As filed with the Securities and Exchange Commission on February
20, 1996
1940 Act File No. 811-07537
1933 Act File No. 33- _____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. / /
(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 registers an indefinite number of
securities under the Securities Act of 1933 pursuant to Rule
24f-2 under the Investment Company Act of 1940.
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: 127
Index to Exhibits is located on page: 47
<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 -- __________ __, 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.
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 ________ __,
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 . . . . . . . . . .
Investment Performance. . . . . .
Investment Objectives . . . . . .
Investment Policies . . . . . . .
Investment Risks. . . . . . . . .
Page
Investment Limitations. . . . . . . . . . . . .
Management of the Trust . . . . . . . . . . . .
General Information . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . .
Net Asset Value Per Share . . . . . . .
Shareholder Guide . . . . . . . . . . .
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 and are not charged directly to
shareholders. 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, 1996 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 is 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 December 31, 1995 were:
One Three Five Since Inception
Year Year Year Inception Date
Royce Premier Fund 17.8% 13.2% -- 13.8% December 31, 1991
Royce Equity Income Fund 16.4% 8.4% 14.6% 9.0% January 2, 1990
Royce Micro-Cap Fund 19.1% 15.1% -- 18.5% 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 securities convertible into common stocks
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 securities convertible into common
stocks 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.
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. This
is in contrast to other methods that primarily focus
on the future prospects of a company and concentrate
on high growth or emerging growth companies.
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.
<PAGE>
Royce Premier Portfolio
Normally, Royce Premier Portfolio will invest at
least 80% of its assets in a limited number of
common stocks and convertible securities. At least
65% of these securities will be income-producing
and/or issued by companies with stock market
capitalizations under $1,000,000,000 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 and convertible securities. 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
$1,000,000,000 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 convertible securities of small and micro-sized
companies. At least 65% of these securities will be
issued by companies with stock market
capitalizations under $300,000,000 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.
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 may
invest in securities of companies that are not well-
known to the investing public, may not have
significant institutional ownership and may have
cyclical, static or only moderate growth prospects.
The stocks 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. The Funds should not
be used to play short-term swings in the market.
<PAGE>
Although Royce Premier Portfolio is diversified
within the meaning of the 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.
Quest may employ a more aggressive approach to
investing for Royce Micro-Cap Portfolio that
involves a substantially higher than average
portfolio turnover rate. In addition, Royce Micro-
Cap Portfolio may invest in many micro-cap
securities that are followed by relatively few
securities analysts, with the result that there
tends to be less publicly available information
concerning the securities compared to what is
available for exchange-listed or larger companies.
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 and 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
<PAGE>
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.
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 Pennsylvania Mutual Fund, to series of
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
<PAGE>
reports, 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.
______________________ 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>
<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, a Fund's
agent or its delegatee. 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, a Fund's agent or its delegatee. 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
Susan I. Grant, Secretary
Prospectus
__________ __, 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 __________
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
___________, 1996
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS . . . . . . . . 2
RISK FACTORS AND SPECIAL CONSIDERATIONS . . . . . . 4
MANAGEMENT OF THE TRUST . . . . . . . . . . . . . . 7
PRINCIPAL HOLDERS OF SHARES . . . . . . . . . . . . . 9
INVESTMENT ADVISORY SERVICES. . . . . . . . . . . . .10
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . 11
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . .11
PORTFOLIO TRANSACTIONS. . . . . . . . . . . . . . . .11
CODE OF ETHICS AND RELATED MATTERS. . . . . . . . . .12
PRICING OF SHARES BEING OFFERED . . . . . . . . . . 132
REDEMPTIONS IN KIND . . . . . . . . . . . . . . . . .13
TAXATION. . . . . . . . . . . . . . . . . . . . . . .13
DESCRIPTION OF THE TRUST. . . . . . . . . . . . . . .15
PERFORMANCE DATA. . . . . . . . . . . . . . . . . . .17
FINANCIAL STATEMENT. . . . . . . . . . . . . . . . .22
<PAGE>
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;
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; or
17. Purchase any warrants, rights or options, except that the Funds may (i)
if no value is assigned thereto, acquire warrants in units with or attached
to debt securities or non-convertible preferred stock and (ii) also invest up
to 5% of their respective net assets in warrants, valued at the lower of cost
or market, provided that warrants that are not listed on the New York or
American Stock Exchanges shall not exceed 2% of their respective net assets.
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; or
4. Enter into repurchase agreements with any party other than the custodian
of its assets.
<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
<PAGE>
regarding an 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 Receipt (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). 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.
<PAGE>
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.
MANAGEMENT OF THE TRUST
The following table sets forth certain information as to each Trustee and
officer of the Trust:
Position Held
Name, Address and Age with the Trust Principal Occupations During Past 5 Years
Charles M. Royce* (56) Trustee, President, Secretary, Treasurer and
1414 Avenue of the President and sole director and sole voting
Americas Treasurer shareholder of Quest Advisory
New York, NY 10019 Corp. ("Quest"), the Trust's
investment adviser; Trustee,
President and Treasurer of
Pennsylvania Mutual Fund ("PMF") and
The Royce Fund ("TRF"), open-end
diversified management investment
companies 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;
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.
<PAGE>
Richard M. Galkin (57) Trustee Private investor and president of
5284 Boca Marina Richard M. Galkin Associates,
Circle South Inc., tele-communications
Boca Raton, FL 33487 consultants.
Stephen L. Isaacs (56) Trustee Director of Columbia University
60 Haven Street, Fl. B-2 Development Law and Policy Program;
New York, NY 10032 Professor at Columbia University;
and President of Stephen L. Isaacs
Associates, Consultants.
David L. Meister (56) Trustee Consultant to the communications
111 Marquez Place industry since January 1993;
Pacific Palisades, CA Executive officer of Digital Planet
90272 Inc. from April 1991 to December
1992; and consultant to the
communications and television
industry from August 1990 to April
1991.
John D. Diederich (44) Vice President Director of Operations of PMF, TRF
1414 Avenue of the and RVT since April 1993; and of
Americas OTCM since September 1993;
New York, NY 10019 President of QDI since November
1995; and President of Fund/Plan
Services, Inc. from January 1988 to
December 1992.
Jack E. Fockler, Jr.* Vice President Vice President (since August 1993)
(37) and senior associate of Quest,
1414 Avenue of the having been employed by Quest since
Americas October 1989; Vice President of
New York, NY 10019 PMF, TRF, RVT and OTCM since April
1995; Vice President of QDI since
November 1995; and general partner
of QMC since July 1993.
W. Whitney George* Trustee and Vice President (since August 1993)
(37) Vice President and senior analyst of Quest, having
1414 Avenue of the been employed by Quest since
Americas October 1991; Vice President of
New York, NY 10019 PMF, TRF, RVT and OTCM since April
1995; and general partner of QMC
and its predecessor since January
1992.
Daniel A. O'Byrne* Vice President Vice President of Quest since May
(33) and Assistant 1994, having been employed by Quest
1414 Avenue of the Secretary since October 1986; and Vice
Americas President of PMF, TRF, RVT and OTCM
New York, NY 10019 since July 1994.
<PAGE>
Susan I. Grant* (42) Secretary Compliance Officer and Senior
1414 Avenue of the Counsel of Quest and Secretary of
Americas PMF, TRF, RVT and OTCM since August
New York, NY 10019 1994; and Assistant Counsel of
First Investors Corporation from
July 1989 to August 1994.
________________________________
*An "interested person" under Section 2(a)(19) of the 1940 Act.
All of the Trust's Trustees except W. Whitney George are also trustees
of PMF and 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 four 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 - $____________
Stephen L. Isaacs - 0 - ____________
David L. Meister - 0 - ____________
Each of the non-affiliated Trustees will receive a base fee of $____________
per year plus $______________ for each meeting of the Board of Trustees
attended.
PRINCIPAL HOLDERS OF SHARES
As of _________________, 1996, ____________________, _________________,
__________________, owned of record ______________ shares of each of the
Funds, representing 100% of their then outstanding shares. All of these
shares were beneficially owned by Charles M. Royce as the owner of one or
more Variable Contracts issued by __________________.
<PAGE>
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 (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.
<PAGE>
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.
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
__________________________, whose address is ___________________,
____________, are the independent accountants of the Trust. The balance
sheets of the Funds included in the Statement of Additional Information have
been examined by _________________________, 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.
<PAGE>
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 independently
from those for the other Funds and the other 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. 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 (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".
<PAGE>
As of December 31, 1995, 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 $____ million, and Quest's and QMC's equity
interests in such private investment companies totalled approximately $____
million.
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
<PAGE>
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 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
<PAGE>
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 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 under Delaware law
by a Certificate of Trust, effective January 11, 1996. A copy of the
Certificate of Trust is on file with the Secretary of State of Delaware, and
a copy of the Trust Instrument of the Trust, 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
<PAGE>
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 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 their Fund, are entitled to receive
its net assets. 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.
<PAGE>
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.
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 Small Cap 600
Index (S&P 600) and the Russell 2000 Index (Russell 2000).
<PAGE>
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, the weighted mean market value of a
company in this Index was approximately $___ 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 ___ capital appreciation funds, ___ growth funds,
___ small company growth funds, ___ growth and income funds and ___ 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
<PAGE>
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 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 ____
stocks, with a median market capitalization of about $__ 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 Bard's 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 ___ equity funds rated by Morningstar with a three-year history
was 0.__; the average risk score for the ___ small company funds rated by
Morningstar with a three-year history was __.__; and the average risk score
for the ___ equity income funds rated by Morningstar with a three-year history
was 0.__.
<PAGE>
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 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.
<PAGE>
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 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 INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Royce Capital Trust
We have audited the accompanying statement of net assets of Royce Capital
Trust, comprised of Royce Premier Portfolio, Royce Equity Income Portfolio
and Royce Micro-Cap Portfolio, as of ____________, 1996. This statement of
net assets is the responsibility of the Trust's management. Our
responsibility is to express an opinion on this statement of net assets based
on our audit.
We 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 net assets is free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of net
assets. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of net assets presentation. We believe that our audit of the
statement of net assets provides a reasonable basis for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Royce Capital Trust,
comprised of Royce Premier Portfolio, Royce Equity Income Portfolio and Royce
Micro-Cap Portfolio, at _________, 1996, in conformity with generally
accepted accounting principles.
__________________, 1996
<PAGE>
ROYCE CAPITAL TRUST
Statement of Net Assets
______________, 1996
Royce Premier Royce Equity Royce Micro-Cap
Portfolio Income Portfolio Portfolio
Assets
Cash
Deferred Organization Costs
Total Assets
Liabilities and Net Assets
Accrued Organization Costs
Net Assets
Fund Shares Outstanding
Net Asset Value, offering and
redemption price per share
<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, Equity Income and Micro-Cap Portfolios at ___________,
1996; and
Notes to Statement of Assets and Liabilities --
Report of Independent Accountants dated
__________, 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:
(1) Trust Instrument and Certificate of Trust of the
Registrant.
(2) By-laws of the Registrant.
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement by and
between the Registrant and Quest Advisory Corp.
(6) Not Applicable.
(7) Not Applicable.
(8) Form of Custodian Agreement between the Registrant
and State Street Bank and Trust Company.
(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*.
*To be filed by amendment.
<PAGE>
(12) Not Applicable.
(13) Form of Subscription Agreement between
_______________ and the Registrant for the initial purchase of
shares of Royce Premier, Royce Equity Income and Royce Micro-Cap
Portfolios*.
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule For Computation Of Performance Quotations
Provided in Item 22.
(17) Financial Data Schedule.
(18) Not Applicable.
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.
Item 26. Number of Holders of Securities
As of __________, 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 1
Royce Micro-Cap Portfolio 1
*To be filed by amendment.
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,
<PAGE>
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 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 <PAGE>
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.
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
<PAGE>
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 proceeding 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."
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
<PAGE>
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
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 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 16th day of February,
1996.
ROYCE CAPITAL TRUST
By: /s/ Charles M. Royce
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of
1933, this 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 2/16/96
Charles M. Royce and Trustee
(Principal Executive,
Financial and Accounting
Officer)
/s/ Richard M. Galkin Trustee 2/16/96
Richard M. Galkin
/s/ W. Whitney George Trustee 2/16/96
W. Whitney George
/s/ Stephen L. Isaacs Trustee 2/16/96
Stephen L. Isaacs
/s/ David L. Meister Trustee 2/16/96
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.
(1) Trust Instrument and Certificate of Trust of 48
the Registrant
(2) By-laws of the Registrant 75
(5) Form of Investment Advisory Agreement by 86
and between the Registrant and Quest Advisory
Corp.
(8) Form of Custodian Agreement between the 91
Registrant and State Street Bank and Trust
Company
(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) Form of Subscription Agreement between *
_______________ and the Registrant for the
initial purchase of shares of Royce Premier,
Royce Equity Income and Royce Micro-Cap
Portfolios
(16) Schedule For Computation Of Performance 120
Quotations Provided in Item 22
(17) Financial Data Schedule 122
*To be filed by amendment
<PAGE>ROYCE CAPITAL TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on January 11 , 1996, by the
Trustees, to establish a business trust for the investment and
reinvestment of funds and other property contributed to the Trust
by investors. The Trustees declare that all money and property
contributed to the Trust shall be held and managed in trust
pursuant to this Trust Instrument. The name of the Trust created
by this Trust Instrument is Royce Capital Trust.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "By-laws" means the By-laws of the Trust adopted by the
Trustees, as amended from time to time;
(b) "Class" means the class of Shares of the Trust or of a
Series established pursuant to Article IV;
(c) "Commission," "Interested Person," and "Principal
Underwriter" have the meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article
IX, Section 2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the
Delaware Code entitled "Treatment of Delaware Business Trusts,"
as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a
majority of the outstanding voting securities" as defined in the
1940 Act;
(g) "Net Asset Value" means the net asset value of the
Trust or of each Series of the Trust, determined as provided in
Article V, Section 3;
(h) "Outstanding Shares" means Shares shown in the books of
the Trust or its transfer agent as then issued and outstanding,
but does not include Shares which have been redeemed by the Trust
or which have been repurchased by the Trust and are held in its
treasury;
(i) "Series" means a series of Shares established pursuant
to Article IV;
<PAGE>
(j) "Shareholder" means a record owner of outstanding
Shares;
(k) "Shares" means the equal proportionate transferable
units of interest into which the beneficial interest of the
Trust, each Series or Class is divided from time to time
(including whole Shares and fractions of Shares);
(l) "Trust" means Royce Capital Trust established hereby,
and reference to the Trust, when applicable to one or more
Series, refers to that Series;
(m) "Trustees" means the persons who have signed this Trust
Instrument, so long as they shall continue in office in
accordance with the terms hereof, and all other persons who may
from time to time be duly qualified and serving as Trustees in
accordance with Article II, in all cases in their capacities as
Trustees hereunder;
(n) "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or
for the Trust or any Series or the Trustees on behalf of the
Trust or any Series;
(o) The "1940 Act" means the Investment Company Act of
1940, as amended from time to time.
ARTICLE II
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of
the Trust shall be managed by or under the direction of the
Trustees, and they shall have all powers necessary or desirable
to carry out that responsibility. The Trustees may execute all
instruments and take all action they deem necessary or desirable
to promote the interests of the Trust. Any determination made by
the Trustees in good faith as to what is in the interests of the
Trust shall be conclusive.
Section 2. Initial Trustees; Election and Number of
Trustees. The initial Trustees shall be the persons initially
signing this Trust Instrument. The number of Trustees (other
than the initial Trustees) shall be fixed from time to time by a
majority of the Trustees; provided that there shall be at least
two (2) Trustees. The Shareholders shall elect the Trustees
(other than the initial Trustees) on such dates as the Trustees
may fix from time to time.
Section 3. Term of Office of Trustees. Each Trustee shall
hold office for life or until his successor is elected or the
Trust terminates; except that (a) any Trustee may resign by
delivering to the other Trustees or to any Trust officer a
written resignation
<PAGE>
effective upon such delivery or a later date specified therein;
(b) any Trustee may be removed with or without cause at any time
by a written instrument signed by at least two-thirds of the
other Trustees, specifying the effective date of removal; (c) any
Trustee who requests to be retired, or who has become physically
or mentally incapacitated or is otherwise unable to serve, may be
retired by a written instrument signed by a majority of the other
Trustees, specifying the effective date of retirement; and (d)
any Trustee may be removed at any meeting of the Shareholders by
a vote of at least two-thirds of the Outstanding Shares.
Section 4. Vacancies; Appointment of Trustees. Whenever a
vacancy shall exist in the Board of Trustees, regardless of the
reason for such vacancy, the remaining Trustees shall appoint any
person as they determine in their sole discretion to fill that
vacancy, consistent with the limitations under the 1940 Act.
Such appointment shall be made by a written instrument signed by
a majority of the remaining Trustees or by a resolution of the
remaining Trustees, duly adopted and recorded in the records of
the Trust, specifying the effective date of the appointment. The
remaining Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the
retirement, resignation or removal of a Trustee or an increase in
number of Trustees, provided that such appointment shall become
effective only at or after the expected vacancy occurs. As soon
as any such Trustee has accepted his appointment in writing, the
trust estate shall vest in the new Trustee, together with the
continuing Trustees, without any further act or conveyance, and
he shall be deemed a Trustee hereunder. The power of appointment
is subject to Section 16(a) of the 1940 Act.
Section 5. Temporary Vacancy or Absence. Whenever a
vacancy in the Board of Trustees shall occur, until such vacancy
is filled, or while any Trustee is absent from his domicile
(unless that Trustee has made arrangements to be informed about,
and to participate in, the affairs of the Trust during such
absence), or is physically or mentally incapacitated, the
remaining Trustees shall have all the powers hereunder and their
certificate as to such vacancy, absence or incapacity shall be
conclusive. Any Trustee may, by power of attorney, delegate his
powers as Trustee for a period not exceeding six (6) months at
any one time to any other Trustee or Trustees.
Section 6. Chairman. The Trustees may appoint one of their
number to be Chairman of the Board of Trustees. The Chairman or,
if there is no Chairman, the President of the Trust shall preside
at all meetings of the Trustees, shall be responsible for the
execution of policies established by the Trustees and the
administration of the Trust, and may be the chief executive,
financial and/or accounting officer of the Trust.
<PAGE>
Section 7. Action by the Trustees. The Trustees shall act
by majority vote at a meeting duly called (including at a tele-
phonic meeting, unless the 1940 Act requires that a particular
action be taken only at a meeting of Trustees in person) at which
a quorum is present or by written consent of a majority of
Trustees (or such greater number as may be required by applicable
law) without a meeting. A majority of the Trustees shall
constitute a quorum at any meeting. Meetings of the Trustees may
be called orally or in writing by the Chairman of the Board of
Trustees, if any, by the President of the Trust or by any two
Trustees. Notice of the time, date and place of all Trustees'
meetings shall be given to each Trustee by telephone, facsimile
or other electronic mechanism sent to his home or business
address at least forty eight hours in advance of the meeting or
by written notice mailed to his home or business address at least
four days in advance of the meeting. Notice need not be given to
any Trustee who attends the meeting without objecting to the lack
of notice or who signs a waiver of notice either before or after
the meeting. Subject to the requirements of the 1940 Act, the
Trustees by majority vote may delegate to any Trustee or Trustees
authority to approve particular matters or take particular
actions on behalf of the Trust. Any written consent or waiver
may be provided and delivered to the Trust by facsimile or other
similar electronic mechanism.
Section 8. Ownership of Trust Property. The Trust Property
of the Trust and of each Series shall be held separate and apart
from any assets now or hereafter held in any capacity other than
as Trustee hereunder by the Trustees or any successor Trustees.
All of the Trust Property and legal title thereto shall at all
times be considered as vested in the Trustees on behalf of the
Trust, except that legal title to any Trust Property may be held
by or in the name of the Trust or in the name of any person
designated by the Trustees as nominee. No Shareholder shall be
deemed to have a severable ownership in any individual asset of
the Trust or of any Series or any right of partition or
possession thereof, but each Shareholder shall have, as provided
in Article IV, a proportionate undivided beneficial interest in
the Trust or Series represented by Shares.
Section 9. Effect of Trustees Not Serving. The death,
resignation, retirement, removal, incapacity, inability or
refusal to serve of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Trust Instrument.
Section 10. Trustees, etc. as Shareholders. Subject to any
restrictions in the By-laws, any Trustee, officer, agent or
independent contractor of the Trust may acquire, own and dispose
of Shares to the same extent as any other Shareholder; the
Trustees may issue and sell Shares to and buy Shares from any
such person or
<PAGE>
any firm or company in which such person is interested, subject
only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as
principals, free of the control of the Shareholders. The
Trustees shall have full power and authority to take or refrain
from taking any action and to execute any contracts and
instruments that they may consider necessary or desirable in the
management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable
to trust investments, but shall have full power and authority to
make any investments which they, in their sole discretion, deem
proper to accomplish the purposes of the Trust. The Trustees may
exercise all of their powers without recourse to any court or
other authority. Subject to any applicable limitation herein or
in the By-laws or resolutions of the Trustees, the Trustees shall
have power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to
hold cash or other property uninvested, without in any event
being bound or limited by any current or future law or custom
concerning investments by trustees, and to sell, exchange, lend,
pledge, mortgage, hypothecate, write options on and lease any or
all of the Trust Property; to invest in obligations and
securities of any kind, and without regard to whether they may
mature before the possible termination of the Trust; and without
limitation to invest all or any part of its cash and other
property in securities issued by a registered investment company
or series thereof, subject to the provisions of the 1940 Act;
(b) To operate as and carry on the business of a registered
investment company, and exercise all the powers necessary and
proper to conduct such a business;
(c) To adopt By-laws not inconsistent with this Trust
Instrument providing for the conduct of the business of the Trust
and to amend and repeal them to the extent such right is not
expressly reserved to the Shareholders;
(d) To elect and remove such officers and appoint and
terminate such agents as they deem appropriate;
(e) To employ as custodian of any assets of the Trust,
subject to any provisions herein or in the By-laws, one or more
banks, trust companies or companies that are members of a
national
<PAGE>
securities exchange, or other entities permitted by the
Commission to serve as such;
(f) To retain one or more transfer agents and Shareholder
servicing agents, or both;
(g) To provide for the distribution of Shares either
through a Principal Underwriter as provided herein or by the
Trust itself, or both, or pursuant to a distribution plan of any
kind;
(h) To set record dates in the manner provided for herein
or in the By-laws;
(i) To delegate such authority as they consider desirable
to any officers of the Trust and to any agent, independent
contractor, manager, investment adviser, custodian or
underwriter;
(j) To sell or exchange any or all of the assets of the
Trust, subject to Article X, Section 4;
(k) To vote or give assent, or exercise any rights of
ownership, with respect to other securities or property; and to
execute and deliver powers of attorney delegating such power to
other persons;
(l) To exercise powers and rights of subscription or other-
wise which in any manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form
not indicating any trust, whether in bearer, book entry,
unregistered or other negotiable form, or (ii) either in the
Trust's or Trustees' own name or in the name of a custodian or a
nominee or nominees, subject to safeguards according to the usual
practice of business trusts or investment companies;
(n) To establish separate and distinct Series with
separately defined investment objectives and policies and
distinct investment purposes, and with separate Shares
representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions
of Article IV;
(o) To the full extent permitted by Section 3804 of the
Delaware Act, to allocate assets, liabilities and expenses of the
Trust to a particular Series and liabilities and expenses to a
particular Class or to apportion the same between or among two or
more Series or Classes, provided that any liabilities or expenses
incurred by a particular Series or Class shall be payable solely
out of the assets belonging to that Series or Class as provided
for in Article IV, Section 4;
<PAGE>
(p) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
other entity whose securities are held by the Trust; to consent
to any contract, lease, mortgage, purchase or sale of property by
such corporation or other entity; and to pay calls or
subscriptions with respect to any security held in the Trust;
(q) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust or any matter in controversy,
including, but not limited to, claims for taxes;
(r) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for;
(s) To borrow money;
(t) To establish, from time to time, a minimum total
investment for Shareholders, and to require the redemption of the
Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholders;
(u) To establish committees for such purposes, with such
membership, and with such responsibilities as the Trustees may
consider proper, including a committee consisting of fewer than
all of the Trustees then in office, which may act for and bind
the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of
any legal action, suit or proceeding, pending or threatened;
(v) To issue, sell, repurchase, redeem, cancel, retire,
acquire, hold, resell, reissue, dispose of and otherwise deal in
Shares; to establish terms and conditions regarding the issuance,
sale, repurchase, redemption, cancellation, retirement,
acquisition, holding, resale, reissuance, disposition of or
dealing in Shares; and, subject to Articles IV and V, to apply to
any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust or of
the particular Series with respect to which such Shares are
issued; and
(w) To carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything
necessary or desirable to accomplish any purpose or to further
any of the foregoing powers and to take every other action
incidental to the foregoing business or purposes, objects or
powers.
The clauses above shall be construed as objects and powers,
and the enumeration of specific powers shall not limit in any way
the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed
an action on behalf of the Trust or the applicable Series, and
not an action in an individual capacity. No one dealing with the
Trustees
<PAGE>
shall be under any obligation to make any inquiry concerning the
authority of the Trustees, or to see to the application of any
payments made or property transferred to the Trustees or upon
their order. In construing this Trust Instrument, the
presumption shall be in favor of a grant of power to the
Trustees.
Section 2. Certain Transactions. Except as prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any
securities from or sell any securities to, or lend any assets of
the Trust to, any Trustee or officer of the Trust or any entity
of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser,
administrator, distributor or transfer agent for the Trust or
with any interested person of such person. The Trust may employ
any such person or entity in which such person is an interested
person, as broker, legal counsel, investment adviser,
administrator, distributor, transfer agent, dividend disbursing
agent, custodian or in aNy other capacity upon customary terms.
ARTICLE IV
SERIES; CLASSES; SHARES
Section 1. Establishment of Series or Class. The Trust may
consist of one or more Series, and the Trustees may hereafter
establish the assets, liabilities, operations and Shares of the
Trust as then constituted as the initial Series. Such Series and
each additional Series shall be established by the adoption of a
resolution of the Trustees and without Shareholder approval. The
Trustees may designate the relative rights and preferences of the
Shares of each Series and may divide the Shares of the Trust
and/or of any Series into Classes. In such case, each Class of
the Trust and/or of a Series shall represent interests in the
assets of that Series and have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that expenses allocated to a Class may be borne solely by
such Class as determined by the Trustees and a Class may have
exclusive voting rights with respect to matters affecting only
that Class. The Trust shall maintain separate and distinct
records for each Series and hold and account for the assets
thereof separately from the other assets of the Trust or of any
other Series. A Series may issue any number of Shares and need
not issue Shares. Each Share of a Series shall represent an
equal beneficial interest in the net assets of such Series. Each
holder of Shares of a Series shall be entitled to received his
pro rata share of all distributions made with respect to such
Series. Upon redemption of his Shares, such Shareholder shall be
paid solely out of the funds and property of such Series. The
Trustees may change the name of the Trust or of any Series or
Class.
<PAGE>
Section 2. Shares. The beneficial interest in the Trust
may be divided into Shares of one or more separate and distinct
Series or Classes established by the Trustees. The number of
Shares of the Trust and of each Series and Class shall be
unlimited, and each Share shall have a par value of $0.001 per
Share. All Shares issued hereunder shall be fully paid and non-
assessable.
Shareholders shall have no preemptive or other right to subscribe
to any additional Shares or other securities issued by the Trust.
The Trustees shall have full power and authority, in their sole
discretion and without obtaining Shareholder approval: to issue
original or additional Shares at such times and on such terms and
conditions as they deem appropriate; to issue fractional Shares
and Shares held in the treasury; to establish and to change in
any manner Shares of the Trust or of any Series or Classes with
such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may determine (but the Trustees may
not change Outstanding Shares in a manner materially adverse to
the Shareholders of such Shares); to divide or combine the Shares
of the Trust or of any Series or Classes into a greater or lesser
number; to classify or reclassify any unissued Shares of the
Trust or of any Series or Classes into one or more Series or
Classes of Shares; to abolish any one or more Series or Classes
of Shares; to issue Shares to acquire other assets (including
assets subject to, and in connection with, the assumption of
liabilities) and businesses; and to take such other action with
respect to the Shares as the Trustees may deem desirable. Shares
held in the treasury shall not confer any voting rights on the
Trustees and shall not be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 3. Investment in the Trust. The Trustees shall
accept investments in the Trust or in any Series from such
persons and on such terms as they may from time to time
authorize. At the Trustees' discretion, such investments,
subject to applicable law, may be in the form of cash or
securities in which the Trust or that Series is authorized to
invest, valued as provided in Article V, Section 3. Investments
in the Trust or in a Series shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset
Value per Share next determined after the investment is received
or accepted as may be determined by the Trustees; provided,
however, that the Trustees may, in their sole discretion, (a)
impose a sales charge upon investments in the Trust or in any
Series or Class, (b) issue fractional Shares or (c) determine the
Net Asset Value per Share of the initial capital contribution.
The Trustees shall have the right to refuse to accept investments
in the Trust or in any Series or Class at any time without any
cause or reason therefor whatsoever.
Section 4. Assets and Liabilities of Series. All
consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which
such
<PAGE>
consideration is invested or reinvested, all income, earnings,
profits and proceeds thereof (including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds
or payments derived from any reinvestment of such proceeds in
whatever form the same may be), shall be held and accounted for
separately from the other assets of the Trust and every other
Series and are referred to as "assets belonging to" that Series.
The assets belonging to a Series shall belong only to that Series
for all purposes, and to no other Series, subject only to the
rights of creditors of that Series. Any assets, income,
earnings, profits and proceeds thereof, funds or payments which
are not readily identifiable as belonging to any particular
Series, shall be allocated by the Trustees between and among one
or more Series as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes, and such assets,
earnings, income, profits or funds, or payments and proceeds
thereof, shall be referred to as assets belonging to that Series.
The assets belonging to a Series shall be so recorded upon the
books of the Trust, and shall be held by the Trustees in trust
for the benefit of the Shareholders of that Series. The assets
belonging to a Series shall be charged with the liabilities of
that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses
allocated solely to a particular Class shall be borne by that
Class. Any general liabilities, expenses, costs, charges or
reserves of the Trust which are not readily identifiable as
belonging to any particular Series or Class shall be allocated
and charged by the Trustees between or among any one or more of
the Series or Classes in such manner as the Trustees deem fair
and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all
purposes.
Without limiting the foregoing, but subject to the right of
the Trustees to allocate general liabilities, expenses, costs,
charges or reserves as herein provided, the debts, liabilities,
obligations and expenses incurred, contracted for or otherwise
existing with respect to a particular Series shall be enforceable
against the assets of such Series only, and not against the
assets of the Trust generally or of any other Series. Notice of
this contractual limitation on liabilities among Series may, in
the Trustees' discretion, be set forth in the certificate of
trust of the Trust (whether originally or by amendment) as filed
or to be filed in the Office of the Secretary of State of the
State of Delaware pursuant to the Delaware Act, and upon the
giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to
limitations on liabilities among Series (and the statutory effect
under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and
each Series. Any person extending credit to, contracting with or
having any claim against any Series may look only to the assets
of that Series to satisfy or
<PAGE>
enforce any debt with respect to that Series. No Shareholder or
former Shareholder of the Trust or of any Series shall have a
claim on or any right to any assets allocated or belonging to any
other Series.
Section 5. Ownership and Transfer of Shares. The Trust
shall maintain a register containing the names and addresses of
the Shareholders of the Trust or of each Series and Class
thereof, the number of Shares of the Trust or of each Series and
Class held by such Shareholders and a record of all Share
transfers. The register shall be conclusive as to the identity
of Shareholders of record and the number of Shares held by them
from time to time. The Trustees may authorize the issuance of
certificates representing Shares and adopt rules governing their
use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates.
Section 6. Status of Shares: Limitation of Shareholder
Liability. Shares shall be deemed to be personal property giving
Shareholders only the rights provided in this Trust Instrument.
Every Shareholder, by virtue of having acquired a Share, shall be
held expressly to have assented to and agreed to be bound by the
terms of this Trust Instrument and to have become a party hereto.
No Shareholder shall be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for
or otherwise existing with respect to, the Trust or any Series.
Neither the Trust nor the Trustees shall have any power to bind
any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the
Shareholder.
Shareholders shall have the same limitation of personal liability
as is extended to shareholders of a private corporation for
profit incorporated in the State of Delaware. Every written
obligation of the Trust or any Series shall contain a statement
to the effect that such obligation may only be enforced against
the assets of the Trust or such Series; however, the omission of
such statement shall not operate to bind or create personal
liability for any Shareholder or Trustee.
ARTICLE V
DISTRIBUTIONS REDEMPTIONS
Section 1. Distributions. The Trustees may declare and pay
dividends and other distributions, including dividends on Shares
of a particular Series and other distributions from the assets
belonging to that Series. The amount and payment of dividends or
distributions and their form, whether they are in cash, Shares or
other Trust Property, shall be determined by the Trustees.
Dividends and other distributions may be paid pursuant to a
standing resolution adopted once or more often as the Trustees
<PAGE>
determine. All dividends and other distributions on Shares of
the Trust or of a particular Series shall be distributed pro rata
to the Shareholders of the Trust or of that Series in proportion
to the number of Shares of the Trust or of that Series they held
on the record date established for such payment, except that such
dividends and distributions shall appropriately reflect expenses
allocated to a particular Class of the Trust or of such Series.
The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or similar plans
as the Trustees deem appropriate.
Section 2. Redemptions. Each Shareholder of the Trust or
of a Series shall have the right at such times as may be
permitted by the Trustees to require the Trust or Series to
redeem all or any part of his Shares at a redemption price per
Share equal to the Net Asset Value per Share at such time as the
Trustees shall have prescribed by resolution. In the absence of
such resolution, the redemption price per Share shall be the Net
Asset Value next determined after receipt by the Trust or Series
of a request for redemption in proper form less such charges as
are determined by the Trustees and described in the Trust's
Registration Statement for the Trust or that Series under the
Securities Act of 1933. The Trustees may specify conditions,
prices and places of redemption, and may specify binding
requirements for the proper form or forms of requests for
redemption. Payment of the redemption price may be wholly or
partly in securities or other assets at the value of such
securities or assets used in such determination of Net Asset
Value or may be in cash. Upon redemption, Shares may be reissued
from time to time. The Trustees may require Shareholders to
redeem Shares for any reason under terms set by the Trustees,
including the failure of a Shareholder to supply a personal
identification number if required to do so, or to have the
minimum investment required, or to pay when due for the purchase
of Shares issued to him. To the extent permitted by law, the
Trustees may retain the proceeds of any redemption of Shares
required by them for payment of amounts due and owing by a
Shareholder to the Trust or any Series or Class. Notwithstanding
the foregoing, the Trustees may postpone payment of the
redemption price and may suspend the right of the Shareholders to
require the Trust or any Series or Class to redeem Shares during
any period of time when and to the extent permissible under the
1940 Act.
Section 3. Determination of Net Asset Value. The Trustees
shall cause the Net Asset Value of Shares of the Trust or each
Series or Class to be determined from time to time in a manner
consistent with applicable laws and regulations. The Trustees
may delegate the power and duty to determine Net Asset Value per
Share to one or more Trustees or officers of the Trust or to a
custodian, depository or other agent appointed for such purpose.
The Net Asset Value of Shares shall be determined separately for
each Series or Class at such times as may be prescribed by the
Trustees
<PAGE>
or, in the absence of action by the Trustees, as of the close of
regular trading on the New York Stock Exchange on each day for
all or part of which such Exchange is open for unrestricted
trading.
Section 4. Suspension of Right of Redemption. If, as
referred to in Section 2 of this Article, the Trustees postpone
payment of the redemption price and suspend the right of
Shareholders to redeem their Shares, such suspension shall take
effect at the time the Trustees shall specify, but not later than
the close of business on the business day next following the
declaration of suspension. Thereafter Shareholders shall have no
right of redemption or payment until the Trustees declare the end
of the suspension. If the right of redemption is suspended, a
Shareholder may either withdraw his request for redemption or
receive payment based on the Net Asset Value per Share next
determined after the suspension terminates.
Section 5. Redemptions Necessary for Qualification as
Regulated Investment Company. If the Trustees shall determine
that direct or indirect ownership of Shares of the Trust or of
any Series has or may become concentrated in any person to an
extent which would disqualify the Trust or any Series as a
regulated investment company under the Internal Revenue Code,
then the Trustees shall have the power (but not the obligation)
by lot or other means they deem equitable to (a) call for
redemption by any such person of a number, or principal amount,
of Shares sufficient to maintain or bring the direct or indirect
ownership of Shares into conformity with the requirements for
such qualification and (b) refuse to transfer or issue Shares to
any person whose acquisition of Shares in question would, in the
Trustees' judgment, result in such disqualification. Any such
redemption shall be effected at the redemption price and in the
manner provided in this Article. Shareholders shall upon demand
disclose to the Trustees in writing such information concerning
direct and indirect ownership of Shares as the Trustees deem
necessary to comply with the requirements of the Internal Revenue
Code or any other taxing authority.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have
power to vote only with respect to (a) the election of Trustees
as provided in Section 2 of this Article; (b) the removal of
Trustees as provided in Article II, Section 3(d); (c) any
investment advisory or management contract as provided in Article
VII, Section I; (d) any termination of the Trust as provided in
Article X, Section 4; (e) the amendment of this Trust Instrument
to the extent and as provided in Article X, Section 8; and (f)
such additional
<PAGE>
matters relating to the Trust as may be required by law, this
Trust Instrument, the By-laws or any registration of the Trust
with the Commission or any State, or as the Trustees may consider
desirable.
On any matter submitted to a vote of the Shareholders, if
the Trust has more than one Series or more than one Class of
Shares, all Shares shall be voted by individual Series or Class,
except (a) when required by the 1940 Act, Shares shall be voted
in the aggregate and not by individual Series or Class, and (b)
when the Trustees have determined that the matter affects the
interests of more than one Series or Class, then the Shareholders
of all such Series or Classes shall be entitled to vote thereon.
Each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote, and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be
no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy or in any manner provided for in the
By-laws. The By-laws may provide that proxies may be given by
any electronic or telecommunications device or in any other
manner, but if a proposal by anyone other than the officers or
Trustees is submitted to a vote of the Shareholders of the Trust
or of any Series or Class, or if there is a proxy contest or
proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees, Shares may be voted only in person or
by written proxy. Until Shares of the Trust or of a Series are
issued, as to the Trust or that Series the Trustees may exercise
all rights of Shareholders and may take any action required or
permitted to be taken by Shareholders by law, this Trust
Instrument or the By-laws.
Section 2. Meetings of Shareholders. The first
Shareholders' meeting shall be held to elect Trustees at such
time and place as the Trustees designate. Special meetings of
the Shareholders of the Trust or of any Series or Class may be
called by the Trustees and shall be called by the Trustees upon
the written request of Shareholders owning at least ten percent
of the Outstanding Shares of the Trust or of such Series or Class
entitled to vote.
Shareholders shall be entitled to at least ten days' notice of
any meeting, given as determined by the Trustees.
Section 3. Quorum; Required Vote. One-third of the
Outstanding Shares of each Series or Class, or one-third of the
Outstanding Shares of the Trust, entitled to vote in person or by
proxy shall be a quorum for the transaction of business at a
Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser
number shall be sufficient for adjournments. Any adjourned
session of a Shareholders' meeting may be held within a
reasonable time without further notice. Except when a larger
vote is required by law, this Trust Instrument or the By-laws, a
Majority Shareholder Vote voted in person or by proxy shall
decide any matters to be voted upon with respect to the entire
Trust and a plurality of the Outstanding
<PAGE>
Shares so voted shall elect a Trustee; provided that if this
Trust Instrument or applicable law permits or requires that
Shares be voted on any matter by individual Series or Classes,
then a majority of the Outstanding Shares of that Series or Class
(or, if permitted or required by law, a Majority Shareholder Vote
of that Series or Class) voted in person or by proxy on the
matter shall decide that matter insofar as that Series or Class
is concerned. Shareholders may act as to the Trust or any Series
or Class by the written consent of a majority (or such greater
amount as may be required by applicable law) of the Outstanding
Shares of the Trust or of such Series or Class, as the case may
be.
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
Section 1. Investment Adviser. Subject to a Majority
Shareholder Vote, the Trustees may enter into one or more
investment advisory contracts on behalf of the Trust or any
Series, providing for investment advisory services, statistical
and research facilities and services and other facilities and
services to be furnished to the Trust or Series on terms and
conditions acceptable to the Trustees. Any such contract may
provide for the investment adviser to effect purchases, sales or
exchanges of portfolio securities or other Trust Property on
behalf of the Trustees or the Trust or may authorize any officer
or agent of the Trust to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser.
The Trustees may authorize the investment adviser to employ one
or more sub-advisers.
Section 2. Principal Underwriter. The Trustees may enter
into contracts on behalf of the Trust or any Series or Class,
providing for the distribution and sale of Shares by the other
party, either directly or as sales agent, on terms and conditions
acceptable to the Trustees. The Trustees may adopt a plan or
plans of distribution with respect to Shares of the Trust or of
any Series or Class and enter into any related agreements,
whereby the Trust or the Series or Class finances directly or
indirectly any activity that is primarily intended to result in
sales of its Shares, subject to the requirements of Section 12 of
the 1940 Act, Rule 12b-1 thereunder and other applicable rules
and regulations.
Section 3. Transfer Agency Shareholder Services and
Administration Agreements. The Trustees, on behalf of the Trust
or any Series or Class, may enter into transfer agency
agreements, Shareholder service agreements and administration and
management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
<PAGE>
Section 4. Custodian. The Trustees shall at all times
place and maintain the securities and similar investments of the
Trust and of each Series in custody meeting the requirements of
Section 17(f) of the 1940 Act and the rules thereunder. The
Trustees, on behalf of the Trust or any Series, may enter into an
agreement with a custodian on terms and conditions acceptable to
the Trustees, providing for the custodian, among other things, to
(a) hold the securities owned by the Trust or any Series and
deliver the same upon written order or oral order confirmed in
writing, (b) to receive and receipt for any moneys due to the
Trust or any Series and deposit the same in its own banking
department or elsewhere, (c) to disburse such funds upon orders
or vouchers and (d) to employ one or more sub-custodians.
Section 5. Parties to Contracts with Service Providers.
The Trustees may enter into any contract referred to in this
Article with any entity, although one more of the Trustees or
officers of the Trust may be an officer, director, trustee,
partner, shareholder or member of such entity, and no such
contract shall be invalidated or rendered void or voidable
because of such relationship. No person having such a
relationship shall be (a) disqualified from voting on or
executing a contract in his capacity as an officer of the Trust,
Trustee and/or Shareholder, (b) liable merely by reason of such
relationship for any loss or expense to the Trust with respect to
such a contract or (c) except to the extent required by the 1940
Act or any other applicable law, accountable for any profit
realized directly or indirectly therefrom; provided that the
contract was not inconsistent with this Trust Instrument or the
By-laws.
Any contract referred to in Sections 1 and 2 of this Article
shall be consistent with and subject to the applicable
requirements of Section 15 of the 1940 Act and the rules
thereunder with respect to its continuance in effect, its
termination and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in
Section 1 of this Article shall be effective unless assented to
in a manner consistent with the requirements of Section 15 of the
1940 Act and the rules thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular
Series shall pay, or shall reimburse the Trustees from the assets
of the Trust or the assets of the particular Series, for their
operating and other costs and expenses, including, but not
limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of
Shares; certain
<PAGE>
insurance premiums; applicable fees, interest charges and
expenses of third parties, including the Trust's investment
advisers, managers, administrators, distributors, custodians,
transfer agents and accountants; fees of pricing, interest,
dividend, credit and other reporting services; costs of
membership in trade associations; telecommunications expenses;
funds transmission expenses; auditing, legal and compliance
expenses; costs of forming the Trust and its Series and
maintaining their existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of
additional information and Shareholder reports and delivering
them to Shareholders; expenses of meetings of Shareholders and
proxy solicitations therefor; costs of maintaining books and
accounts; costs of reproduction, stationery and supplies; fees
and expenses of the Trustees; compensation of the Trust's
officers and employees and costs of other personnel performing
services for the Trust or any Series; costs of the Trust's office
space and facilities; costs of Trustee meetings; Commission
registration fees and related expenses; state or foreign
securities laws registration fees and related expenses; and for
such nonrecurring items as may arise, including litigation to
which the Trust or a Series (or a Trustee or officer of the Trust
acting as such) is a party, and for all losses and liabilities
incurred by them in administering the Trust. The Trustees shall
have a lien on the assets of the Trust or belonging to the
appropriate Series, or in the case of an expense allocable to
more than one Series, on the assets of each such Series, prior to
any rights or interests of the Shareholders thereto, for the
reimbursement to them of such costs, expenses, losses and
liabilities.
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,
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 1. Trust Not a Partnership. This Trust Instrument
creates a trust and not a partnership. No Trustee shall have any
power to bind personally either the Trust's Trustees or officers
or any Shareholder.
Section 2. Trustee Action; Expert Advice; No Bond or
Surety. The exercise by the Trustees of their powers and
discretion hereunder in good faith shall be binding upon everyone
interested. Subject to the provisions of Article IX, the
Trustees shall not be liable for negligent acts or omissions,
errors of judgment or mistakes of fact or law. The Trustees may
take advice of counsel or other experts with respect to the
meaning and operation of this Trust Instrument, and, subject to
the provisions of Article IX, shall not be liable for any act or
omission in accordance with such advice or for failing to follow
such advice. The Trustees shall not be required to give any bond
as such, nor any surety if a bond is obtained.
Section 3. Record Dates. The Trustees may fix in advance a
date up to ninety (90) days before the date of any Shareholders'
meeting, or the date for the payment of any dividends or other
distributions, or the date for the allotment of rights or the
date when any change or conversion or exchange of Shares shall go
into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such
meeting, or entitled to receive payment of such dividend or other
distribution, or to receive any such allotment of rights or to
exercise such rights in respect of any such change, conversion or
exchange of Shares.
Section 4. Termination of the Trust. (a) This Trust shall
have perpetual existence. Subject to a Majority Shareholder Vote
of the Trust or of each Series to be affected, the Trustees may
(i) sell and convey all or substantially all of the
assets of the Trust or any affected Series to another Series or
to another entity which is an open-end investment company as
defined in the 1940 Act, or is a series thereof, for adequate
consideration, which may include the assumption of all
outstanding obligations, taxes and other liabilities, accrued or
contingent, of the Trust or any affected Series, and which may
include shares of or interests in such Series, entity or series
thereof; or
<PAGE>
(ii) at any time sell and convert into money all or
substantially all of the assets of the Trust or any affected
Series.
Upon making reasonable provision for the payment of all known
liabilities of the Trust or any affected Series in either (i) or
(ii) by such assumption or otherwise, the Trustees shall
distribute the remaining proceeds or assets (as the case may be)
ratably among the Shareholders of the Trust or any affected
Series; provided, however, that the payment to any particular
Class of such Series may be reduced by any fees, expenses or
charges allocated to that Class.
(b) The Trustees may take any of the actions specified in
subsection (a)(i) and (ii) above without obtaining a Majority
Shareholder Vote of the Trust or any Series if a majority of the
Trustees determines that the continuation of the Trust or Series
is not in the best interests of the Trust, such Series or their
respective Shareholders as a result of factors or events
adversely affecting the ability of the Trust or such Series to
conduct its business and operations in an economically viable
manner. Such factors and events may include the inability of the
Trust or a Series to maintain its assets at an appropriate size,
changes in laws or regulations governing the Trust or the Series
or affecting assets of the type in which the Trust or Series
invests, or economic developments or trends having a significant
adverse impact on the business or operations of the Trust or such
Series.
(c) Upon completion of the distribution of the remaining
proceeds or assets pursuant to subsection (a) the Trust or
affected Series shall terminate and the Trustees and the Trust
shall be discharged of any and all further liabilities and duties
hereunder with respect thereto and the right, title and interest
of all Parties therein shall be cancelled and discharged. Upon
termination of the Trust, following completion of winding up of
its business, the Trustees shall cause a certificate of
cancellation of the Trust's certificate of trust to be filed in
accordance with the Delaware Act, which certificate of
cancellation may be signed by any one Trustee.
Section 5. Reorganization. Notwithstanding anything else
herein, to change the Trust's form of organization the Trustees
may, without Shareholder approval, (a) cause the Trust to merge
or consolidate with or into one or more entities, if the
surviving or resulting entity is the Trust or another open-end
management investment company under the 1940 Act, or a series
thereof, that will succeed to or assume the Trust's registration
under the 1940 Act, or (b) cause the Trust to incorporate under
the laws of Delaware. Any agreement of merger or consolidation
or certificate of merger may be signed by a majority of Trustees
and facsimile
<PAGE>
signatures conveyed by electronic or telecommunication means
shall be valid.
Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, an agreement of merger or
consolidation approved by the Trustees in accordance with this
Section 5 may effect any amendment to this Trust Instrument or
effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or
consolidation.
Section 6. Trust Instrument. The original or a copy of
this Trust Instrument and of each amendment hereto or Trust
Instrument supplemental hereto shall be kept at the office of the
Trust where it may be inspected by any Shareholder. Anyone
dealing with the Trust may rely on a certificate by a Trustee or
an officer of the Trust as to the authenticity of the Trust
Instrument or any such amendments or supplements and as to any
matters in connection with the Trust. The masculine gender
herein shall include the feminine and neuter genders. Headings
herein are for convenience only and shall not affect the
construction of this Trust Instrument. This Trust Instrument may
be executed in any number of counterparts, each of which shall be
deemed an original.
Section 7. Applicable Law. This Trust Instrument and
the Trust created hereunder are governed by and shall be
construed and administered according to the Delaware Act and the
applicable laws of the State of Delaware; provided, however, that
there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12
of the Delaware Code, or (b) any provisions of the laws
(statutory or common) of the State of Delaware (other than the
Delaware Act) pertaining to trusts, including, without
limitation, provisions which relate to or regulate (i) the filing
with any court or governmental body or agency of trustee accounts
or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or
employees of a trust, (iii) the necessity for obtaining court or
other governmental approval concerning the acquisition, holding
or disposition of real or personal property, (iv) fees or other
sums payable to trustees, officers, agents or employees of a
trust, (v) the allocation of receipts and expenditures to income
or principal, (vi) restrictions or limitations on the permissible
nature, amount or concentration of trust investments or
requirements relating to the titling, storage or other manner of
holding of trust assets or (vii) the establishment of fiduciary
or other standards of responsibilities or limitations on the acts
or powers of trustees, whether or not such provisions are
inconsistent with the limitations or liabilities or authorities
and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a
Delaware business trust, and, without limiting the provisions
hereof, the Trust may exercise all powers
<PAGE>
which are ordinarily exercised by such a trust under Delaware
law. The Trust specifically reserves the right to exercise any
of the powers or privileges afforded to trusts or actions that
may be engaged in by trusts under the Delaware Act, and the
absence of a specific reference herein to any such power,
privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 8. Amendments. The Trustees may, without any
Shareholder vote, amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument
supplemental hereto or an amended and restated trust instrument;
provided that Shareholders shall have the right to vote on any
amendment (a) which would materially and adversely affect the
voting rights of Shareholders granted in Article VI, Section 1,
(b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s)
filed with the Commission and (d) submitted to them by the
Trustees in their discretion. Any amendment submitted to
Shareholders which the Trustees determine would materially and
adversely affect the Shareholders of any Series shall be
authorized by vote of the Shareholders of such Series and no vote
shall be required of Shareholders of a Series not so affected.
Notwithstanding anything else herein, any amendment to Article IX
which would have the effect of reducing the indemnification and
other rights provided thereby to Trustees, officers, employees
and agents of the Trust or to Shareholders or former
Shareholders, and any repeal or amendment of this sentence, shall
each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon.
Section 9. Fiscal Year. The fiscal year of the Trust shall
end on a specified date as set forth in the By-Laws. The
Trustees may change the fiscal year of the Trust without
Shareholder approval.
Section 10. Severability. The provisions of this Trust
Instrument are severable. If the Trustees determine, with the
advice of counsel, that any provision hereof conflicts with the
1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to
have constituted a part of this Trust Instrument; provided,
however, that such determination shall not affect any of the
remaining provisions of this Trust Instrument or render invalid
or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or
unenforceable in
<PAGE>
any jurisdiction, such invalidity or unenforceability shall
attach only to such provision only in such jurisdiction and shall
not affect any other provision of this Trust Instrument.
IN WITNESS WHEREOF, the undersigned, being the initial
Trustees, have executed this Trust Instrument as of the date
first above written.
/s/ Charles M. Royce
Charles M. Royce, as Trustee
and not individually
/s/ W. Whitney George
W. Whitney George, as Trustee
and not individually
Address: 1414 Avenue of the Americas New
York, New York 10019
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
Before me this 11th day of January, 1996, personally
appeared the above-named Charles M. Royce and W. Whitney George,
known to me to be the persons who executed the foregoing
instrument and who acknowledged that they executed the same.
/s/ Esperanza L. Spaulding
Notary Public
My Commission expires 1/31/96 .
ESPERANZA L. SPAULDING
Notary Public State of New York
No. 4644157
Qualified in Bronx County
Commission Expires January 31 1996
<PAGE>
CERTIFICATE OF TRUST
OF
ROYCE CAPITAL TRUST
This Certificate of Trust ("Certificate") is filed in accor-
dance with the provisions of the Delaware Business Trust Act (12
Del. Code Ann. Tit. 12 Section 3801, et seq.) and sets forth the
following:
1. The name of the trust is: Royce Capital Trust (the
"Trust").
2. The business address of the registered office of the
Trust and of the registered agent of the Trust for service of
process on the Trust is:
The Prentice-Hall Corporation System, Inc.
1013 Centre Road
Wilmington, De. 19805
3. This Certificate is effective upon filing.
4. The Trust is a Delaware business trust and will be reg-
istered under the Investment Company Act of 1940. Notice is
hereby given that the Trust may consist of one or more series.
The debts, liabilities, obligations and expenses incurred, con-
tracted for or otherwise existing with respect to a particular
series of the Trust shall be enforceable against the assets of
such series only, and not against the assets of the Trust gener-
ally or any other series.
IN WITNESS WHEREOF, the undersigned, being the initial
Trustees, have executed this Certificate on this 11th day of
January, 1996.
/s/ Charles M. Royce
Charles M. Royce, as
Trustee and not individually
/s/ W. Whitney George
W. Whitney George, as
Trustee and not individually
Address: 1414 Avenue of the Americas
New York, NY 10019
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
Before me on this 11th day of January, 1996, personally
ap-peared the above-named Charles M. Royce and W. Whitney George,
known to me to be the persons who executed the foregoing
instrument and who acknowledged that they executed the same.
/s/ Esperanza L. Spaulding
Notary Public
My commission expires 1/31/96
ESPERANZA L. SPAULDING
Notary Public State of New York
No. 4644157
Qualified in Bronx County
Commission Expires January 31 1996
<PAGE>
ROYCE CAPITAL TRUST
BY-LAWS
January 11 , 1996
<PAGE>
BY-LAWS
OF
ROYCE CAPITAL TRUST
These By-laws of Royce Capital Trust (the "Trust"), a
Delaware business trust, are subject to the Trust Instrument of
the Trust dated January 11 , 1996 as from time to time amended,
supplemented or restated (the "Trust Instrument"). Capitalized
terms used herein have the same meanings as in the Trust
Instrument.
ARTICLE I
PRINCIPAL OFFICE AND SEAL
Section 1. Principal Office. The principal office of the Trust
shall be located in New York, New York, or such other location as
the Trustees determine. The Trust may establish and maintain
other offices and places of business as the Trustees determine.
Section 2. Seal. The Trustees may adopt a seal for the Trust in
such form and with such inscription as the Trustees determine.
Any Trustee or officer of the Trust shall have authority to affix
the seal to any document.
ARTICLE II
MEETINGS OF TRUSTEES
Section 1. Action by Trustees. Trustees may take actions at
meetings held at such places and times as the Trustees may
determine, or without meetings, all as provided in Article II,
Section 7, of the Trust Instrument.
Section 2. Compensation of Trustees. Each Trustee who is
neither an employee of an investment adviser of the Trust or any
Series nor an employee of an entity affiliated with the
investment adviser may receive such compensation from the Trust
for services and reimbursement for expenses as the Trustees may
determine.
ARTICLE III
COMMITTEES
Section 1. Establishment. The Trustees may designate one or
more committees of the Trustees. The Trustees shall determine
the number of members of each committee and its powers and shall
appoint its members and its chair. Each committee member shall
serve at the pleasure of the Trustees. The Trustees may abolish
any committee at any time. Each committee shall maintain records
of its meetings and report its actions to the Trustees. The
<PAGE>
Trustees may rescind any action of any committee, but such
rescis-sion shall not have retroactive effect. The Trustees may
delegate to any committee any of its powers, subject to the
limitations of applicable law.
Section 2. Proceedings; Quorum; Action. Each committee may
adopt such rules governing its proceedings, quorum and manner of
acting as it shall deem proper and desirable. In the absence of
such rules, a majority of any committee shall constitute a
quorum, and a committee shall act by the vote of a majority of a
quorum.
Section 3. Compensation of Committee Members. Each committee
member who is a Disinterested Trustee may receive such
compensation from the Trust for services and reimbursement for
expenses as the Trustees may determine.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Trust shall be a
President, one or more Vice Presidents, a Treasurer and a
Secretary, and may include one or more Assistant Treasurers or
Assistant Secretaries and such other officers ("Other Officers")
as the Trustees may determine.
Section 2. Election, Tenure and Qualifications of Officers. The
Trustees shall elect the officers of the Trust, except those
appointed as provided in Section 9 of this Article. Each officer
elected by the Trustees shall hold office until his or her
earlier death, inability to serve or resignation. Any person may
hold one or more offices, except that the President and the
Secretary may not be the same individual. A person who holds
more than one office in the Trust may not act in more than one
capacity to execute, acknowledge or verify an instrument required
by law to be executed, acknowledged or verified by more than one
officer. No officer need be a Trustee or Shareholder.
Section 3. Vacancies and Newly Created Offices. Whenever a
vacancy shall occur in any office or if any new office is
created, the Trustees may fill such vacancy or new office.
Section 4. Removal and Resignation. Officers serve at the
pleasure of the Trustees and may be removed at any time with or
without cause. The Trustees may delegate this power to the
President with respect to any Other Officer. Such removal shall
be without prejudice to the contract rights, if any, of the
person so removed. Any officer may resign from office at any
time by delivering a written resignation to the Trustees or the
President. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
<PAGE>
Section 5. President. The President shall be the chief
executive officer of the Trust. Subject to the direction of the
Trustees, the President shall have general charge, supervision
and control over the Trust's business affairs and shall be
responsible for the management thereof and the execution of
policies established by the Trustees. The President shall
preside at any Shareholders' meetings and at all meetings of the
Trustees. Except as the Trustees may otherwise order, the
President shall have the power to grant, issue, execute or sign
such powers of attorney, proxies, agreements or other documents.
The President also shall have the power to employ attorneys,
accountants and other advisers and agents for the Trust. The
President shall exercise such other powers and perform such other
duties as the Trustees may assign to the President.
Section 6. Vice President(s). The Vice President(s) shall have
such powers and perform such duties as the Trustees or the
President may determine. At the request or in the absence or
disability of the President, the Vice President (or, if there are
two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) shall perform all the duties
of the President and, when so acting, shall have all the powers
of the President. The Trustees may designate a Vice President as
the principal financial officer of the Trust or to serve one or
more other functions. If a Vice President is designated as
principal financial officer of the Trust, he or she shall have
general charge of the finances and books of the Trust and shall
report to the Trustees annually regarding the financial condition
of the Trust and of each Series as soon as possible after the
close of the Trust's or such Series' fiscal year. The Trustees
also may designate one or more of the Vice Presidents as
Executive or Senior Vice President.
Section 7. Treasurer and Assistant Treasurer(s). The Treasurer
may be designated as the principal financial officer and/or as
the principal accounting officer of the Trust. If designated as
principal financial officer, the Treasurer shall have general
charge of the finances and books of the Trust and shall report to
the Trustees annually regarding the financial condition of the
Trust and of each Series as soon as possible after the close of
the Trust's or such Series' fiscal year. The Treasurer shall be
responsible for the delivery of all funds and securities of the
Trust to such company as the Trustees shall retain as Custodian.
The Treasurer shall furnish such reports concerning the financial
condition of the Trust as the Trustees may request. The
Treasurer shall perform all acts incidental to the office of
Treasurer, subject to the Trustees' supervision, and shall
perform such additional duties as the Trustees may designate.
Any Assistant Treasurer may perform such duties of the
Treasurer as the Trustees or the Treasurer may assign and, in the
absence of the Treasurer, may perform all the duties of the
<PAGE>
Treasurer.
Section 8. Secretary and Assistant Secretaries. The Secretary
shall record all votes and proceedings of the meetings of
Trustees and Shareholders in books to be kept for that purpose.
The Secretary shall be responsible for giving and serving notices
of the Trust. The Secretary shall have custody of any seal of
the Trust and shall be responsible for the records of the Trust,
including the Share register and such other books and documents
as may be required by the Trustees or by law. The Secretary
shall perform all acts incidental to the office of Secretary,
subject to the supervision of the Trustees, and shall perform
such additional duties as the Trustees may designate.
Any Assistant Secretary may perform such duties of the
Secretary as the Trustees or the Secretary may assign and, in the
absence of the Secretary, may perform all the duties of the
Secretary.
Section 9. Compensation of Officers. Each officer may receive
such compensation from the Trust for services and reimbursement
for expenses as the Trustees may determine.
Section 10. Surety Bond. The Trustees may require any officer
or agent of the Trust to execute a bond (including, without
limitation, any bond required by the 1940 Act and the rules and
regulations of the Commission to the Trust in such sum and with
such surety or sureties as the Trustees may determine,
conditioned upon the faithful performance of his or her duties to
the Trust, including responsibility for gross negligence and for
the
accounting of any of the Trust's property, funds or securities
that may come into his or her hands.
ARTICLE V
MEETINGS OF SHAREHOLDERS
Section 1. No Annual Meetings. There shall be no annual
Shareholders' meetings, unless required by law.
Section 2. Special Meetings. The Secretary shall call a special
meeting of Shareholders of the Trust or of any Series or Class
whenever ordered by the Trustees.
The Secretary shall also call a special meeting of
Shareholders of the Trust or of any Series or Class upon the
written request of Shareholders owning at least ten percent of
the Outstanding Shares of the Trust or of such Series or Class
entitled to vote at such meeting; provided that (1) such request
shall state the purposes of such meeting and the matters proposed
to be acted on, and (2) the Shareholders requesting such meeting
shall have paid to the Trust the reasonably estimated cost of
preparing and mailing the notice thereof, which the Secretary
<PAGE>
shall determine and specify to such Shareholders. If the
Secretary fails for more than thirty days to call a special
meeting when required to do so, the Trustees or the Shareholders
requesting such a meeting may, in the name of the Secretary, call
the meeting by giving the required notice. The Secretary shall
not call a special meeting upon the request of Shareholders of
the Trust or of any Series or Class to consider any matter that
is substantially the same as a matter voted upon at any special
meeting of Shareholders of the Trust or of any such Series or
Class held during the preceding twelve months, unless requested
by the holders of a majority of the Outstanding Shares the Trust
or of any of such Series or Class entitled to be voted at such
meeting.
A special meeting of Shareholders of the Trust or of any
Series or Class shall be held at such time and place as is
determined by the Trustees and stated in the notice of that
meeting.
Section 3. Notice of Meetings; Waiver. The Secretary shall call
a special meeting of Shareholders by giving written notice of the
place, date, time and purposes of that meeting at least ten days
before the date of such meeting. The Secretary may deliver or
mail, postage prepaid, the written notice of any meeting to each
Shareholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States
mail directed to the Shareholder at his or her address as it
appears on the records of the Trust.
Section 4. Adjourned Meetings. A Shareholders' meeting may be
adjourned one or more times for any reason, including the failure
of a quorum to attend the meeting. No notice of adjournment of a
meeting to another time or place need be given to Shareholders if
such time and place are announced at the meeting at which the
adjournment is taken or reasonable notice is given to persons
present at the meeting and if the adjourned meeting is held
within a reasonable time after the date set for the original
meeting. Any business that might have been transacted at the
original meeting may be transacted at any adjourned meeting. If
after the adjournment a new record date is fixed for the
adjourned meeting, the Secretary shall give notice of the
adjourned meeting to Shareholders of record entitled to vote at
such meeting. Any irregularities in the notice of any meeting or
the non-receipt of any such notice by any of the Shareholders
shall not invalidate any action otherwise properly taken at any
such meeting.
Section 5. Validity of Proxies. Subject to the provisions of
the Trust Instrument, Shareholders entitled to vote may vote
either in person or by proxy; provided that either (1) the
Shareholder or his or her duly authorized attorney has signed and
dated a written instrument authorizing such proxy to act or (2)
the Trustees adopt by resolution an electronic, telephonic,
<PAGE>
computerized or other alternative to execution of a written
instrument authorizing the proxy to act, but if a proposal by
anyone other than the officers or Trustees is submitted to a vote
of the Shareholders of the Trust or of any Series or Class, or if
there is a proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees, Shares
may be voted only in person or by written proxy. Unless the
proxy provides otherwise, it shall not be valid for more than
eleven months before the date of the meeting. All proxies shall
be delivered to the Secretary or other person responsible for
recording the proceedings before being voted. A proxy with
respect to Shares held in the name of two or more persons shall
be valid if executed by one of them unless at or prior to
exercise of such proxy the Trust receives a specific written
notice to the contrary from any one of them. Unless otherwise
specifically limited by their terms, proxies shall entitle the
Shareholder to vote at any adjournment of a
Shareholders' meeting. A proxy purporting to be executed by or
on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. At every meeting of
Shareholders, unless the voting is conducted by inspectors, the
chairman of the meeting shall decide all questions concerning the
qualifications of voters, the validity of proxies and the
acceptance or rejection of votes. Subject to the provisions of
the Delaware Business Trust Act, the Trust Instrument or these
By-laws, the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder
shall govern all matters concerning the giving, voting or
validity of proxies, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
Section 6. Record Date. The Trustees may fix in advance a date
up to ninety days before the date of any Shareholders' meeting as
a record date for the determination of the Shareholders entitled
to notice of, and to vote at, any such meeting. The Shareholders
of record entitled to vote at a Shareholders' meeting shall be
deemed the Shareholders of record at any meeting reconvened after
one or more adjournments, unless the Trustees have fixed a new
record date. If the Shareholders' meeting is adjourned for more
than sixty days after the original date, the Trustees shall
establish a new record date.
Section 7. Action Without a Meeting. Shareholders may take any
action without a meeting if a majority (or such greater amount as
may be required by law) of the Outstanding Shares entitled to
vote on the matter consent to the action in writing and such
written consents are filed with the records of Shareholders'
meetings. Such written consent shall be treated for all purposes
as a vote at a meeting of the Shareholders.
ARTICLE VI
<PAGE>
SHARE OF BENEFICIAL INTEREST
Section 1. Share Certificates. Neither the Trust nor any Series
or Class shall be required to issue certificates certifying the
ownership of Shares, and the Trustees may specifically authorize
such certificates.
Section 2. Transfer of Shares. Shares shall be transferable
only by a transfer recorded on the books of the Trust by the
Shareholder of record in person or by his or her duly authorized
attorney or legal representative. Shares may be freely
transferred, and the Trustees may, from time to time, adopt rules
and regulations regarding the method of transfer of such Shares.
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT
Section 1. Fiscal Year. The fiscal year of the Trust shall end
on December 31.
Section 2. Accountant. The Trust shall employ independent
public accountants as its Accountant to examine the accounts of
the Trust and to report on its financial statements. The
Accountant's reports shall be addressed both to the Trustees and
to the Share-holders. A majority of the Trustees who are not
"interested persons" of the Trust (as such term is defined in the
1940 Act) shall select the Accountant at any meeting held within
ninety days before or after the beginning of the fiscal year of
the Trust, acting upon the recommendation of any audit committee.
The employ-ment of the Accountant shall be conditioned upon the
right of the Trust to terminate such employment without any
penalty by vote of a Majority Shareholder Vote at any
Shareholders' meeting called for that purpose.
ARTICLE VIII
AMENDMENTS
Section 1. General. Except as provided in Section 2 of this
Article, these By-laws may be amended by the Trustees or by the
affirmative vote of a majority of the Outstanding Shares entitled
to vote at any meeting.
Section 2. By Shareholders Only. After the issue of any Shares,
this Article may be amended only by the affirmative vote of the
holders of the lesser of (1) at least two-thirds of the
Outstanding Shares present or represented and entitled to vote at
any meeting or (2) more than fifty percent of the Outstanding
Shares.
ARTICLE IX
NET ASSET VALUE
<PAGE>
The term "Net Asset Value" of the Trust or any Series shall
mean that amount by which the assets of the Trust or belonging to
that Series exceed its liabilities, all as determined by or under
the direction of the Trustees. Net Asset Value per Share shall
be determined separately for each Series and shall be determined
for the Trust or each Series on such days and at such times as
the Trustees may determine. The Trustees shall make such
determination with respect to securities for which market
quotations are readily available, at the market value of such
securities, and with respect to other securities and assets, at
the fair value as determined in good faith by the Trustees;
provided, however, that the Trustees, without Shareholder
approval, may alter the method of appraising portfolio securities
insofar as permitted under the 1940 Act and the rules,
regulations and interpretations thereof promulgated or issued by
the Commission or insofar as permitted by any order of the
Commission applicable to the Trust or the Series. The Trustees
may delegate any of their powers and duties under this Article IX
with respect to appraisal of assets and liabilities. The
Trustees may, at any time, cause the Net Asset Value per Share
last
determined to be determined again in a similar manner and may fix
the time when such redetermined values shall become effective.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PRINCIPAL OFFICE AND SEAL. . . . . . . . . . . . . . . . . . . 1
Section 1. Principal Office. . . . . . . . . . . . . . . 1
Section 2. Seal. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
MEETINGS OF TRUSTEES . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Action by Trustees. . . . . . . . . . . . . . 1
Section 2. Compensation of Trustees. . . . . . . . . . . 1
ARTICLE III
COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Establishment.. . . . . . . . . . . . . . . . 1
Section 2. Proceedings; Quorum; Action . . . . . . . . . 2
Section 3. Compensation of Committee Members . . . . . . 2
ARTICLE IV
OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1. General . . . . . . . . . . . . . . . . . . . 2
Section 2. Election, Tenure and Qualifications of
Officers. . . . . . . . . . . . . . . . . . 2
Section 3. Vacancies and Newly Created Offices . . . . . 2
Section 4. Removal and Resignation . . . . . . . . . . . 2
Section 5. President.. . . . . . . . . . . . . . . . . . 3
Section 6. Vice President(s) . . . . . . . . . . . . . . 3
Section 7. Treasurer and Assistant Treasurer(s). . . . . 3
Section 8. Secretary and Assistant Secretaries . . . . . 4
Section 9. Compensation of Officers. . . . . . . . . . . 4
Section 10. Surety Bond . . . . . . . . . . . . . . . . . 4
ARTICLE V
MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 4
Section 1. No Annual Meetings. . . . . . . . . . . . . . 4
Section 2. Special Meetings. . . . . . . . . . . . . . . 4
Section 3. Notice of Meetings; Waiver. . . . . . . . . . 5
Section 4. Adjourned Meetings. . . . . . . . . . . . . . 5
Section 5. Validity of Proxies . . . . . . . . . . . . . 5
Section 6. Record Date . . . . . . . . . . . . . . . . . 6
Section 7. Action Without a Meeting. . . . . . . . . . . 6
ARTICLE VI
SHARE OF BENEFICIAL INTEREST . . . . . . . . . . . . . . . . . 7
Section 1. Share Certificates. . . . . . . . . . . . . . 7
Section 2. Transfer of Shares. . . . . . . . . . . . . . 7
<PAGE>
ARTICLE VII
FISCAL YEAR AND ACCOUNTANT . . . . . . . . . . . . . . . . . . 7
Section 1. Fiscal Year . . . . . . . . . . . . . . . . . 7
Section 2. Accountant. . . . . . . . . . . . . . . . . . 7
ARTICLE VIII
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. General . . . . . . . . . . . . . . . . . . . 7
Section 2. By Shareholders Only. . . . . . . . . . . . . 7
ARTICLE IX
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
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, reasonably 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
responsible 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 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, share-
holders 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
<PAGE>
other business or to devote his or her time 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 (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 proceeding 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
<PAGE>
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.
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, 199__, 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>
CUSTODIAN CONTRACT
Between
ROYCE CAPITAL TRUST
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States. . 2
2.1Holding Securities . . . . . . . . . . . . . . . . . . 2
2.2Delivery of Securities . . . . . . . . . . . . . . . . 2
2.3Registration of Securities . . . . . . . . . . . . . . 4
2.4Bank Accounts. . . . . . . . . . . . . . . . . . . . . 5
2.5Availability of Federal Funds. . . . . . . . . . . . . 5
2.6Collection of Income . . . . . . . . . . . . . . . . . 5
2.7Payment of Fund Monies . . . . . . . . . . . . . . . . 5
2.8Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . . . 7
2.9Appointment of Agents. . . . . . . . . . . . . . . . . 7
2.10Deposit of Fund Assets in U.S. Securities System. . . 7
2.11Fund Assets Held in the Custodian's Direct
Paper System . . . . . . . . . . . . . . . . . . . . . 8
2.12Segregated Account. . . . . . . . . . . . . . . . . . 9
2.13Ownership Certificates for Tax Purposes . . . . . . .10
2.14Proxies . . . . . . . . . . . . . . . . . . . . . . .10
2.15Communications Relating to Portfolio
Securities . . . . . . . . . . . . . . . . . . . . . .10
3.Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States. . . . . . . .11
3.1Appointment of Foreign Sub-Custodians. . . . . . . . .11
3.2Assets to be Held. . . . . . . . . . . . . . . . . . .11
3.3Foreign Securities Systems . . . . . . . . . . . . . .11
3.4Holding Securities . . . . . . . . . . . . . . . . . .11
3.5Agreements with Foreign Banking Institutions . . . . .12
3.6Access of Independent Accountants of the Fund. . . . .12
3.7Reports by Custodian . . . . . . . . . . . . . . . . .12
3.8Transactions in Foreign Custody Account. . . . . . . .12
3.9Liability of Foreign Sub-Custodians. . . . . . . . . .13
3.10Liability of Custodian. . . . . . . . . . . . . . . .13
3.11Reimbursement for Advances. . . . . . . . . . . . . .13
<PAGE>
3.12Monitoring Responsibilities . . . . . . . . . . . . .14
3.13Branches of U.S. Banks. . . . . . . . . . . . . . . .14
3.14Tax Law . . . . . . . . . . . . . . . . . . . . . . .14
4.Payments for Sales or Repurchases or Redemptions
of Shares of the Fund . . . . . . . . . . . . . . . . . .15
5.Proper Instructions . . . . . . . . . . . . . . . . . .15
6.Actions Permitted Without Express Authority . . . . . .15
7.Evidence of Authority . . . . . . . . . . . . . . . . .16
8.Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income . . . .16
9.Records . . . . . . . . . . . . . . . . . . . . . . . .17
10.Opinion of Fund's Independent Accountants. . . . . . .17
11.Reports to Fund by Independent Public Accountants. . .17
12.Compensation of Custodian. . . . . . . . . . . . . . .17
13.Responsibility of Custodian. . . . . . . . . . . . . .17
14.Effective Period, Termination and Amendment. . . . . .19
15.Successor Custodian. . . . . . . . . . . . . . . . . .19
16.Interpretive and Additional Provisions . . . . . . . .20
17.Additional Funds . . . . . . . . . . . . . . . . . . .20
18.Massachusetts Law to Apply . . . . . . . . . . . . . .21
19.Prior Contracts. . . . . . . . . . . . . . . . . . . .21
20.Shareholder Communications Election. . . . . . . . . .21
<PAGE>
CUSTODIAN CONTRACT
This Contract between Royce Capital Trust, a business trust
organized and existing under the laws of Delaware, having its
principal place of business at 1414 Avenue of the Americas, New
York, New York 10019 hereinafter called the "Fund", and State
Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in three
series, the Royce Premier Portfolio, Royce Equity Income
Portfolio and Royce Micro-Cap Portfolio (such series together
with all other series subsequently established by the Fund and
made subject to this Contract in accordance with paragraph 17,
being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as
follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the
assets of the Portfolios of the Fund, including securities which
the Fund, on behalf of the applicable Portfolio desires to be
held in places within the United States ("domestic securities")
and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund on behalf of the Portfolio(s)
agrees to deliver to the Custodian all securities and cash of the
Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares
of beneficial interest of the Fund representing interests in the
Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of
a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians,
located in the United States but only in accordance with an
applicable vote by the Board of Trustees of the Fund on behalf of
the applicable Portfolio(s), and provided that the Custodian
shall have no more or less responsibility or liability to the
Fund on account of any actions or omissions of any sub-custodian
so employed than any such sub-custodian has to the Custodian.
<PAGE>
The Custodian may employ as sub-custodian for the Fund's foreign
securities on behalf of the applicable Portfolio(s) the foreign
banking institutions and foreign securities depositories
designated in Schedule A hereto but only in accordance with the
provisions of Article 3.
2.Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States
2.1Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash
property, to be held by it in the United States including all
domestic securities owned by such Portfolio, other than (a)
securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial
paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the
Custodian (the "Direct Paper System") pursuant to Section 2.11.
2.2Delivery of Securities. The Custodian shall release and
deliver domestic securities owned by a Portfolio held by the
Custodian or in a U.S. Securities System account of the Custodian
or in the Custodian's Direct Paper book entry system account
("Direct Paper System Account") only upon receipt of Proper
Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name of any sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates or other
evidence representing the same aggregate face amount or number of
units; provided that, in any such case, the new securities are to
be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall have
no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10)For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate collateral
as agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11)For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12)For delivery in accordance with the provisions of any
<PAGE>
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange,
or of any similar organization or organizations, regarding escrow
or other arrangements in connection with transactions by the
Portfolio of the Fund;
13)For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding
account deposits in connection with transactions by the Portfolio
of the Fund;
14)Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time in
the currently effective prospectus and statement of additional
information of the Fund, related to the Portfolio ("Prospectus"),
in satisfaction of requests by holders of Shares for repurchase
or redemption; and
15)For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf of
the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the Portfolio
to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in
the name of the Portfolio or in the name of any nominee of the
Fund on behalf of the Portfolio or of any nominee of the
Custodian which nominee shall be assigned exclusively to the
Portfolio, unless the Fund has authorized in writing the
appointment of a nominee to be used in common with other
registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any
agent appointed pursuant to Section 2.9 or in the name or nominee
name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Portfolio
under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs the
<PAGE>
Custodian to maintain securities in "street name", the Custodian
shall utilize its best efforts only to timely collect income due
the Fund on such securities and to notify the Fund on a best
efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the United States in the
name of each Portfolio of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject to
the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for a Portfolio may be deposited by it to
its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act
as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited
with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5Availability of Federal Funds. Upon mutual agreement between
the Fund on behalf of each applicable Portfolio and the
Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund on behalf of a Portfolio, make federal
funds available to such Portfolio as of specified times agreed
upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio
which are deposited into the Portfolio's account.
2.6Collection of Income. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income and
other payments with respect to registered domestic securities
held hereunder to which each Portfolio shall be entitled either
by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments
with respect to bearer domestic securities if, on the date of
payment by the issuer, such securities are held by the Custodian
or its agent thereof and shall credit such income, as collected,
to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect
interest when due on securities held hereunder. Income due each
Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information
<PAGE>
or data as may be necessary to assist the Fund in arranging for
the timely delivery to the Custodian of the income to which the
Portfolio is properly entitled.
2.7Payment of Fund Monies. Upon receipt of Proper Instructions
from the Fund on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties,
the Custodian shall pay out monies of a Portfolio in the
following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options
on futures contracts to the Custodian (or any bank, banking firm
or trust company doing business in the United States or abroad
which is qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name
of the Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for transfer;
(b) in the case of a purchase effected through a U.S. Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a member
of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the
Portfolio of securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase such
securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
<PAGE>
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Portfolio is made by the
Custodian in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian
shall be absolutely liable to the Fund for such securities to the
same extent as if the securities had been received by the
Custodian.
2.9Appointment of Agents. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10Deposit of Fund Assets in U.S. Securities Systems. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange
Act of 1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to
herein as "U.S. Securities System" in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
<PAGE>
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are represented
in an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i) receipt
of advice from the U.S. Securities System that payment for such
securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Portfolio.
Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of
the Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case may
be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the U.S. Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
<PAGE>
it may have against the U.S. Securities System; at the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the U.S.
Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such
loss or damage.
2.11Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in an
account ("Account") of the Custodian in the Direct Paper System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer of
securities to the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
the making of an entry on the records of the Custodian to reflect
such transfer and receipt of payment for the account of the
Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of
the Portfolio, in the form of a written advice or notice, of
Direct Paper on the next business day following such transfer and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transaction in the
U.S. Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12Segregated Account. The Custodian shall upon receipt of
<PAGE>
Proper Instructions from the Fund on behalf of each applicable
Portfolio establish and maintain a segregated account or accounts
for and on behalf of each such Portfolio, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Exchange Act
and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or
of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written
by the Portfolio or commodity futures contracts or options
thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by the Portfolio with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be
proper corporate purposes.
2.13Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to domestic securities of
each Portfolio held by it and in connection with transfers of
securities.
2.14Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the
registered holder of such securities, if the securities are
registered otherwise than in the name of the Portfolio or a
nominee of the Portfolio, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly
deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15Communications Relating to Portfolio Securities. Subject to
the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities
of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Fund on behalf of the Portfolio and the maturity of
<PAGE>
futures contracts purchased or sold by the Portfolio) received by
the Custodian from issuers of the securities being held for the
Portfolio. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Portfolio all written
information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
<PAGE>
3.Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States
3.1Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Custodian to employ as sub-
custodians for the Portfolio's securities and other assets
maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on
Schedule A hereto ("foreign sub-custodians"). Upon receipt of
"Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule
A hereto from time to time to designate additional foreign
banking institutions and foreign securities depositories to act
as sub-custodian. Upon receipt of Proper Instructions, the Fund
may instruct the Custodian to cease the employment of any one or
more such sub-custodians for maintaining custody of the
Portfolio's assets.
3.2Assets to be Held. The Custodian shall limit the securities
and other assets maintained in the custody of the foreign sub-
custodians to: (a) "foreign securities", as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act
of 1940, and (b) cash and cash equivalents in such amounts as
the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by
each foreign sub-custodian.
3.3Foreign Securities Systems. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in a clearing agency which acts as
a securities depository or in a book-entry system for the central
handling of securities located outside the United States (each a
"Foreign Securities System") only through arrangements
implemented by the foreign banking institutions serving as sub-
custodians pursuant to the terms hereof (Foreign Securities
Systems and U.S. Securities Systems are collectively referred to
herein as the "Securities Systems"). Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4Holding Securities. The Custodian may hold securities and
other non-cash property for all of its customers, including the
Fund, with a Foreign Sub-custodian in a single account that is
identified as belonging to the Custodian for the benefit of its
customers, provided however, that (i) the records of the
Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify
by book-entry those securities and other non-cash property
belonging to the Fund and (ii) the Custodian shall require that
securities and other non-cash property so held by the Foreign
Sub-custodian be held separately from any assets of the Foreign
Sub-custodian or of others.
<PAGE>
3.5Agreements with Foreign Banking Institutions. Each agreement
with a foreign banking institution shall provide that: (a) the
assets of each Portfolio will not be subject to any right,
charge, security interest, lien or claim of any kind in favor of
the foreign banking institution or its creditors or agent, except
a claim of payment for their safe custody or administration; (b)
beneficial ownership for the assets of each Portfolio will be
freely transferable without the payment of money or value other
than for custody or administration; (c) adequate records will be
maintained identifying the assets as belonging to each applicable
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants
for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Portfolios
held by the foreign sub-custodian will be subject only to the
instructions of the Custodian or its agents.
3.6Access of Independent Accountants of the Fund. Upon request
of the Fund, the Custodian will use its best efforts to arrange
for the independent accountants of the Fund to be afforded access
to the books and records of any foreign banking institution
employed as a foreign sub-custodian insofar as such books and
records relate to the performance of such foreign banking
institution under its agreement with the Custodian.
3.7Reports by Custodian. The Custodian will supply to the Fund
from time to time, as mutually agreed upon, statements in respect
of the securities and other assets of the Portfolio(s) held by
foreign sub-custodians, including but not limited to an
identification of entities having possession of the Portfolio(s)
securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities
acquired for a Portfolio, the identity of the entity having
physical possession of such securities.
3.8Transactions in Foreign Custody Account. (a) Except as
otherwise provided in paragraph (b) of this Section 3.8, the
provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held
outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the
account of each applicable Portfolio and delivery of securities
maintained for the account of each applicable Portfolio may be
effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
<PAGE>
receiving later payment for such securities from such purchaser
or dealer.
(c) Securities maintained in the custody of a foreign sub-
custodian may be maintained in the name of such entity's nominee
to the same extent as set forth in Section 2.3 of this Contract,
and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
3.9Liability of Foreign Sub-Custodians. Each agreement pursuant
to which the Custodian employs a foreign banking institution as a
foreign sub-custodian shall require the institution to exercise
reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Custodian and the Fund from and
against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a foreign banking institution
as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense,
liability or claim.
3.10Liability of Custodian. The Custodian shall be liable for
the acts or omissions of a foreign banking institution to the
same extent as set forth with respect to sub-custodians generally
in this Contract and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated
by paragraph 3.13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.10, in delegating
custody duties to State Street London Ltd., the Custodian shall
not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other
losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God,
nuclear incident or other losses under circumstances where the
Custodian and State Street London Ltd. have exercised reasonable
care.
3.11Reimbursement for Advances. If the Fund requires the
Custodian to advance cash or securities for any purpose for the
benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange, or in the event
that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as
may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at
<PAGE>
any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the
extent necessary to obtain reimbursement.
3.12Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the Custodian.
Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of
this Contract. In addition, the Custodian will promptly inform
the Fund in the event that the Custodian learns of a material
adverse change in the financial condition of a foreign sub-
custodian or any material loss of the assets of the Fund or in
the case of any foreign sub-custodian not the subject of an
exemptive order from the Securities and Exchange Commission is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent thereof) or
that its shareholders' equity has declined below $200 million (in
each case computed in accordance with generally accepted U.S.
accounting principles).
3.13Branches of U.S. Banks. (a) Except as otherwise set forth in
this Contract, the provisions hereof shall not apply where the
custody of the Portfolios assets are maintained in a foreign
branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United
Kingdom shall be maintained in an interest bearing account
established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the Custodian,
State Street London Ltd. or both.
3.14Tax Law. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the
Fund or the Custodian as custodian of the Fund by the tax law of
the United States of America or any state or political
subdivision thereof. It shall be the responsibility of the Fund
to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of
jurisdictions other than those mentioned in the above sentence,
including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian
with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund
under the tax law of jurisdictions for which the Fund has
provided such information.
<PAGE>
4.Payments for Sales or Repurchases or Redemptions of Shares of
the Fund
The Custodian shall receive from the distributor for the Shares
or from the Transfer Agent of the Fund and deposit into the
account of the appropriate Portfolio such payments as are
received for Shares of that Portfolio issued or sold from time to
time by the Fund. The Custodian will provide timely notification
to the Fund on behalf of each such Portfolio and the Transfer
Agent of any receipt by it of payments for Shares of such
Portfolio.
From such funds as may be available for the purpose but subject
to the limitations of the Declaration of Trust and any applicable
votes of the Board of Trustees of the Fund pursuant thereto, the
Custodian shall, upon receipt of instructions from the Transfer
Agent, make funds available for payment to holders of Shares who
have delivered to the Transfer Agent a request for redemption or
repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized
upon receipt of instructions from the Transfer Agent to wire
funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian shall honor checks drawn on the
Custodian by a holder of Shares, which checks have been furnished
by the Fund to the holder of Shares, when presented to the
Custodian in accordance with such procedures and controls as are
mutually agreed upon from time to time between the Fund and the
Custodian.
5.Proper Instructions
Proper Instructions as used throughout this Contract means a
writing signed or initialled by one or more person or persons as
the Board of Trustees shall have from time to time authorized.
Each such writing shall set forth the specific transaction or
type of transaction involved, including a specific statement of
the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Upon receipt of a certificate of the
Secretary or an Assistant Secretary as to the authorization by
the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that
the Board of Trustees and the Custodian are satisfied that such
procedures afford adequate safeguards for the Portfolios' assets.
For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three -
party agreement which requires a segregated asset account in
accordance with Section 2.12.
6.Actions Permitted without Express Authority
<PAGE>
The Custodian may in its discretion, without express authority
from the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties
under this Contract, provided that all such payments shall be
accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of
the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7.Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly
executed by or on behalf of the Fund. The Custodian may receive
and accept a certified copy of a vote of the Board of Trustees of
the Fund as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant
to the Declaration of Trust as described in such vote, and such
vote may be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8.Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Trustees of the Fund to keep the books of account of each
Portfolio and/or compute the net asset value per share of the
outstanding shares of each Portfolio or, if directed in writing
to do so by the Fund on behalf of the Portfolio, shall itself
keep such books of account and/or compute such net asset value
per share. If so directed, the Custodian shall also calculate
daily the net income of the Portfolio as described in the Fund's
currently effective prospectus related to such Portfolio and
shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an
officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various
<PAGE>
components. The calculations of the net asset value per share
and the daily income of each Portfolio shall be made at the time
or times described from time to time in the Fund's currently
effective prospectus related to such Portfolio.
9.Records
The Custodian shall with respect to each Portfolio create and
maintain all records relating to its activities and obligations
under this Contract in such manner as will meet the obligations
of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the
Fund and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the
Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10.Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on
behalf of each applicable Portfolio may from time to time
request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities
hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other
requirements of such Commission.
11.Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting
system, internal accounting control and procedures for
safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the
Custodian under this Contract; such reports, shall be of
sufficient scope and in sufficient detail, as may reasonably be
required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so
state.
12.Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time
to time between the Fund on behalf of each applicable Portfolio
<PAGE>
and the Custodian.
13.Responsibility of Custodian
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of
title thereto received by it or delivered by it pursuant to this
Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party
or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability
to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Fund) on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or
willful misconduct or the negligence or willful misconduct of a
sub-custodian or agent, the Custodian shall be without liability
to the Fund for any loss, liability, claim or expense resulting
from or caused by; (i) events or circumstances beyond the
reasonable control of the Custodian or any sub-custodian or
Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or
expropriation, imposition of currency controls or restrictions,
the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or
communications disruptions, acts of war or terrorism, riots,
revolutions, work stoppages, natural disasters or other similar
events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions
have been in accordance with this Contract; (iii) the insolvency
of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or
other commercially prevalent payment or clearing system to
deliver to the Custodian's sub-custodian or agent securities
purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company,
corporation, or other body in charge or registering or
transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to
transfer such securities including non-receipt of bonus,
dividends and rights and other accretions or benefits; (vi)
delays or inability to perform its duties due to any disorder in
market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or
future law or regulation or order of the United States of
America, or any state thereof, or any other country, or political
subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a
foreign banking institution to the same extent as set forth with
<PAGE>
respect to sub-custodians generally in this Contract.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of money
or which action may, in the opinion of the Custodian, result in
the Custodian or its nominee assigned to the Fund being liable
for the payment of money or incurring liability of some other
form, the Fund, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries
or agents, to advance cash or securities for any purpose
(including but not limited to securities settlements, foreign
exchange contracts and assumed settlement) or in the event that
the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as
may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at
any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available
cash and to dispose of the Fund assets to the extent necessary to
obtain reimbursement.
In no event shall the Custodian be liable for indirect, special
or consequential damages.
14.Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than
thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a
Portfolio act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio,
as required by Rule 17f-4 under the Investment Company Act of
1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the
initial use of the Direct Paper System by such Portfolio ;
provided further, however, that the Fund shall not amend or
terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration
of Trust, and further provided, that the Fund on behalf of one or
more of the Portfolios may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event
at the direction of an appropriate regulatory agency or court of
<PAGE>
competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation
as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and
disbursements.
15.Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the
Fund, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed
and in the form for transfer, all securities of each applicable
Portfolio then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote
of the Board of Trustees of the Fund, deliver at the office of
the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees
shall have been delivered to the Custodian on or before the date
when such termination shall become effective, then the Custodian
shall have the right to deliver to a bank or trust company, which
is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits, as
shown by its last published report, of not less than $25,000,000,
all securities, funds and other properties held by the Custodian
on behalf of each applicable Portfolio and all instruments held
by the Custodian relative thereto and all other property held by
it under this Contract on behalf of each applicable Portfolio and
to transfer to an account of such successor custodian all of the
securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of
the Custodian under this Contract.
In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination
hereof owing to failure of the Fund to procure the certified copy
of the vote referred to or of the Board of Trustees to appoint a
successor custodian, the Custodian shall be entitled to fair
compensation for its services during such period as the Custodian
retains possession of such securities, funds and other properties
and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and
effect.
16.Interpretive and Additional Provisions
<PAGE>
In connection with the operation of this Contract, the Custodian
and the Fund on behalf of each of the Portfolios, may from time
to time agree on such provisions interpretive of or in addition
to the provisions of this Contract as may in their joint opinion
be consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that
no such interpretive or additional provisions shall contravene
any applicable federal or state regulations or any provision of
the Declaration of Trust of the Fund. No interpretive or
additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
17.Additional Funds
In the event that the Fund establishes one or more series of
Shares in addition to Royce Premier Portfolio, Royce Equity
Income Portfolio and Royce Micro-Cap Portfolio with respect to
which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a
Portfolio hereunder.
18.Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth
of Massachusetts.
19.Prior Contracts
This Contract supersedes and terminates, as of the date hereof,
all prior contracts between the Fund on behalf of each of the
Portfolios and the Custodian relating to the custody of the
Fund's assets.
20.Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks
which hold securities for the account of customers to respond to
requests by issuers of securities for the names, addresses and
holdings of beneficial owners of securities of that issuer held
by the bank unless the beneficial owner has expressly objected to
disclosure of this information. In order to comply with the
rule, the Custodian needs the Fund to indicate whether it
authorizes the Custodian to provide the Fund's name, address, and
share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will
not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or
"no" below, the Custodian is required by the rule to treat the
Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established
by the Fund. For the Fund's protection, the Rule prohibits the
<PAGE>
requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate
below whether the Fund consents or objects by checking one of the
alternatives below.
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the
Fund's name, address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name
and behalf by its duly authorized representative and its seal to
be hereunder affixed as of the
day of , 1996.
ATTEST ROYCE CAPITAL TRUST
By
ATTEST STATE STREET BANK AND TRUST COMPANY
By
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign
securities depositories have been approved by the Board of
Trustees of Royce Capital Trust for use as sub-custodians for
the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
<PAGE> SCHEDULE FOR COMPUTATION OF
PERFORMANCE QUOTATIONS PROVIDED IN ITEM 22
This Schedule illustrates the growth of a $1,000 initial
investment in Royce Premier Fund, Royce Equity Income Fund and
Royce Micro-Cap Fund, each a series of The Royce Fund, by
applying the "Annual Total Return" and the "Average Annual Total
Return" percentages set forth in this Registration Statement in
response to Item 22 to the following total return formula:
P(1+T) to the Nth power = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of the 1, 5 or 10 year or
other periods at the end of the 1, 5 or 10 year or other periods.
Royce Premier Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period ended December 31,
1995:
$1,000 (1+ .1782) to the 1st power = $1,178.20 ERV
(b) ERV of a $1,000 investment for the period from
the Fund's inception on January 1, 1992 through December 31,
1995:
$1,000 (1+ .1380) to the 4th power = $1,677.40 ERV
Royce Equity Income Fund
(a) 1 Year ERV of a $1,000 investment for the one
year period ended December 31, 1995:
$1,000 (1+ .1637) to the 1st power = $1,163.70 ERV
(b) 5 Year ERV of a $1,000 investment for the five
year period ended December 31, 1995:
$1,000 (1+ .1464) to the 5th power = $1,980.00 ERV
<PAGE>
(c) ERV of a $1,000 investment for the period from
the Fund's inception on January 2, 1990 through December 31,
1995:
$1,000 (1+ .0899) to the 6th power = $1,676.00 ERV
Royce Micro-Cap Fund
(a) 1 Year Ending Redeemable Value ("ERV") of a
$1,000 investment for the one year period ended December 31,
1995:
$1,000 (1+ .1906) to the 1st power = $1,190.60 ERV
(b) ERV of a $1,000 investment for the period from
the Fund's inception on January 1, 1992 through December 31,
1995:
$1,000 (1+ .1852) to the 4th power = $1,973.10 ERV
<PAGE>
[ARTICLE] 6
[SERIES]
[NUMBER] 2
[NAME] ROYCE EQUITY INCOME PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 8-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 0
[INVESTMENTS-AT-VALUE] 0
[RECEIVABLES] 0
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 0
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 0
[TOTAL-LIABILITIES] 0
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 0
[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] 0
[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] 0
[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] 0
[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>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> ROYCE EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<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> 0
<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> 0
<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> 0
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> ROYCE MICRO-CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<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> 0
<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> 0
<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> 0
<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>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> ROYCE PREMIER PORTFOLIO
<S> <C>
<PERIOD-TYPE> 8-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<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> 0
<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> 0
<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> 0
<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>
