royce Equity Income Portfolio
Royce Micro-Cap Portfolio
<PAGE>
APPENDIX B
Separate Accounts Selected Funds
B:\PART.AGR
<PAGE>
Exhibit (10)
July 29, 1996
Royce Capital Trust
1414 Avenue of the Americas
New York, New York 10019
Re: Registration Statement on Form N-1A
(Registration No. 333-1073)
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters of
Delaware law in connection with the registration statement on Form N-1A
(Registration No. 333-1073) (the "Registration Statement") under the
Securities Act of 1933, as amended, of Royce Capital Trust (the "Trust")
relating to an indefinite number of the Trust's shares of beneficial interest
of the Trust authorized by the Certificate of Trust and Trust Instrument of
the Trust (the "Shares").
We have reviewed the actions taken by the Trustees of the Trust to
organize the Trust and to authorize the issuance and sale of the Shares. In
this connection we have examined the Certificate of Trust, Trust Instrument
and By-Laws of the Trust, the Registration Statement, including the
prospectus and statement of additional information forming a part thereof,
certificates of officers of the Trust and of public officials as to matters
of fact, and such other documents and instruments, certified or otherwise
identified to our satisfaction, and such questions of law and fact, as we
have considered necessary or appropriate for the purpose of rendering the
opinions expressed herein. In such examination we have assumed, without
independent verification, the genuineness of all signatures (whether original
or photostatic), the authenticity of all documents submitted to us as
originals, and the conformity to authentic original documents of all
documents submitted to us as certified or photostatic copies. As to all
questions of fact material to such opinions, we have relied upon the
representations contained in the certificates referred to above. We have
assumed, without independent verification, the accuracy of the relevant facts
stated therein.
<PAGE>
We are admitted to the Bars of The Commonwealth of Massachusetts, the
State of New York and the District of Columbia and generally do not purport
to be familiar with the laws of the State of Delaware. To the extent that
the conclusions based on the laws of the State of Delaware are involved in
the opinions set forth herein below, we have relied, in rendering such
opinions, upon our examination of Chapter 38 of Title 12 of the Delaware Code
Annotated, as amended, entitled "Treatment of Delaware Business Trusts" (the
"Delaware business trust law") and on our knowledge of interpretation of
analogous common law of The Commonwealth of Massachusetts.
This letter expresses our opinion as to the provisions of the Trust's
Certificate of Trust and Trust Instrument, Agreement and Declaration of
Trust, but does not extend to the Delaware Uniform Securities Act, or to
other federal or state securities laws or other federal laws.
Based upon the foregoing and subject to the qualifications set forth
herein, we hereby advise you that, in our opinion:
1. The Trust is validly existing as a trust with transferable shares
under the laws of the State of Delaware.
2. The Trust is authorized to issue an unlimited number of shares of
beneficial interest, $.001 par value per Share; the Shares have been duly and
validly authorized by all action of the Trustees of the Trust, and no action
of the shareholders of the Trust is required in such connection.
3. When issued and paid for as described in the Registration Statement,
the Shares will be fully paid and nonassessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder.
Very truly yours,
SULLIVAN & WORCESTER LLP
<PAGE>
Exhibit (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Royce Capital Trust:
We hereby consent to the inclusion of our report dated July 29,
1996 on our audit of the Statement of Assets and Liabilities of
Royce Premier Portfolio and Royce Micro-Cap Portfolio of Royce
Capital Trust in Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 333-1073) under the Securities Act
of 1933 and (File No. 811-07537) under the Investment Company Act
of 1940.
We also consent to the reference to our Firm under the heading
"Independent Accountants" in the Statement of Additional
Information.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
July 29, 1996
<PAGE>
Exhibit (13)
ROYCE CAPITAL TRUST
1414 Avenue of the Americas
New York, New York 10019
July 2, 1996
Mr. Charles M. Royce
Quest Advisory Corp.
Money Purchase Plan
1414 Avenue of the Americas
New York, New York 10019
Dear Mr. Royce:
Royce Capital Trust (the "Trust") hereby accepts your offer to
purchase 20,000 shares of beneficial interest of the Royce Premier
Portfolio, a series of the Trust, at $5.00 per share, for an
aggregate purchase price of $100,000.00, and your offer to purchase
20,000 shares of the Royce Micro-Cap Portfolio, a series of the
Trust, at $5.00 per share, for an aggregate purchase price of
$100,000.00, each subject to the understanding that you have no
present intention of redeeming or selling the shares so acquired.
Sincerely,
ROYCE CAPITAL TRUST
By: /s/ Charles M. Royce
Charles M. Royce
President
Agreed:
I, Charles M. Royce, hereby agree to purchase the shares of
beneficial interest of the Trust covered under the above letter
agreement with monies currently held in my Quest Advisory Corp.
Money Purchase Pension Plan account. I acknowledge that I have no
present intention of redeeming or selling any of the 40,000 shares
of the Trust covered by such letter agreement.
/s/ Charles M.Royce
Charles M. Royce
<PAGE>
Exhibit (17)
[ARTICLE] 6
[CIK] 0001006387
[NAME] ROYCE PREMIER PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] JUL-26-1996
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 100000
[OTHER-ITEMS-ASSETS] 10000
[TOTAL-ASSETS] 110000
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 10000
[TOTAL-LIABILITIES] 10000
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 19980
[SHARES-COMMON-STOCK] 20
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100000
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 100000
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 100000
[PER-SHARE-NAV-BEGIN] 5.00
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 5.00
[EXPENSE-RATIO] 1.99
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0001006387
[NAME] ROYCE MICRO-CAP PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] OTHER
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] JUL-26-1996
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 100000
[OTHER-ITEMS-ASSETS] 10000
[TOTAL-ASSETS] 110000
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 10000
[TOTAL-LIABILITIES] 10000
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 19980
[SHARES-COMMON-STOCK] 20
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 100000
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 0
[NET-INVESTMENT-INCOME] 0
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 0
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 100000
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 0
[AVERAGE-NET-ASSETS] 100000
[PER-SHARE-NAV-BEGIN] 5.00
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 5.00
[EXPENSE-RATIO] 1.99
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
BY FEDERAL EXPRESS
July 29, 1996
Ms. Barbara Whistler, Esq.
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Royce Capital Trust
File Nos. 811-07537 and 333-1073
Dear Ms. Whistler:
This letter is written in response to your correspondence
dated June 3, 1996, commenting on the Registration Statement filed
by Royce Capital Trust (the "Fund") with the Securities and
Exchange Commission on February 20, 1996.
Our responses, which are numbered to correspond to the
comments set forth in your June 3rd letter, are as follows:
Part A. Prospectus
Fund Expense, page 2
1. Language has been added on page 2 to clarify that shareholders
will ultimately bear the cost of the Fund's operations.
<PAGE>
July 29, 1996
Page 2
Investment Performance, page 3
2. The Fund intends to use the total return information for the
"Royce retail funds", which reflects deduction of the historical
fees and expenses paid by the "Royce retail funds" and not those
to be paid by the new corresponding series of the Fund, only in
its prospectus during its first year of operations and does not
intend to use such information in any advertisements or supplemental
sales literature. The Fund bases its ability to use the total
return information of the "Royce retail funds" on the no-action
position taken by the staff of the Division of Investment Management
in Growth Stock Outlook Trust, Inc. (pub. avail. 4/15/86).
Investment Limitations, pages 6 and 8
3. Item 4 (a) (ii) (c) of Form N-1A requires the Fund, subject to
paragraph (b) of the item, to identify its fundamental policies in
its prospectus. Paragraph (b) of the item allows the Fund to
identify certain fundamental policies in its statement of
additional information rather than in its prospectus, if the effect
of the policy is to prohibit a particular practice or if the Fund
has no intention of engaging in the practice and such policy has
the effect of limiting the practice so no more than 5% of Fund's
net assets are at risk. Based on paragraph (b) of the item,
certain of the Fund's fundamental investment policies are disclosed
only in its statement of additional information.
* * * * * *
I believe that the above responds fully to each of the
concerns expressed in your June 3, 1996 comment letter. In
addition, I have enclosed pre-effective amendment
No. 1 to the Fund's Form N-1A registration statement, which has
been filed with the Securities and Exchange Commission today, and
which contains changes made to reflect your comments.
<PAGE>
Barbara Whistler, Esq.
July 29, 1996
Page 3
Please direct any communications related to this filing to the undersigned
at (212) 508-4578.
Very Truly Yours,
/s/John E. Denneen
John E. Denneen
Secretary
JED/hs
C:\WPWIN\QUEST\RVT\RIGHTS\SEC-RESP.LTR
Enclosures
cc: Howard J. Kashner, Esq.
<PAGE>
BY FEDERAL EXPRESS
July 31, 1996
Ms. Barbara Whistler, Esq.
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Re: Royce Capital Trust (the "Fund")
File Nos. 811-07537 and 333-1073
Dear Ms. Whistler:
As discussed with you this morning, I am transmitting herewith
pre-effective amendment no. 2 to the Fund's registration statement
on Form N-1A for the sole purpose of including the second page of
the Fund's financial statements which were inadvertantly not
included in the EDGAR filing of pre-effective amendment no. 1 which
was filed on behalf of the Fund on July 29, 1996.
Please direct any communications relating to this filing to the
undersigned at (212) 508-4578.
Very Truly Yours,
John E. Denneen
Secretary
