As filed with the Securities and Exchange Commission on
February 10, 1997.
Registration Nos. 333-1073
811-07537
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. 1 /X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 4 /X /
(Check appropriate box or boxes)
ROYCE CAPITAL FUND
(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 Fund
1414 Avenue of the Americas, New York, New York 10019
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The Royce Fund has registered an indefinite number of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A 24f-2 Notice for for its most
recent fiscal year will be filed on or before February 28, 1997.
Total number of pages:
Index to Exhibits is located on page:
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to Rule 481 of Regulation C)
Item of Form N-1A CAPTION or Location in Prospectus
Part A
I. Cover Page............................ Cover Page
II. Synopsis.............................. FUND EXPENSES
III. Condensed Financial Information... *
IV. General Description of Registrant.. INVESTMENT OBJECTIVES,
INVESTMENT POLICIES,
INVESTMENT RISKS,
INVESTMENT LIMITATIONS,
GENERAL INFORMATION
V. Management of the Fund........... MANAGEMENT OF THE TRUST,
GENERAL INFORMATION
V.A. Management's Discussion of
Fund Performance..................... *
VI. Capital Stock and Other Securities. GENERAL INFORMATION,
DIVIDENDS, DISTRIBUTIONS AND
TAXES,
SHAREHOLDER GUIDE
VII. Purchase of Securities Being
Offered............................ NET ASSET VALUE PER SHARE,
SHAREHOLDER GUIDE
VIII. Redemption or Repurchase............. SHAREHOLDER GUIDE
IX. Pending Legal Proceedings............. *
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
Part B
X. Cover Page......................... Cover Page
XI. Table of Contents............... TABLE OF CONTENTS
<PAGE>
CAPTION or Location in Statement
Item of Form N-1A of Additional Information
Part B
XII. General Information and History.... *
XIII. Investment Objectives and Policies. INVESTMENT POLICIES AND
LIMITATIONS,
RISK FACTORS AND SPECIAL
CONSIDERATIONS
XIV. Management of the Fund.......... MANAGEMENT OF THE TRUST
XV. Control Persons and Principal
Holders of Securities........... MANAGEMENT OF THE TRUST,
PRINCIPAL HOLDERS OF SHARES
XVI. Investment Advisory and Other
Services........................... MANAGEMENT OF THE TRUST,
INVESTMENT ADVISORY SERVICES,
CUSTODIAN,
INDEPENDENT ACCOUNTANTS
XVII. Brokerage Allocation and Other
Practices.............. PORTFOLIO TRANSACTIONS
XVIII. Capital Stock and Other Securities. DESCRIPTION OF THE TRUST
XIX. Purchase, Redemption and Pricing
of Securities Being Offered... PRICING OF SHARES BEING OFFERED,
REDEMPTIONS IN KIND
XX. Tax Status.................. TAXATION
XXI. Underwriters.......................... *
XXII. Calculation of Performance Data.... PERFORMANCE DATA
XXIII. Financial Statements........... FINANCIAL STATEMENTS
* Not applicable.
<PAGE>
Royce Capital Fund
Royce Premier Portfolio
Royce Total Return Portfolio
Royce Micro-Cap Portfolio
PROSPECTUS -- January 31, 1997
Royce Premier Portfolio, Royce Total Return
Portfolio and Royce Micro-Cap Portfolio (the
"Funds") are series of Royce Capital Fund (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 This Prospectus sets forth concisely the
PROSPECTUS 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 January 31, 1997 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 Page
Fund Expenses 2 Investment Limitations 6
Investment Performance 3 Management of the Trust 8
Investment Objectives 4 General Information 9
Investment Policies 4 Dividends, Distributions and Taxes 10
Investment Risks 5 Net Asset Value Per Share 10
Shareholder Guide 11
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS P ROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND EXPENSES Transaction expenses are charges paid when shares
of the Funds are purchased or sold.
Shareholder Transaction Expenses
Sales Load Imposed on Purchases or
Reinvested Dividends None
Deferred Sales Load on Redemptions None
Each Fund pays its own operating expenses,
including the investment management fee to Quest
Advisory Corp. ("Quest"), the investment adviser to
the Funds. Expenses are factored into a Fund's net
asset value daily. The following expenses are
estimates for the first year of operation.
Annual Fund Operating Expenses
Royce Royce Royce
Premier Total Return Micro-Cap
Portfolio Portfolio Portfolio
Management Fees
(after waivers) .00% .00% .00%
12b-1 Fees None None None
Other Expenses 1.35% 1.35% 1.35%
Total Operating Expenses
(after waivers) 1.35% 1.35% 1.35%
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 and
reimbursement of Fund expenses by Quest. Quest has
voluntarily committed to waive its fees and
reimburse Fund expenses through December 31, 1997
to the extent necessary to maintain total operating
expenses of each Fund at or below 1.35%.
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 $14 $43
Royce Total Return Portfolio 14 43
Royce Micro-Cap Portfolio 14 43
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 From time to time, the Funds may communicate
PERFORMANCE figures reflecting total return over various time
periods. "Total return" is the rate of return on
Total return is the an amount invested in a Fund from the beginning to
change in value the end of the stated period. "Average annual
over total return" is the annual compounded percentage
a given time change in the value of an amount invested in a Fund
period, from the beginning until the end of the stated
assuming period. Total returns, which assume the
reinvestment reinvestment of all net investment income dividends
of any dividends and capital gains distributions, are historical
and measures of past performance and are not intended
capital gains to indicate future performance.
distributions
Total returns quoted for the Funds include the
effect of deducting each Fund's operating expenses,
but will not include charges and expenses
attributable to a particular Variable Contract or
Retirement Plan. Because shares of the Funds may
be purchased only through a Variable Contract or an
eligible Retirement Plan, an individual owning a
Variable Contract or participating in a Retirement
Plan should carefully review the Variable Contract
disclosure documents or Retirement Plan information
for information on relevant charges and expenses.
Excluding these charges and expenses from
quotations of each Fund's performance has the
effect of increasing the performance quoted. These
charges and expenses should be considered when
comparing a Fund's performance to other investment
vehicles.
Although the Trust is newly-organized and the Funds
do not yet have their own performance records, each
Fund has the same investment objectives and follows
substantially the same investment policies as a
corresponding Royce retail fund. The Royce retail
funds have the same investment adviser as the
corresponding Funds offered in this Prospectus.
Set forth in the table below is total return
information for each of the Royce retail funds
corresponding to the Funds offered in this
Prospectus, calculated as described above. Such
information has been obtained from Quest and
updates the information set forth in the current
prospectus of each fund. Investors should not
consider this performance data as an indication of
the future performance of the Funds offered in this
Prospectus. The performance figures below reflect
the deduction of the historical fees and expenses
paid by the Royce retail funds, and not those to be
paid by these Funds. The figures also do not
reflect the deduction of charges or expenses
attributable to Variable Contracts. As discussed
above, investors should refer to the applicable
Variable Contract disclosure documents for
information on such charges and expenses.
Additionally, although it is anticipated that each
Fund and its corresponding retail fund will hold
similar securities selections, their investment
results are expected to differ. In particular,
differences in asset size and in cash flow
resulting from purchases and redemptions of Fund
shares may result in different security selections,
differences in the relative weightings of
securities or differences in the price paid for
particular portfolio holdings.
<PAGE>
The average annual total returns for the
corresponding Royce retail funds for the periods
ended December 31, 1996 were:
One Three Five Since Inception
Year Year Year Inception Date
Royce Premier
Fund 18.1% 12.9% 14.7% 14.7% December 31, 1991
Royce Total
Return Fund 25.5% 18.7% -- 18.4% December 15, 1993
Royce Micro
-Cap Fund 15.5% 12.5% 17.9% 17.9% 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 Each Fund has different investment objectives
OBJECTIVES and/or its own method of achieving its objectives
and is designed to meet different investment needs.
Since certain risks are inherent in owning any
security, there can be no assurance that any of the
Funds will achieve their objectives.
Royce Premier Portfolio's investment objectives are
primarily long-term growth and secondarily current
income. It seeks to achieve these objectives
through investments in a limited portfolio of
common stocks and convertible securities of
companies viewed by Quest as having superior
financial characteristics and/or unusually
attractive business prospects.
Royce Total Return Fund's investment objective is
an equal focus on both long-term growth of capital
and current income. It seeks to achieve this
objective through investments in a broadly
diversified portfolio of dividend-paying common
stocks of companies selected on a value basis.
Royce Micro-Cap Portfolio seeks long-term capital
appreciation, primarily through investments in
common stocks and convertible securities of small
and micro-cap companies. Production of income is
incidental to this objective.
These investment objectives are fundamental and may
not be changed without the approval of a majority
of the Fund's outstanding voting shares.
INVESTMENT
POLICIES
The Fund invests on Quest will use a "value" method in managing the
a "value" basis 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.
The Fund invests Quest's value method is based on its belief that the
primarily in small securities of certain small companies may sell at a
companies 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, convertible preferred stocks and convertible
bonds. At least 65% of these securities will be
income-producing and/or issued by companies with stock
market capitalizations under $1 billion at the time
of investment. The remainder of its assets may be
invested in securities of companies with higher stock
market capitalizations, non-dividend-paying common
stocks and non-convertible preferred stocks and debt
securities. In its selection process for the Fund,
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 Total Return Portfolio
In accordance with its dual objective of seeking both
capital appreciation (realized and unrealized) and
current income, Royce Total Return Portfolio will
normally invest at least 80% of its assets in common
stocks. At least 90% of these securities will be
dividend-paying, and at least 65% of these securities
will be issued by companies with stock market
capitalizations under $1,000,000,000 at the time of
investment. The remainder of the Fund's assets may
be invested in securities with higher stock market
capitalizations, non-dividend-paying common stocks and
convertible and non-convertible securities. While
most of the Fund's securities will be income-producing,
the composite yield of the Fund will vary and may be
either higher or lower than the composite yield of
the stocks in the Standard & Poor's 500 Index.
Royce Micro-Cap Portfolio
At least 80% of the assets of Royce Micro-Cap Portfolio
will normally be invested in common stocks and
securities convertible into common stocks of small and
micro-sized companies, and at least 65% of these
securities will be issued by companies with stock
market capitalizations under $300 million at the time
of investment. The remainder of the Fund's assets may
be invested in the securities of companies with higher
stock market capitalizations and non-convertible
preferred stocks and debt securities.
INVESTMENT As mutual funds investing primarily in common
RISKS stocks and/or securities convertible into common
stocks, the Funds are subject to market risk, that
The Funds are is, the possibility that common stock prices will
subject decline over short or even extended periods. The
to certain Funds will invest substantial portions of their
investment assets in securities of small and/or micro-cap
risks companies. Such companies may not be well-known to
the investing public, may not have significant
institutional ownership and may have cyclical,
static or only moderate growth prospects. In
addition, the securities of such companies may be
more volatile in price and have lower trading
volumes than the larger capitalization stocks
included in the Standard & Poor's 500 Index.
Accordingly, Quest's investment method requires a
long-term investment horizon, and the Funds should
not be used to play short-term swings in the
market.
<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.
In addition, Royce Micro-Cap Portfolio may invest
in many micro-cap and/or low-priced securities that
are followed by relatively few securities analysts,
with the result that there tends to be less
publicly available information concerning the
securities. The securities of these companies may
have limited trading volumes and be subject to more
abrupt or erratic market movements than the
securities of larger, more established companies or
the market averages in general, and Quest may be
required to deal with only a few market-makers when
purchasing and selling these securities. Companies
in which Royce Micro-Cap Portfolio is likely to
invest also may have limited product lines, markets
or financial resources, may lack management depth
and may be more vulnerable to adverse business or
market developments. Thus, the Fund may involve
considerably more risk than a mutual fund investing
in the more liquid equity securities of larger
companies traded on the New York or American Stock
Exchanges.
INVESTMENT Each of the Funds has adopted certain fundamental
LIMITATIONS 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
The Funds have in the 1940 Act. These limitations are set forth
adopted certain in the Statement of Additional Information and
fundamental provide, among other things, that no Fund will:
limitations
(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 In addition to investing primarily in the equity and
Practices fixed income securities described above, the Funds
may follow a number of additional investment practices.
Short-term fixed The Funds may invest in short-term fixed income
income securities securities for temporary defensive purposes, to invest
uncommitted cash balances or to maintain liquidity to
meet shareholder redemptions. These securities consist
of United States Treasury bills, domestic bank
certificates of deposit, high-quality commercial paper
and repurchase agreements collateralized by U.S.
Government securities. In a repurchase agreement, a
<PAGE>
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 Each of the Funds may also invest no more than 5%
debt securities of its net assets in lower-rated (high-risk) non-
convertible debt securities, which are below
investment grade. The Funds do not expect to
invest in non-convertible debt securities that are
rated lower than Caa by Moody's Investors Service,
Inc. or CCC by Standard & Poor's Corp. or, if
unrated, determined to be of comparable quality.
Warrants, rights Each Fund may invest up to 5% of its total assets
and options in warrants, rights and options.
Portfolio turnover Although the Funds generally will seek to invest for
the long term, they retain the right to sell securities
regardless of how long they have been held. Portfolio
turnover rates for the Funds may exceed 100%. Rates
which exceed 100% are higher than those of other funds.
A 100% turnover rate occurs, for example, if all of a
Fund's portfolio securities are replaced in one year.
High portfolio activity increases the Fund's transaction
costs, including brokerage commissions.
State insurance The Funds are sold to the Insurance Companies in
restrictions connection with Variable Contracts, and will seek to be
available under Variable Contracts sold in a number of
jurisdictions. Certain states have regulations or
<PAGE>
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's business and affairs are managed under
THE TRUST the direction of its Board of Trustees. Quest, the
Funds' investment adviser, is responsible for the
Quest Advisory Corp. management of the Funds' portfolios, subject to the
is responsible for authority of the Board of Trustees. Quest, which
the management of was organized in 1967, is also the investment
the Fund's adviser to The Royce Fund and to other investment
portfolios 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 Total Return 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.
Quest will select the brokers who will execute the
purchases and sales of the Funds' portfolio securities
and may place orders with brokers who provide brokerage
and research services to Quest. Quest is authorized,
in recognition of the value of brokerage and research
services provided, to pay commissions to a broker in
excess of the amount which another broker might have
charged for the same transaction.
From time to time, Quest may pay amounts to Insurance
Companies or other organizations that provide
administrative services for the Funds or that provide
services relating to the Funds to owners of Variable
Contracts and/or participants in Retirement Plans.
These services may include, among other things:
sub-accounting services; answering inquiries regarding
the Funds; transmitting, on behalf of the Funds,
proxy statements, shareholder reports, 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.
<PAGE>
GENERAL Royce Capital Fund (the "Trust") is a Delaware
INFORMATION 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.
The custodian for the portfolio securities, cash
and other assets of the Funds is State Street Bank
and Trust Company. State Street, through its agent
National Financial Data Services ("NFDS"), also
serves as the Funds' transfer agent. Coopers &
Lybrand L.L.P. serves as independent accountants
for the Funds.
<PAGE>
DIVIDENDS, Each of the Funds will pay dividends from its net
DISTRIBUTIONS investment income (if any) and distribute its net
AND TAXES realized capital gains annually 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 59.5.
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.
NET ASSET VALUE Fund shares are purchased and redeemed at the net
PER SHARE asset value per share next determined after an
order is received by the Funds' transfer agent or
Net asset value per an authorized service agent or sub-agent. Net
share (NAV) is asset value per share is determined by dividing the
determined each day total value of the Fund's investments and other
the New York Stock assets, less any liabilities, by the number of
Exchange is open 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
<PAGE>
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 Shares of the Funds will be sold on a continuous
Redeeming Shares basis to separate accounts of Insurance Companies
of the Funds 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.
Fund shares are purchased or redeemed at the net
asset value per share next computed after receipt
of a purchase or redemption order by a Fund's
transfer agent or an authorized service agent or
sub-agent. Payment for redeemed shares will
generally be made within three business days
following the date of request for redemption.
However, payment may be postponed under unusual
circumstances, such as when normal trading is not
taking place on the New York Stock Exchange, an
emergency as defined by the Securities and Exchange
Commission exists or as permitted by the Securities
and Exchange Commission.
Shareholder Owners of Variable Contracts and Retirement Plans and
Communications 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
<PAGE>
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.
Royce Capital Fund
1414 Avenue of the Americas
New York, NY 10019
1-800-221-4268
Royce Capital Fund
Investment Adviser
Quest Advisory Corp.
1414 Avenue of the Americas
New York, NY 10019
Royce Premier Portfolio
Transfer Agent Royce Total Return Portfolio
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419012 Royce Micro-Cap Portfolio
Kansas City, MO 64141-6012
1-800-841-1180
Custodian
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
Officers
Charles M. Royce, President and
Treasurer
John D. Diederich, Vice President
Jack E. Fockler, Jr., Vice President
W. Whitney George, Vice President
Daniel A. O'Byrne, Vice President
and Asst. Secretary
John E. Denneen, Secretary
Prospectus
January 31, 1997
<PAGE>
ROYCE CAPITAL FUND
STATEMENT OF ADDITIONAL INFORMATION
ROYCE CAPITAL FUND (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 Total Return 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 January 31, 1997. 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
January 31, 1997
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND LIMITATIONS 2
RISK FACTORS AND SPECIAL CONSIDERATIONS 3
MANAGEMENT OF THE TRUST 8
PRINCIPAL HOLDERS OF SHARES 10
INVESTMENT ADVISORY SERVICES 10
CUSTODIAN 11
INDEPENDENT ACCOUNTANTS 12
PORTFOLIO TRANSACTIONS 12
CODE OF ETHICS AND RELATED MATTERS 13
PRICING OF SHARES BEING OFFERED 14
REDEMPTIONS IN KIND 14
TAXATION 14
DESCRIPTION OF THE TRUST 16
PERFORMANCE DATA 18
FINANCIAL STATEMENTS 23
<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, unless such securities are
issued by money market funds registered under the Investment
Company Act of 1940, or in repurchase agreements which mature
in more than seven days;
8. Invest more than 10% of its assets in securities without
readily-available market quotations (i.e., illiquid securities);
9. Invest, with respect to 75% of its assets, more than 5% of
its assets in the securities of any one issuer (except U.S.
Government securities);
10. Invest more than 25% of its assets in any one industry;
<PAGE>
11. Acquire more than 10% of the outstanding voting securities
of any one issuer;
12. Purchase or sell real estate or real estate mortgage loans
or invest in the securities of real estate companies unless such
securities are publicly-traded;
13. Purchase or sell commodities or commodity contracts;
14. Make loans, except for purchases of portions of issues of
publicly-distributed bonds, debentures and other securities,
whether or not such purchases are made upon the original issuance
of such securities, and except that the Funds may loan up to 25%
of their respective assets to qualified brokers, dealers or
institutions for their use relating to short sales or other
securities transactions (provided that such loans are fully
collateralized at all times);
15. Invest in companies for the purpose of exercising control of
management; or
16. Purchase portfolio securities from or sell such securities
directly to any of the Trust's Trustees, officers, employees or
investment adviser, as principal for their own accounts.
No Fund may, as a matter of operating policy:
1. Invest more than 5% of its net assets in lower-rated (high-risk)
non-convertible debt securities;
2. Enter into repurchase agreements with any party other than the
custodian of its assets; or
3. Invest more than 5% of its total assets in warrants, rights
and options.
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
<PAGE>
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.
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
<PAGE>
increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of
the high-yield/high-risk bond market, especially during periods
of economic recession. In fact, from 1989 to 1991, the
percentage of lower-rated (high-risk) debt securities that
defaulted rose significantly above prior levels.
The market for lower-rated (high-risk) debt securities may
be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the
former are sold. If market quotations cease to be readily
available for a lower-rated (high-risk) debt security in which a
Fund has invested, the security will then be valued in accordance
with procedures established by the Board of Trustees. Judgment
plays a greater role in valuing lower-rated (high-risk) debt
securities than is the case for securities for which more
external sources for quotations and last sale information are
available. Adverse publicity and changing investor perceptions
may affect a Fund's ability to dispose of lower-rated (high-risk)
debt securities.
Since the risk of default is higher for lower-rated (high-
risk) debt securities, Quest's research and credit analysis may
play an important part in managing securities of this type for
the Funds. In considering such investments for the Funds, Quest
will attempt to identify those issuers of lower-rated (high-risk)
debt securities whose financial condition is adequate to meet
future obligations, has improved or is expected to improve in the
future. Quest's analysis may focus on relative values based on
such factors as interest or dividend coverage, asset coverage,
earnings prospects and the experience and managerial strength of
the issuer.
Foreign Investments
Each Fund may invest up to 10% of its assets in the
securities of foreign issuers. Foreign investments can involve
significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in or indexed to
foreign currencies and of dividends and interest from such
securities can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets
can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to
obtain reliable information regarding an 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.
<PAGE>
There may be a greater possibility of default by foreign
governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local
political, economic or social instability, military action or
unrest or adverse diplomatic developments. There is no assurance
that Quest will be able to anticipate these potential events or
counter their effects.
The considerations noted above are generally intensified for
investments in developing countries. Developing countries may
have relatively unstable governments, economies based on
only a few industries and securities markets that trade a small
number of securities.
American Depositary Receipts ("ADRs") are certificates held
in trust by a bank or similar financial institution evidencing
ownership of securities of a foreign-based issuer. Designed for
use in U.S. securities markets, ADRs are alternatives to the
purchase of the underlying foreign securities in their national
markets and currencies.
ADR facilities may be established as either unsponsored or
sponsored. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them
relating to the rights and obligations of ADR holders and the
practices of market participants. A depository may establish an
unsponsored facility without participation by (or even
necessarily the acquiescence of) the issuer of the deposited
securities, although typically the depository requests a letter
of non-objection from such issuer prior to the establishment of
the facility. Holders of unsponsored ADRs generally bear all the
costs of such facilities. The depository usually charges fees
upon the deposit and withdrawal of the deposited securities, the
conversion of dividends into U.S. dollars, the disposition of non-
cash distributions and the performance of other services. The
depository of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities.
Sponsored ADR facilities are created in generally the same manner
as unsponsored facilities, except that the issuer of the
deposited securities enters into a deposit agreement with the
depository. The deposit agreement sets out the rights and
responsibilities of the issuer, the depository and the ADR
holders. With sponsored facilities, the issuer of the deposited
securities generally will bear some of the costs relating to the
facility (such as deposit and withdrawal fees). Under the terms
of most sponsored arrangements, depositories agree to distribute
notices of shareholder meetings and voting instructions and to
provide shareholder communications and other information to the
ADR holders at the request of the issuer of the deposited
securities.
Repurchase Agreements
In a repurchase agreement, a Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell
that security to the seller at an agreed upon price on an agreed
upon date within a number of days (usually not more than seven)
from the date of purchase. The resale price reflects the
purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased
security. A repurchase agreement involves the obligation of the
<PAGE>
seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the
agreed upon resale price and marked to market daily) of the
underlying security.
The Funds may engage in repurchase agreements with respect
to any U.S. Government security. While it does not presently
appear possible to eliminate all risks from these transactions
(particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to a Fund
in connection with bankruptcy proceedings), it is the policy of
the Trust to enter into repurchase agreements only with its
custodian, State Street Bank and Trust Company, and having a term
of seven days or less.
Warrants, Rights and Options
The Funds may invest up to 5% of their assets in warrants,
rights and options. A warrant, right or call option entitles the
holder to purchase a given security within a specified period for
a specified price and does not represent an ownership interest.
A put option gives the holder the right to sell a particular
security at a specified price during the term of the option.
These securities have no voting rights, pay no dividends and have
no liquidation rights. In addition, their market prices do not
necessarily move parallel to the market prices of the underlying
securities.
The sale of warrants, rights or options held for more than
one year generally results in a long-term capital gain or loss to
the Fund, and the sale of warrants, rights or options held for
one year or less generally results in a short term capital gain
or loss. The holding period for securities acquired upon
exercise of a warrant, right or call option, however, generally
begins on the day after the date of exercise, regardless of how
long the warrant, right or option was held. The securities
underlying warrants, rights and options could include shares of
common stock of a single company or securities market indices
representing shares of the common stocks of a group of companies,
such as the Standard & Poor's SmallCap 600 Stock Price Index, an
unmanaged market-weighted index.
Investing in warrants, rights and call options on a given
security allow the Fund to hold an interest in that security
without having to commit assets equal to the market price of the
underlying security and, in the case of securities market
indices, to participate in a market without having to purchase
all of the securities comprising the index. Put options, whether
on shares of common stock of a single company or on a securities
market index, would permit the Fund to protect the value of a
portfolio security against a decline in its market price and/or
to benefit from an anticipated decline in the market price of a
given security or of a market. Thus, investing in warrants,
rights and options permits the Fund to incur additional risk
and/or to hedge against risk.
* * *
Quest believes that Royce Micro-Cap Portfolio is suitable
for investment only by persons who can invest without concern for
income, and that such Fund and Royce Premier Portfolio are
suitable for those who are in a financial position to assume
above-average investment risks in search for long-term capital
appreciation.
<PAGE>
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 with the Trust Principal Occupations During
Age Past 5 Years
Charles M. Royce* Trustee, President, Secretary, Treasurer,
(57) President sole director and sole voting
1414 Avenue of and shareholder of Quest Advisory
the Americas Treasurer Corp. ("Quest"), the Trust's
New York, NY 10019 investment adviser; Trustee,
President and Treasurer of The
Royce Fund ("TRF"), an open-end
diversified management investment
company of which Quest is the
principal investment adviser;
Director, President and Treasurer of
Royce Value Trust, Inc. ("RVT"), and
of Royce Micro-Cap Trust, Inc. ("OTCM")
and Royce Global Trust, Inc. ("RGT")
since September 1993 and October 1996,
respectively, each a closed-end
management investment company of
which Quest is the investment
adviser (TRF, RVT, OTCM and RGT
collectively, "The Royce Funds");
Secretary and sole director and
shareholder of Quest Distributors, Inc.
("QDI"), the distributor of TRF's
shares; and managing general partner
of Quest Management Company ("QMC"),
a registered investment adviser, and
its predecessor.
Richard M. Galkin Trustee Private investor and president
(58) of Richard M. Galkin Associates,
5284 Boca Marina Inc., tele-communications
Circle South consultants.
Boca Raton, FL 33487
Stephen L. Isaacs Trustee President of The Center for
(57) Health and Social Policy since
60 Haven Street, September 1996; President of
Fl. B-2 Stephen L. Isaacs Associates,
New York, NY Consultants; and Director of
10032 Columbia University Development
Law and Policy Program and
Professor at Columbia University
until August 1996.
David L. Meister Trustee Consultant to the communications
(56) industry since January 1993;
111 Marquez Place Executive officer of Digital
Pacific Planet Inc. from April 1991 to
Palisades, CA December 1992.
90272
<PAGE>
Position Held
Name, Address and with the Trust Principal Occupations During
Age Past 5 Years
W. Whitney Trustee Vice President (since August
George* and Vice 1993) and senior analyst of
(38) President Quest, having been employed by
1414 Avenue of the Quest since October 1991; Vice
Americas President of The Royce Funds
New York, NY (other than RGT) since April
10019 1995 and of RGT since October
1996; and general partner of QMC
and its predecessor since
January 1992.
John D. Diederich Vice Director of Operations of TRF
(45) President and RVT since April 1993 and of
1414 Avenue of OTCM since September 1993; Vice
the President of RGT since October
Americas 1996; President of QDI since
New York, NY November 1995; and President of
10019 Fund/Plan Services, Inc. from
January 1988 to December 1992.
Jack E. Fockler, Vice Vice President (since August
Jr.* (38) President 1993) and senior associate of
1414 Avenue of Quest, having been employed by
the Quest since October 1989; Vice
Americas President of The Royce Funds
New York, NY (other than RGT) since April
10019 1995 and of RGT since October
1996; Vice President of QDI
since November 1995; and general
partner of QMC since July 1993.
Daniel A. Vice Vice President of Quest since
O'Byrne* (34) President May 1994, having been employed
1414 Avenue of and by Quest since October 1986; and
the Assistant Vice President of The Royce
Americas Secretary Funds (other than RGT) since
New York, NY July 1994 and of RGT since
10019 October 1996.
John E. Denneen* Secretary Associate General Counsel and
(29) Chief Compliance Officer of
1414 Avenue of Quest since May 1996; Secretary
the of The Royce Funds (other than
Americas RGT) since June 1996 and of RGT
New York, NY since October 1996; and
10019 Associate of Seward & Kissel
from September 1992 to May 1996.
________________________________
*An "interested person" under Section 2(a)(19) of the 1940 Act.
<PAGE>
All of the Trust's Trustees except W. Whitney George are
also trustees of TRF and directors of RVT, OTCM and RGT.
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, 1996, following Trustees
received compensation from the Trust and the other funds in the
group of registered investment companies comprising The Royce
Funds for services as a trustee/director on such funds' Boards:
Aggregate Compensation Total Compensation
Name from Trust from The Royce Funds
Richard M. Galkin $-0- $60,500
Stephen L. Isaacs -0- 60,500
David L. Meister -0- 60,500
Each of the non-affiliated Trustees will receive a fee of $500
per year for serving on the Trust's Board of Trustees.
PRINCIPAL HOLDERS OF SHARES
As of December 10, 1996, Quest Advisory Corp. Money Purchase
Pension Plan owned of record 60,000 shares of the Trust,
consisting of 20,000 shares of Royce Premier Portfolio, 20,000
shares of Royce Total Return Portfolio and 20,000 shares of Royce
Micro-Cap Portfolio, representing 100% of the Trust's and each
Portfolio's then outstanding shares. All of these shares were
beneficially owned by Charles M. Royce.
INVESTMENT ADVISORY SERVICES
Services Provided by Quest
As compensation for its services under its Investment Advisory
Agreement with the Trust, Quest is entitled to receive the
following fees:
Fund Percentage Per Annum of Fund's Average Net Assets
Royce Premier Portfolio 1.00%
Royce Total Return Portfolio 1.00%
Royce Micro-Cap Portfolio 1.50%
<PAGE>
Under the Investment Advisory Agreement, Quest (i)
determines the composition of each Fund's portfolio, the nature
and timing of the changes in it and the manner of implementing
such changes, subject to any directions it may receive from the
Trust's Board of Trustees; (ii) provides each Fund with
investment advisory, research and related services for the
investment of its funds; (iii) furnishes, without expense to the
Trust, the services of such of its executive officers and full-
time employees as may be duly elected executive officers or
Trustees of the Trust; and (iv) pays any additional expenses
incurred by the Trust in connection with promoting the sale of
its shares and all expenses incurred in performing its investment
advisory duties under the Investment Advisory Agreement.
The Trust pays all administrative and other costs and
expenses attributable to its operations and transactions,
including, without limitation, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office
space and facilities; auditing; preparation, printing and
distribution of its prospectuses to existing shareholders, proxy
statements, shareholders reports and notices; supplies and
postage; Federal and state registration fees; Federal, state and
local taxes; non-affiliated Trustees' fees; and brokerage
commissions.
Portfolio Management
The Funds' portfolios and the portfolios of Quest's other
accounts are managed by Quest's senior investment staff,
including Charles M. Royce, Quest's Chief Investment Officer, who
is primarily responsible for supervising its investment
management activities. Mr. Royce is assisted by Jack E. Fockler,
Jr. and W. Whitney George, Vice Presidents of Quest, each of whom
participate in such activities, with their specific
responsibilities varying from time to time. In the event of any
significant change in Quest's senior investment staff, the
members of the Trust's Board of Trustees who are not interested
persons of the Trust will consider what action, if any, should be
taken in connection with the Trust's management arrangements.
Certain information concerning Messrs. Royce, Fockler and
George is set forth above under "MANAGEMENT OF THE TRUST".
CUSTODIAN
State Street Bank and Trust Company ("State Street") is the
custodian for the securities, cash and other assets of each Fund
and the transfer agent and dividend disbursing agent for the
shares of each Fund, but it does not participate in any Fund's
investment decisions. The Trust has authorized State Street to
deposit certain domestic and foreign portfolio securities in
several central depository systems and to use foreign sub-
custodians for certain foreign portfolio securities, as allowed
by Federal law. State Street's main office is at 225 Franklin
Street, Boston, Massachusetts 02107. All mutual fund transfer,
<PAGE>
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
Coopers & Lybrand L.L.P., whose address is One Post Office
Square, Boston, Massachusetts, 02109, are the independent
accountants of the Trust. The balance sheets of the Funds
included in the Statement of Additional Information have been
examined by Coopers & Lybrand L.L.P., as set forth in their
report with respect thereto and are included in reliance upon
such report and upon the authority of such firm as experts in
accounting and auditing.
PORTFOLIO TRANSACTIONS
Quest is responsible for selecting the brokers who effect
the purchases and sales of each Fund's portfolio securities. No
broker is selected to effect a securities transaction for a Fund
unless such broker is believed by Quest to be capable of
obtaining the best price and execution for the security involved
in the transaction. In addition to considering a broker's
execution capability, Quest generally considers the brokerage and
research services which the broker has provided to it, including
any research relating to the security involved in the transaction
and/or to other securities. Such services may include general
economic research, market and statistical information, industry
and technical research, strategy and company research, and may be
written or oral. Quest determines the overall reasonableness of
brokerage commissions paid, after considering the amount another
broker might have charged for effecting the transaction and the
value placed by Quest upon the brokerage and/or research services
provided by such broker, viewed in terms of either that
particular transaction or Quest's overall responsibilities with
respect to its accounts.
Quest is authorized, under Section 28(e) of the Securities
Exchange Act of 1934 and under its Investment Advisory Agreement
with the Trust, to pay a brokerage commission in excess of that
which another broker might have charged for effecting the same
transaction, in recognition of the value of brokerage and
research services provided by the broker.
Brokerage and research services furnished by brokers through
whom a Fund effects securities transactions may be used by Quest
in servicing all of its accounts and those of QMC, and not all of
such services may be used by Quest in connection with the Trust
or any one of its Funds.
Consistent with achieving the best price and execution,
Quest may also consider sales by a broker-dealer of Variable
Contracts that permit allocation of contract value to one or more
<PAGE>
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. Such
purchases and sales of the same security are generally effected
pursuant to Quest/QMC's Trade Allocation Guidelines and
Procedures. Under such Guidelines and Procedures, unallocated
orders are placed with and executed by broker-dealers during the
trading day. The securities purchased or sold in such
transactions are then allocated to one or more of Quest's and
QMC's accounts at or shortly following the close of trading,
using the average net price obtained. Such allocations are done
based on a number of judgmental factors that Quest and QMC
believe should result in fair and equitable treatment to those of
their accounts for which the securities may be deemed suitable.
In some cases, this procedure may adversely affect the price paid
or received by a Fund or the size of the position obtainable for
a Fund.
CODE OF ETHICS AND RELATED MATTERS
Quest, QDI, QMC and The Royce Funds have adopted a Code of
Ethics under which directors, officers, employees and partners of
Quest, QDI and QMC ("Quest-related persons") and interested
trustees/directors, officers and employees of The Royce Funds are
prohibited from personal trading in any security which is then
being purchased or sold or considered for purchase or sale by a
Royce Fund or any other Quest or QMC account. Such persons are
permitted to engage in other personal securities transactions if
(i) the securities involved are United States Government debt
securities, municipal debt securities, money market instruments,
shares of affiliated or non-affiliated registered open-end
investment companies or shares acquired from an issuer in a
rights offering or under an automatic dividend reinvestment plan
or employer-sponsored automatic payroll deduction cash purchase
plan or (ii) they first obtain permission to trade from Quest's
Compliance Officer and an executive officer of Quest. The Code
contains standards for the granting of such permission, and it is
expected that permission to trade will be granted only in a
limited number of instances.
Quest's and QMC's clients include several private investment
companies in which Quest or QMC has (and, therefore, Charles M.
Royce, Jack E. Fockler, Jr. and/or W. Whitney George may be
deemed to beneficially own) a share of up to 15% of the company's
realized and unrealized net capital gains from securities
transactions, but less than 5% of the company's equity interests.
The Code of Ethics does not restrict transactions effected by
Quest or QMC for such private investment company accounts.
Transactions for such private investment company accounts are
subject to Quest's and QMC's allocation policies and procedures.
See "Portfolio Transactions".
As of September 30, 1996, Quest-related persons, interested
trustees/directors, officers and employees of The Royce Funds and
members of their immediate families beneficially owned shares of
<PAGE>
The Royce Funds having a total value of approximately $21.2
million, and Quest's and QMC's equity interests in such private
investment companies totalled approximately $3.4 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 of the Code relating to, among other things,
the source of its income and the diversification of its assets.
<PAGE>
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 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
<PAGE>
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,
effective January 11, 1996. A copy of the Trust's Certificate of
Trust is on file with the Secretary of State of Delaware, and a
copy of its Trust Instrument, its principal governing document,
is available for inspection by shareholders at the Trust's office
in New York, New York.
The Trust has an unlimited authorized number of shares of
beneficial interest, which may be divided into an unlimited
number of series and/or classes without shareholder approval.
(The Trust presently has three series, each of which has only one
class of shares.) These shares are entitled to one vote per
share (with proportional voting for fractional shares) on such
matters as shareholders are entitled to vote. Shares vote by
individual series, except as otherwise required by the 1940 Act
or when the Trustees determine that the matter affects
shareholders of more than one series.
There will normally be no meeting of shareholders for the
purpose of electing Trustees unless and until such time as less
than a majority of the current five Trustees remain in office, at
which time the Trustees then in office will call a shareholders
meeting for the election of trustees. In addition, Trustees may
be removed from office by written consents signed by the holders
<PAGE>
of 66 2/3% of the outstanding shares of the Trust and filed with
the Trust's custodian or by a vote of the holders of 66 2/3% of
the outstanding shares of the Trust at a meeting duly called for
the purpose, which meeting will be held upon the written request
of the holders of at least 10% of the Trust's outstanding shares.
Upon the written request by 10 or more shareholders of the Trust,
who have been shareholders for at least 6 months and who hold
shares constituting at least 1% of the Trust's outstanding
shares, stating that such shareholders wish to communicate with
the Trust's other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider the removal
of a Trustee, the Trust is required to provide a lists of its
shareholders or to disseminate appropriate materials (at the
expense of the requesting shareholders). Except as provided
above the Trustees may continue to hold office and appoint their
successors.
Shares are freely transferable, are entitled to
distributions as declared by the Trustees and, in liquidation of
the Trust, are entitled to receive the net assets of their
series. Shareholders have no preemptive rights. The Trust's
fiscal year ends on December 31.
The separate accounts of Insurance Companies and the
trustees of qualified plans invested in the Funds, rather than
individual contract owners or plan participants, are the
shareholders of the Funds. However, each Insurance Company or
qualified plan will vote such shares as required by law and
interpretations thereof, as amended or changed from time to time.
Under current law, an Insurance Company is required to request
voting instructions from its contract owners and must vote Fund
shares held by each of its separate accounts in proportion to the
voting instructions received. Additional information about voting
procedures is contained in the applicable separate account
prospectuses.
Shareholder Liability
Generally, Trust shareholders will not be personally liable
for the obligations of the Trust under Delaware law. The
Delaware Business Trust Act provides that a shareholder of a
Delaware business trust is entitled to the same limited liability
extended to stockholders of private corporations for profit
organized under the Delaware General Corporation Law. No similar
statutory or other authority limiting business trust shareholder
liability exists in many other states. As a result, to the
extent that the Trust or a shareholder of the Trust is subject to
the jurisdiction of courts in those states, the courts may not
apply Delaware law and may thereby subject the Trust's
shareholders to liability. To guard against this possibility,
the Trust Instrument (i) requires that every written obligation
of the Trust contain a statement that such obligation may be
enforced only against the Trust's assets (however, the omission
of this disclaimer will not operate to create personal liability
for any shareholder); and (ii) provides for indemnification out
of a Fund's property of any Fund shareholder held personally
liable for the Fund's obligations. Thus, the risk of a Fund
shareholder incurring financial loss beyond its investment
because of shareholder liability is limited to circumstances in
which: (i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the
Fund itself would be unable to meet its obligations. In light of
Delaware law, the nature of the Trust's business and the nature
of its assets, management believes that the risk of personal
liability to a shareholder is extremely remote.
<PAGE>
PERFORMANCE DATA
The Funds' performances may be quoted in various ways. All
performance information supplied for the Funds will be historical
and is not intended to indicate future returns. Each Fund's
share price and total returns fluctuate in response to market
conditions and other factors, and the value of a Fund's shares
when redeemed may be more or less than their original cost. The
Funds' performance figures do not reflect expenses of the
separate accounts of Insurance Companies, expenses imposed under
the Variable Contracts or expenses imposed by the Retirement
Plans.
Total Return Calculations
Total returns quoted will reflect all aspects of a Fund's
return, including the effect of reinvesting dividends and capital
gain distributions and any change in the Fund's net asset value
per share (NAV) over a stated period. Average annual total
returns are calculated by determining the growth or decline in
value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the
rate of growth or decline in value had been constant over the
period. For example, a cumulative return of 100% over ten years
would produce an average annual total return of 7.18%, which is
the steady annual rate of return that would equal 100% growth on
a compounded basis in ten years. While average annual total
returns are a convenient means of comparing investment
alternatives, investors should realize that a Fund's performance
is not constant over time, but changes from year to year, and
that average annual total returns represent averaged figures as
opposed to the actual year-to-year performance of the Fund.
In addition to average annual total returns, a Fund's
unaveraged or cumulative total returns, reflecting the simple
change in value of an investment over a stated period, may be
quoted. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments or a
series of redemptions, over any time period. Total returns may
be broken down into their components of income and capital
(including capital gains and changes in share prices) in order to
illustrate the relationship of these factors and their
contributions to total return. Total returns and other
performance information may be quoted numerically or in a table,
graph or similar illustration.
Comparative Results
The Funds total returns may be compared to the records of
various indices of securities prices over the same periods,
including the Standard & Poor's 500 Composite Stock Price Index
(S&P 500) the Standard & Poor's SmallCap 600 Stock Price Index
(S&P 600) and the Russell 2000 Index (Russell 2000).
The S&P 500 is an unmanaged index of common stocks
frequently used as a general measure of stock market performance.
The Index's performance figures reflect changes of market prices
and quarterly reinvestment of all distributions.
<PAGE>
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, 1996, the
weighted mean market value of a company in this Index was
approximately $780 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, 1996, the average included 221 capital appreciation
funds, 758 growth funds, 186 mid-cap funds, 443 small company
growth funds, 583 growth and income funds, 180 equity income
funds and 56 S&P 500 index objective 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. S&P 500 index objective funds seek to
replicate the performance of the S&P 500.
Ibbotson Associates (Ibbotson) provides historical returns
of the capital markets in the United States. The Funds'
performance may be compared to the long-term performance of the
U.S. capital markets in order to demonstrate general long-term
risk versus reward investment scenarios. Performance comparisons
could also include the value of a hypothetical investment in
<PAGE>
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 August 31, 1996, DFA contained approximately 2,880 stocks,
with a median market capitalization of about $120 million.
U.S. Treasury bonds are securities backed by the credit and
taxing power of the U.S. government and, therefore, present
virtually no risk of default. Although such government
securities fluctuate in price, they are highly liquid and may be
purchased and sold with relatively small transaction costs
(direct purchase of U.S. Treasury securities can be made with no
transaction costs). Returns on intermediate-term government
bonds are based on a one-bond portfolio constructed each year,
containing a bond that is the shortest non-callable bond
available with a maturity of not less than five years. This bond
is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio
constructed each year, containing a bond that meets several
criteria, including having a term of approximately 20 years. The
bond is held for the calendar year and returns are recorded.
Returns on U.S. Treasury bills are based on a one-bill portfolio
constructed each month, containing the shortest term bill having
not less than one month to maturity. The total return on the
bill is the month-end price divided by the previous month-end
price, minus one. Data up to 1976 is from the U.S. Government
Bond file at the University of Chicago's Center for Research in
Security Prices; The Wall Street Journal is the source
thereafter. Inflation rates are based on the Consumer Price
Index.
Quest may, from time to time, compare the performance of
common stocks, especially small capitalization stocks, to the
performance of other forms of investment over periods of time.
From time to time, in reports and promotional literature,
the Funds' performances also may be compared to other mutual
funds tracked by financial or business publications and
periodicals, such as The BARDS Report, KIPLINGER's, INDIVIDUAL
INVESTOR, MONEY, FORBES, BUSINESS WEEK, BARRON's, FINANCIAL
TIMES, FORTUNE, MUTUAL FUNDS MAGAZINE and THE WALL STREET
JOURNAL. In addition, financial or business publications and
periodicals, as they relate to fund management, investment
philosophy and investment techniques, may be quoted.
Morningstar, Inc.'s proprietary risk ratings may be quoted
in advertising materials. For the three years ended December 31,
1996, the average risk score for the 1,833 equity funds rated by
Morningstar with a three-year history was 1.00; the average risk
score for the 242 small company funds rated by Morningstar with a
three-year history was 1.29; and the average risk score for the
91 equity income funds rated by Morningstar with a three-year
history was 0.71.
<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
<PAGE>
the fund relative to the riskless T-bill return. It then
compares this statistic to those of other funds in the same broad
investment class.
Sharpe Ratio. Also known as the Reward-to-Variability
Ratio, this is the ratio of a fund's average return in excess of
the risk-free rate of return ("average excess return") to the
standard deviation of the fund's excess returns. It measures the
returns earned in excess of those that could have been earned on
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>
WP\L:\Common\Fran\SAI296.RCT
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial statements included in Prospectus (Part A):
None
The following financial statements were filed with
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement (No. 333-1073) and are
incorporated by reference into the Statement of
Additional Information (Part B):
Statement of Assets and Liabilities of
Royce Premier and Micro-Cap Portfolios at July 26,
1996; and
Notes to Statement of Assets and
Liabilities -- Report of Independent Accountants
dated July 26, 1996.
Financial statements, schedules and historical
information other than those listed above have been
omitted since they are either inapplicable or are not
required.
(b) Exhibits:
The exhibits required by Items (1) through (9),(a),
(b), (10) and (12) through (16), to the extent applicable to the
Registrant, have been filed with the Registrant's initial
Registration Statement and Pre-Effective Amendments Nos. 1, 2 and
3 (No. 333-1073) and are incorporated by reference herein.
(1) Amendment to Trust Instrument and
Certificate of Trust.
(11) Consent of the Registrant's independent
public accountants.
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 January 31, 1997, the number of record holders of
shares of each Fund of the Registrant was as follows:
<PAGE>
Title of Fund Number of Record Holders
Royce Premier Portfolio 1
Royce Total Return Portfolio 1
Royce Micro-Cap Portfolio 1
Item 27. Indemnification
(a) Article IX of the Trust Instrument of the Registrant
provides as follows:
"ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. All persons
contracting with or having any claim against the Trust or a
particular Series shall look only to the assets of the Trust or
such Series for payment under such contract or claim; and neither
the Trustees nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally
liable therefor. Every written instrument or obligation on
behalf of the Trust or any Series shall contain a statement to
the foregoing effect, but the absence of such statement shall not
operate to make any Trustee or officer of the Trust liable
thereunder. None of the Trustees or officers of the Trust shall
be responsible or liable for any act or omission or for neglect
or wrongdoing by him or by any agent, employee, investment
adviser or independent contractor of the Trust, but nothing
contained in this Trust Instrument or in the Delaware Act shall
protect any Trustee or officer of the Trust against liability to
the Trust or to Shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 2. Indemnification. (a) Subject to the exceptions
and limitations contained in subsection (b) below:
(i) every person who is, or has been, a Trustee
or an officer, employee or agent of the Trust ("Covered
Person") shall be indemnified by the Trust or the
appropriate Series to the fullest extent permitted by
law against liability and against all expenses
reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of
his being or having been a Covered Person and against
amounts paid or incurred by him in the settlement
thereof;
(ii) as used herein, the words "claim," "action,"
"suit," or "proceeding" shall 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.
<PAGE>
(b) No indemnification shall be provided hereunder to a
Covered Person:
(i) who shall, in respect of the matter involved,
have been adjudicated by a court or body before which
the proceeding was brought to be liable to the Trust or
its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office; or
(ii) in the event of a settlement, unless there
has been a determination that such Covered Person did
not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of his office, (A) by the court or other
body approving the settlement, (B) by at least a
majority of those Trustees who are neither Interested
Persons of the Trust nor are parties to the matter
based upon a review of readily available facts (as
opposed to a full trial-type inquiry) or (C) by written
opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full
trial-type inquiry).
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not be exclusive of or affect any other rights
to which any Covered Person may now or hereafter be entitled and
shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law,
expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in subsection (a) of this Section may be paid by the
Trust or applicable Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over
by him to the Trust or applicable Series if it is ultimately
determined that he is not entitled to indemnification under this
Section; provided, however, that either (i) such Covered Person
shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such
advance payments, or (iii) either a majority of a quorum of the
Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written
opinion shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such Covered Person will not be
disqualified from indemnification under this Section.
(e) Any repeal or modification of this Article IX by the
Shareholders of the Trust, or adoption or modification of any
other provision of the Trust Instrument or By-laws inconsistent
with this Article, shall be prospective only, to the extent that
such repeal or modification would, if applied retrospectively,
adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with
respect to any act or omission which occurred prior to such
repeal, modification or adoption.
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
<PAGE>
legal representatives or, in the case of any entity, its general
successor) shall be entitled out of the assets of the Trust or
belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such
liability. The Trust, for itself or on behalf of the affected
Series, shall, upon request by such Shareholder, assume the
defense of any claim made against such Shareholder for any act or
obligation of the Trust or the Series and satisfy any judgment
thereon from the assets of the Trust or the Series."
(b) Paragraph 8 of the Investment Advisory Agreement
by and between the Registrant and Quest Advisory Corp. provides
as follows:
"8. Protection of the Adviser. The Adviser
shall not be liable to the Fund or to any portfolio
series thereof for any action taken or omitted to be
taken by the Adviser in connection with the performance
of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the
Fund or such series, and the Fund or each portfolio
series thereof involved, as the case may be, shall
indemnify the Adviser and hold it harmless from and
against all damages, liabilities, costs and expenses
(including reasonable attorneys' fees and amounts
reasonably paid in settlement) incurred by the Adviser
in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding
(including an action or suit by or in the right of the
Fund or any portfolio series thereof or its security
holders) arising out of or otherwise based upon any
action actually or allegedly taken or omitted to be
taken by the Adviser in connection with the performance
of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the
Fund or such series. Notwithstanding the preceding
sentence of this Paragraph 8 to the contrary, nothing
contained herein shall protect or be deemed to protect
the Adviser against or entitle or be deemed to entitle
the Adviser to indemnification in respect of, any
liability to the Fund or to any portfolio series
thereof or its security holders to which the Adviser
would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the per
formance of its duties or by reason of its reckless
disregard of its duties and obligations under this
Agreement.
Determinations of whether and the extent to
which the Adviser is entitled to indemnification
hereunder shall be made by reasonable and fair means,
including (a) a final decision on the merits by a court
or other body before whom the action, suit or other pro
ceeding was brought that the Adviser was not liable by
reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties, or (b)
in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that
the Adviser was not liable by reason of such misconduct
by (i) the vote of a majority of a quorum of the
Trustees of the Fund who are neither "interested
persons" of the Fund (as defined in Section 2(a)(19) of
the Investment Company Act of 1940) nor parties to the
action, suit or other proceeding, or (ii) an
independent legal counsel in a written opinion."
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Reference is made to the filings on Schedule D to the
Application on Form ADV, as amended, of Quest Advisory Corp. for
Registration as Investment Adviser under the Investment Advisers
Act of 1940.
Item 29. Principal Underwriters
Inapplicable. The Registrant does not have any
principal underwriters.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be
maintained by the Registrant pursuant to the Investment Company
Act of 1940, are maintained at the following locations:
Royce Capital Fund
1414 Avenue of the Americas
10th Floor
New York, New York 10019
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02101
Item 31. Management Services
State Street Bank and Trust Company, a Massachusetts
trust company ("State Street"), will provide certain
management-related services to the Registrant pursuant to a
Custodian Contract between the Registrant and State Street.
Under such Custodian Contract, State Street, among other things,
will contract with the Registrant to keep books of accounts and
render such statements as agreed to in the then current
mutually-executed Fee Schedule or copies thereof from time to
time as requested by the Registrant, and will assist generally in
the preparation of reports to holders of shares of the
Registrant, to the Securities and Exchange Commission and to
others, in the auditing of accounts and in other ministerial
matters of like nature as agreed to between the Registrant and
State Street. All of these services will be rendered pursuant to
instructions received by State Street from the Registrant in the
ordinary course of business.
Item 32. Undertakings
The Registrant hereby undertakes to file a Post-
Effective Amendment for Royce Premier, Royce Total Return and
Royce Micro-Cap Portfolios, using financial statements which need
not be certified, within four to six months from the effective
date of this registration statement.
The Registrant hereby undertakes to call a special
meeting of its shareholders upon the written request of
shareholders owning at least 10% of the outstanding shares of the
<PAGE>
Registrant for the purpose of voting upon the question of the
removal of a trustee or trustees and, upon the written request of
10 or more shareholders of the Registrant who have been such for
at least 6 months and who own at least 1% of the outstanding
shares of the Registrant, to provide a list of shareholders or to
disseminate appropriate materials at the expense of the
requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment to
the Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
New York, and State of New York, on the 4th day of February, 1997.
The Registrant represents that this Post-Effective Amendment is filed
solely for one or more of the purposes set forth in paragraph (b)(1) of
Rule 485 under the Securities Act of 1933 and that no material event
requiring disclosure in the prospectus, other than on listed in paragraph
(b)(1) of such Rule or one for which the Commission has approved a filing
under paragraph (b)(1)(ix) of the Rule, has occurred since the latest of
the following three dates: (i) the effective date of the Registrant's
Registration Statement; (ii) the effective date of the Registrant's most
recent Post-Effective Amendment to its Registration Statement which
included a prospectus; or (iii) the filing date of a post-effective
amendment filed under paragraph (a) of Rule 485 which has not become
effective.
ROYCE CAPITAL FUND
By: S/CHARLES M. ROYCE
Charles M. Royce, President
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Post-Effective Amendment to the
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
S/CHARLES M. ROYCE President, Treasurer and February 4,
Charles M. Royce Trustee 1997
(Principal Executive,
Accounting
and Financial Officer)
S/RICHARD M. GALKIN Trustee February 4,
Richard M. Galkin 1997
S/W. WHITNEY GEORGE Trustee February 4,
W. Whitney George 1997
S/STEPHEN L. ISAACS Trustee February 4,
Stephen L. Isaacs 1997
S/DAVID L. MEISTER Trustee February 4,
David L. Meister 1997
NOTICE
A copy of the Declaration of Trust of Royce Capital Fund is on file
with the Secretary of State of the State of Delaware, 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>
ROYCE CAPITAL FUND
TRUST INSTRUMENT
(Amended and Restated)
This Amended and Restated TRUST INSTRUMENT is dated as of January
29, 1997, 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 Fund.
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 Fund 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
<PAGE>
resignation 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
<PAGE>
such person or 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
<PAGE>
national 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
<PAGE>
Trustees 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
<PAGE>
of that Series to satisfy or 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
<PAGE>
Trustees 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 matters
<PAGE>
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
<PAGE>
the Outstanding 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
<PAGE>
Shares; certain 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,
<PAGE>
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
<PAGE>
to which any Covered Person may now or hereafter be entitled and
shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law,
expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in subsection (a) of this Section may be paid by the
Trust or applicable Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over
by him to the Trust or applicable Series if it is ultimately
determined that he is not entitled to indemnification under this
Section; provided, however, that either (i) such Covered Person
shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such
advance payments, or (iii) either a majority of a quorum of the
Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written
opinion shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such Covered Person will not be
disqualified from indemnification under this Section.
(e) Any repeal or modification of this Article IX by the
Shareholders of the Trust, or adoption or modification of any
other provision of the Trust Instrument or By-laws inconsistent
with this Article, shall be prospective only, to the extent that
such repeal or modification would, if applied retrospectively,
adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with
respect to any act or omission which occurred prior to such
repeal, modification or adoption.
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
<PAGE>
may be signed by a majority of Trustees and facsimile 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 which are ordinarily
<PAGE>
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
<PAGE>
unenforceable in 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 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 29th day of January, 1997, 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.
______________________________
Notary Public
My Commission expires _____________________.
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF TRUST
OF
ROYCE CAPITAL TRUST
This Certificate of Amendment to Certificate of Trust
(the "Certificate") is filed in accordance 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 Certificate of Trust is hereby amended to
reflect a change of name of the Trust to Royce Capital Fund.
3. This Certificate is effective upon filing.
IN WITNESS WHEREOF, the undersigned, being a trustee of
the Trust, has executed this Certificate on this 29th day of
January, 1997.
S/CHARLES M. ROYCE
Charles M. Royce,
as Trustee and not individually
ACKNOWLEDGMENT
Before me this 29th day of January, 1997, personally
appeared the above-named Charles M. Royce, known to me to be
the person who executed the foregoing Certificate and who
acknowledged that he executed the same.
Notary Public
My commission expires:
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholder of Royce Capital
Fund:
We consent to the reference to our Firm in Post-Effective
Amendment No. 1 to the Registration Statement of Royce
Capital Fund on Form N-1A (File No. 333-1073) under the
Securities Act of 1933 and Post-Effective Amendment No. 4
(File No. 811-07537) under the Investment Company Act of
1940. We further consent to the reference to our Firm under
the heading "Independent Accountants" in the Statement of
Additional Information.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 7, 1997
<PAGE>
ROYCE CAPITAL FUND
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
February 3, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Royce Capital Fund
Registration No. 333-1073
File No. 811-07537
Gentlemen:
I have reviewed Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of Royce Capital Fund (the
"Fund") under the Securities Act of 1933, as amended (the "Act"),
which is to be filed by the Fund with the Commission pursuant to
paragraph (b) of Rule 485 under the Act. This is to advise you
that it is my judgment that such Post-Effective Amendment does
not contain disclosures which would render it ineligible to
become effective pursuant to paragraph (b) of said Rule.
Sincerely,
S/JOHN E. DENNEEN
John E. Denneen
Associate General Counsel
JED:am
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