<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1996
SECURITIES ACT FILE NO. 333-8039
INVESTMENT COMPANY ACT FILE NO. 811-4875
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
[x] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
[x] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] AMENDMENT NO. 21
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
ROYCE VALUE TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 221-4268
CHARLES M. ROYCE, PRESIDENT
ROYCE VALUE TRUST, INC.
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
FRANK P. BRUNO, ESQ. HOWARD J. KASHNER, ESQ. JAMES D. PHYFE, ESQ.
BROWN & WOOD LLP ROYCE VALUE TRUST, INC. DAVIS POLK & WARDWELL
ONE WORLD TRADE CENTER 1414 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10048-0557 NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
If appropriate, check the following box: [ ] this [post-effective]
amendment designates a new effective date for a previously filed [post-effective
amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES PRICE OFFERING REGISTRATION
BEING REGISTERED AMOUNT BEING REGISTERED PER SHARE(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
% Cumulative Preferred Stock............................. 2,400,000 Shares $25.00 $60,000,000 $20,689.66
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(A)
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-2 CAPTION IN PROSPECTUS
- ------------------------------------------------------------ ------------------------------------------------------
<C> <S> <C>
PART A -- INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover................................... Front Cover Page
2. Inside Front and Outside Back Cover Page.............. Front Cover Page; Inside Front Cover Page
3. Fee Table and Synopsis................................ Not Applicable
4. Financial Highlights.................................. Financial Highlights
5. Plan of Distribution.................................. Front Cover Page; Prospectus Summary; Underwriting
6. Selling Shareholders.................................. Not Applicable
7. Use of Proceeds....................................... Use of Proceeds; Investment Objectives and Policies
8. General Description of the Registrant................. Front Cover Page; Prospectus Summary; The Fund;
Investment Objectives and Policies
9. Management............................................ Prospectus Summary; Investment Advisory and Other
Services; Custodian, Transfer Agent and
Dividend-Paying Agent
10. Capital Stock, Long-Term Debt, and Other Securities... Front Cover Page; Prospectus Summary; Ordinary Income
Equivalent Yield Tables; Capitalization; Investment
Objectives and Policies; Description of Cumulative
Preferred Stock; Description of Capital Stock and
Other Securities; Taxation
11. Defaults and Arrears on Senior Securities............. Not Applicable
12. Legal Proceedings..................................... Not Applicable
13. Table of Contents of the Statement of Additional
Information......................................... Table of Contents of Statement of Additional
Information
PART B -- INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page............................................ Front Cover Page
15. Table of Contents..................................... Front Cover Page
16. General Information and History....................... Not Applicable
17. Investment Objective and Policies..................... Not Applicable
18. Management............................................ Directors and Officers; Investment Advisory and Other
Services
19. Control Persons and Principal Holders of Securities... Principal Stockholders
20. Investment Advisory and Other Services................ Investment Advisory and Other Services
21. Brokerage Allocation and Other Practices.............. Brokerage Allocation and Other Practices
22. Tax Status............................................ Not Applicable
23. Financial Statements.................................. Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION, ISSUED AUGUST 9, 1996)
2,400,000 SHARES
ROYCE VALUE TRUST, INC.
% CUMULATIVE PREFERRED STOCK,
LIQUIDATION PREFERENCE $25.00 PER SHARE
------------------------
The % Cumulative Preferred Stock, liquidation preference $25.00 per
share (the 'Cumulative Preferred Stock'), to be issued by Royce Value Trust,
Inc. (the 'Fund') will be senior securities of the Fund. Prior to this offering,
there has been no public market for the Cumulative Preferred Stock. The Fund
is a closed-end diversified management investment company. The Fund's primary
investment objective is long-term capital appreciation, which it seeks by
normally investing more than 75% of its assets in common stocks and securities
convertible into common stocks of small and medium-sized companies. Quest
Advisory Corp. is the Fund's investment adviser.
Dividends on the Cumulative Preferred Stock offered hereby, at the annual
rate of % of the liquidation preference of $25.00 per share, are cumulative
from the Date of Original Issue thereof and are payable annually on
in each year, commencing on 1996.
During the Fund's last three fiscal years, distributions paid by the Fund
on its Common Stock have consisted primarily of long-term capital gains, and it
is currently expected that dividends paid on the Cumulative Preferred Stock
similarly will consist primarily of long-term capital gains. No assurance can be
given, however, as to what percentage, if any, of the dividends paid on the
Cumulative Preferred Stock will consist of long-term capital gains.
It is a condition to its issuance that the Cumulative Preferred Stock be
rated 'aaa' by Moody's Investors Service, Inc. ('Moody's'). In connection with
the receipt of such rating, the composition of the Fund's portfolio must reflect
guidelines established by Moody's, and the Fund will be required to maintain a
certain discounted asset coverage with respect to the Cumulative Preferred
Stock. See 'Investment Objectives and Policies -- Rating Agency Guidelines.'
(continued on next page)
------------------------
APPLICATION HAS BEEN MADE TO LIST THE CUMULATIVE PREFERRED STOCK ON THE NEW YORK
STOCK EXCHANGE (THE 'NYSE').
IF SUCH APPLICATION IS GRANTED, TRADING OF THE CUMULATIVE PREFERRED STOCK ON THE
NYSE IS EXPECTED
TO COMMENCE WITHIN 30 DAYS OF THE DATE OF THIS PROSPECTUS. SEE 'UNDERWRITING.'
------------------------
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 UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $25 PER SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) FUND(3)
------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.................................................... $25.00
Total(3)..................................................... $60,000,000
</TABLE>
- ------------
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and the investment adviser have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(3) Before deducting offering expenses payable by the Fund, estimated at
$370,000.
-----------------------------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to the approval of certain legal
matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected
that delivery of the shares will be made on or about August , 1996, at the
offices of Morgan Stanley & Co. Incorporated, New York, New York against payment
therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
August , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
<PAGE>
(continued from cover page)
The Cumulative Preferred Stock is subject to mandatory redemption in whole
or in part by the Fund for cash at a price equal to $25 per share plus
accumulated but unpaid dividends (whether or not earned or declared) (the
'Redemption Price') if the Fund fails to maintain a quarterly asset coverage of
at least 250% or to maintain the discounted asset coverage required by Moody's.
Commencing 2001 and thereafter, the Fund at its option may redeem
the Cumulative Preferred Stock in whole or in part for cash at a price equal to
the Redemption Price. Prior to 2001, the Cumulative Preferred
Stock will be redeemable, at the option of the Fund, for cash at a price equal
to the Redemption Price, only to the extent necessary for the Fund to continue
to qualify for tax treatment as a regulated investment company. See 'Description
of Cumulative Preferred Stock -- Redemption.'
This Prospectus sets forth certain information an investor should know
before investing and should be retained for future reference.
A Statement of Additional Information dated August , 1996 has been filed
with the Securities and Exchange Commission and is incorporated by reference in
this Prospectus. The table of contents of the Statement of Additional
Information appears on page 32 of this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by writing to the Fund at
its address at 1414 Avenue of the Americas, New York, New York 10019, or calling
the Fund toll-free at (800) 221-4268.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, ITS INVESTMENT
ADVISER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER WILL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE FUND SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE CUMULATIVE PREFERRED STOCK TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE CUMULATIVE
PREFERRED STOCK IN ANY JURISDICTION IN ANY CIRCUMSTANCES IN WHICH IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................................... 3
Ordinary Income Equivalent Yield Tables................. 8
Financial Highlights.................................... 10
The Fund................................................ 11
Use of Proceeds......................................... 11
Capitalization.......................................... 11
Portfolio Composition................................... 12
Investment Objectives and Policies...................... 12
Investment Objectives.............................. 12
Investment Policies................................ 12
Rating Agency Guidelines........................... 14
Changes in Investment Objectives and Policies...... 15
Investment Restrictions............................ 15
Investment Advisory and Other Services.................. 16
Portfolio Management............................... 16
Investment Advisory Agreement...................... 16
Advisory Fee....................................... 17
Description of Cumulative Preferred Stock............... 18
General............................................ 18
Dividends.......................................... 18
Asset Maintenance.................................. 19
Redemption......................................... 20
Liquidation Rights................................. 21
<CAPTION>
PAGE
----
<S> <C>
Voting Rights...................................... 21
Termination of Rating Agency Guidelines............ 23
Limitation on Incurrence of Additional Indebtedness
and Issuance of Additional Preferred Stock....... 23
Repurchase of Cumulative Preferred Stock........... 24
Description of Capital Stock and
Other Securities...................................... 24
Capital Stock...................................... 24
The Notes.......................................... 24
Taxation................................................ 26
Taxation of Stockholders........................... 26
Taxation of the Fund............................... 29
Other Taxation..................................... 30
Custodian, Transfer Agent and Dividend-Paying Agent..... 30
Underwriting............................................ 30
Legal Matters........................................... 31
Experts................................................. 31
Additional Information.................................. 31
Table of Contents of Statement of Additional
Information........................................... 32
Glossary................................................ 33
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE FUND'S
CUMULATIVE PREFERRED STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZATION, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information included elsewhere in this Prospectus and the
Statement of Additional Information. Capitalized terms not defined in this
Summary are defined in the Glossary that appears at the end of this Prospectus.
<TABLE>
<S> <C>
The Fund; Investment Objectives and
Policies.......................... Royce Value Trust, Inc. (the 'Fund') has been engaged in business as a
closed-end diversified management investment company since its initial
offering in November 1986. The primary investment objective of the Fund
is to obtain long-term capital appreciation by normally investing more
than 75% of its assets in common stock, convertible preferred stocks and
convertible debentures. Current income is a secondary investment
objective of the Fund, and it may also invest up to 25% of its assets in
the non-convertible preferred stocks and non-convertible debt securities
of various companies. The Fund seeks to achieve its objectives by
investing principally in equity securities of small and medium-sized
companies, generally with stock market capitalizations ranging from $100
million to $1 billion, selected by a value approach. The Fund's average
annual total returns on the net asset values of its Common Stock for the
one year and five year periods ended June 30, 1996, and from inception on
November 26, 1986 to June 30, 1996, were 16.0%, 15.9% and 12.4%,
respectively. Total return figures are based on the Fund's historical
performance, assume reinvestment of distributions and full participation
in primary rights offerings, and are not intended to indicate future
performance. See 'Investment Objectives and Policies.'
The Investment Adviser.............. Quest Advisory Corp. ('Quest') has served as the investment adviser to the
Fund since its inception. Quest also serves as investment adviser to
other management investment companies, with aggregate net assets of
approximately $1.3 billion as of June 30, 1996, and manages other
institutional accounts.
As compensation for its services under the present Investment Advisory
Agreement, Quest receives a fee at a rate ranging from .5% up to 1.5% per
annum of the Fund's average net assets for the applicable performance
period, depending upon the investment performance of the Fund relative to
the investment record of the Standard & Poor's 600 SmallCap Stock Price
Index (the 'S&P 600'), determined by comparisons made over rolling
periods of up to 60 months. However, Quest will not receive any fee for
any month when the Fund's investment performance, rounded to the nearest
whole point, is negative on an absolute basis for the 36 month period
then ended. The present Investment Advisory Agreement replaced a similar
investment advisory agreement between the Fund and Quest, under which the
Fund's investment performance was measured against the record of the
Standard & Poor's 500 Composite Stock Price Index over a rolling period
of 36 months. For a more detailed description of the methods by which the
advisory fee is determined, see 'Investment Advisory and Other
Services -- Advisory Fee.'
The Fund's portfolio is managed by Quest's senior investment staff,
including Charles M. Royce, Quest's President and Chief Investment
Officer, who is primarily responsible for supervising Quest's investment
management activities. See 'Investment Advisory and Other
Services -- Portfolio Management' herein and 'Directors and Officers' in
the Statement of Additional Information.
The Offering........................ The Fund is offering 2,400,000 shares of % Cumulative Preferred Stock,
par value $.001 per share, liquidation preference $25.00 per share (the
'Cumulative Preferred Stock'), at a purchase price of $25 per share.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Dividends........................... Dividends on the Cumulative Preferred Stock, at the annual rate of % of
the liquidation preference of $25.00 per share, are cumulative from the
Date of Original Issue and are payable, when, as and if declared by the
Board of Directors of the Fund, out of funds legally available therefor,
annually on in each year, commencing on ,
1996, to the holders of record on the preceeding . See
'Description of Cumulative Preferred Stock -- Dividends.'
Potential Tax Benefit
to Certain Investors.............. The Fund is required to allocate long-term capital gain distributions, as
well as other types of income, proportionately among holders of shares of
Common Stock, shares of Cumulative Preferred Stock and, to the extent
they receive any 'constructive distributions,' the Fund's 5 3/4%
Investment Company Convertible Notes due June 30, 2004 (the 'Notes'), in
accordance with the current position of the Internal Revenue Service (the
'IRS'). During the Fund's last three fiscal years, distributions paid by
the Fund have consisted primarily of long-term capital gains, and it is
currently expected that dividends paid on the Cumulative Preferred Stock
will likewise consist primarily of long-term capital gains. Accordingly,
certain investors in the Cumulative Preferred Stock may realize a tax
benefit to the extent that dividends paid by the Fund on those shares are
composed of long-term capital gains. See 'Ordinary Income Equivalent
Yield Tables.' Subject to statutory limitations, investors may also be
entitled to offset the net long-term capital gain portion of a Cumulative
Preferred Stock dividend with capital losses incurred by such investors.
See 'Taxation.' No assurance can be given, however, as to what
percentage, if any, of the dividends to be paid on the Cumulative
Preferred Stock will consist of long-term capital gains. To the extent
that dividends on the shares of Cumulative Preferred Stock are not paid
from net long-term capital gains, they will be paid from ordinary income
or net short-term capital gains or will represent a return of capital.
Rating.............................. It is a condition to their issuance that the Cumulative Preferred Stock be
issued with a rating of 'aaa' from Moody's Investors Service, Inc.
('Moody's'). The Articles Supplementary creating and fixing the rights
and preferences of the Cumulative Preferred Stock (the 'Articles
Supplementary') contain certain provisions which reflect guidelines
established by Moody's (the 'Rating Agency Guidelines') in order to
obtain such rating on the Cumulative Preferred Stock on the Date of
Original Issue. Although it is the Fund's present intention to continue
to comply with the Rating Agency Guidelines, the Board of Directors of
the Fund may determine that it is not in the best interests of the Fund
to continue to comply with the Rating Agency Guidelines. If the Fund
voluntarily terminates compliance with the Rating Agency Guidelines, the
dividend rate payable on the Cumulative Preferred Stock will be increased
by .50% per annum. See 'Description of Cumulative Preferred
Stock -- Termination of Rating Agency Guidelines.'
Asset Coverage...................... The Fund will be required to maintain, as of the last Business Day of
March, June, September and December of each year, Asset Coverage of at
least 250% with respect to the Cumulative Preferred Stock. This required
Asset Coverage is greater than the 200% asset coverage required by
Section 18 of the Investment Company Act of 1940, as amended (the '1940
Act'). If the Fund had issued and sold the Cumulative Preferred Stock
offered hereby as of June 30, 1996, the Asset Coverage would have been
461%. See 'Description of Cumulative Preferred Stock -- Asset
Maintenance.'
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Also, the Fund will be required to maintain a Portfolio Calculation for
Moody's at least equal to the Basic Maintenance Amount. The discount
factors and guidelines for determining the Portfolio Calculation have
been established by Moody's in connection with the Fund's receipt of a
rating on the Cumulative Preferred Stock on their Date of Original Issue
of 'aaa' from Moody's. See 'Investment Objectives and Policies -- Rating
Agency Guidelines.'
Voting Rights....................... At all times, holders of shares of Cumulative Preferred Stock and any other
Preferred Stock will elect two members of the Fund's Board of Directors,
and holders of Cumulative Preferred Stock, any other Preferred Stock and
Common Stock, voting as a single class, will elect the remaining
directors. However, upon a failure by the Fund to pay dividends on the
Cumulative Preferred Stock in an amount equal to two full years'
dividends, holders of Cumulative Preferred Stock, voting as a separate
class with any other outstanding shares of Preferred Stock of the Fund,
will have the right to elect the smallest number of directors that would
constitute a majority of the directors until cumulative dividends have
been paid or provided for. Holders of Cumulative Preferred Stock and any
other Preferred Stock will vote separately as a class on certain other
matters, as required under the Fund's Articles Supplementary, the 1940
Act and Maryland law. Except as otherwise indicated in this Prospectus
and as otherwise required by applicable law, holders of Cumulative
Preferred Stock will be entitled to one vote per share on each matter
submitted to a vote of stockholders and will vote together with holders
of shares of Common Stock and any other Preferred Stock as a single
class. See 'Description of Cumulative Preferred Stock -- Voting Rights.'
Mandatory Redemption................ The Cumulative Preferred Stock is subject to mandatory redemption in whole
or in part by the Fund in the event that the Fund fails to maintain the
quarterly Asset Coverage or to maintain a Portfolio Calculation at least
equal to the Basic Maintenance Amount required by Moody's and does not
cure such failure by the applicable cure date. Any such redemption will
be made for cash at a price equal to $25 per share plus accumulated and
unpaid dividends (whether or not earned or declared) to the redemption
date (the 'Redemption Price'). In the event that shares are redeemed due
to a failure to maintain the quarterly Asset Coverage, the Fund may
redeem a sufficient number of shares of Cumulative Preferred Stock in
order that the asset coverage, as defined in the 1940 Act, of the
remaining outstanding shares of Cumulative Preferred Stock and any other
Preferred Stock after redemption is up to 275%. In the event that shares
are redeemed due to a failure to maintain a Portfolio Calculation at
least equal to the Basic Maintenance Amount, the Fund may redeem a
sufficient number of shares of Cumulative Preferred Stock in order that
the Portfolio Calculation exceeds the Basic Maintenance Amount of the
remaining outstanding shares of Cumulative Preferred Stock and any other
Preferred Stock by up to 10%. See 'Description of Cumulative Preferred
Stock -- Redemption -- Mandatory Redemption.'
Optional Redemption................. Commencing , 2001 and thereafter, the Fund at its option may
redeem the Cumulative Preferred Stock, in whole or in part, for cash at a
price equal to the Redemption Price. Prior to , 2001, the
Cumulative Preferred Stock will be redeemable at the option of the Fund
at the Redemption Price only to the extent necessary for the Fund to
continue to qualify for tax treatment as a regulated investment company.
See 'Description of Cumulative Preferred Stock -- Redemption -- Optional
Redemption.'
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Liquidation Preference.............. The liquidation preference of each share of Cumulative Preferred Stock is
$25 plus an amount equal to accumulated and unpaid dividends (whether or
not earned or declared) to the date of distribution. See 'Description of
Cumulative Preferred Stock -- Liquidation Rights.'
Use of Proceeds..................... The Fund will use the net proceeds from the offering of the Cumulative
Preferred Stock to purchase additional portfolio securities in accordance
with its investment objectives and policies. See 'Use of Proceeds.'
Listing............................. Prior to this offering, there has been no public market for the Cumulative
Preferred Stock. Application has been made to list the shares of
Cumulative Preferred Stock on the New York Stock Exchange (the 'NYSE').
However, during an initial period which is not expected to exceed 30 days
from the date of this Prospectus, the Cumulative Preferred Stock will not
be listed on any securities exchange. During such period, the
Underwriters do not intend to make a market in the Cumulative Preferred
Stock. Consequently, it is anticipated that an investment in the
Cumulative Preferred Stock will be illiquid during such period.
Special Considerations and Risk
Factors........................... The market price for the Cumulative Preferred Stock will be influenced by
changes in interest rates.
As indicated above, the Cumulative Preferred Stock is subject to redemption
under specified circumstances. To the extent that the Fund experiences a
substantial decline in the value of its net assets, it may be required to
redeem Cumulative Preferred Stock to restore compliance with the
applicable asset coverage requirements.
The credit rating on the Cumulative Preferred Stock could be reduced or
withdrawn while an investor holds shares either as a result of the Fund's
termination of compliance with the Rating Agency Guidelines or otherwise,
and the credit rating does not eliminate or mitigate the risks of
investing in the Cumulative Preferred Stock. A reduction or withdrawal of
the credit rating may have an adverse effect on the market value of the
Cumulative Preferred Stock.
Payments to the holders of Cumulative Preferred Stock of dividends or upon
redemption or in liquidation will be subject to the prior payments of
interest and repayment of principal then due on the Notes or any other
indebtedness of the Fund. Also, under the Indenture relating to the
Notes, the Fund cannot declare any cash dividends or distributions on the
Cumulative Preferred Stock or purchase or redeem any shares of the
Cumulative Preferred Stock if, immediately thereafter, asset coverage for
senior securities representing indebtedness, as defined under Section 18
of the 1940 Act, would be less than 300%, or if the Fund fails to
maintain a certain discounted asset coverage for the Notes pursuant to
rating agency guidelines relating to the Notes. If the Fund had issued
and sold the Cumulative Preferred Stock offered hereby as of June 30,
1996, the asset coverage for the Notes would have been 1,152%. See
'Description of Capital Stock and Other Securities -- The Notes.'
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Federal Income Tax
Considerations.................... The Fund has qualified, and intends to remain qualified, for Federal income
tax purposes, as a regulated investment company. Qualification requires,
among other things, compliance by the Fund with certain distribution
requirements. Limitations on distributions if the Fund failed to satisfy
the asset coverage requirements on the Cumulative Preferred Stock and/or
the Notes could jeopardize the Fund's ability to meet the distribution
requirements. The Fund presently intends, however, to the extent
possible, to purchase or redeem Cumulative Preferred Stock and/or the
Notes if necessary in order to maintain compliance with such asset
coverage requirements. See 'Taxation' for a more complete discussion of
these and other Federal income tax considerations.
Custodian, Transfer and
Dividend-Paying Agent and
Registrar......................... State Street Bank and Trust Company ('State Street') serves as the Fund's
custodian and, with respect to the Cumulative Preferred Stock, as
transfer and dividend paying agent and registrar and as agent to provide
notice of redemption and certain voting rights. See 'Custodian, Transfer
and Dividend-Paying Agent and Registrar.'
</TABLE>
7
<PAGE>
<PAGE>
ORDINARY INCOME EQUIVALENT YIELD TABLES
Over the Fund's last three fiscal years, distributions paid by the Fund on
its Common Stock have consisted, on average, of 75.2% net long-term capital
gains ('L/T Capital Gains') and 24.8% ordinary income/net short-term capital
gains ('Ordinary Income')(1). Cumulative Preferred Stock investors who are in a
Federal marginal income tax bracket higher than the current 28.0% maximum
Federal tax rate on long-term capital gains would, under the current position of
the IRS, realize a tax advantage on their investment to the extent that
distributions by the Fund to its stockholders continue to be partially composed
of the less highly taxed net long-term capital gains.
The following table shows examples of the pure Ordinary Income equivalent
yield that would be generated by the indicated dividend rates on the Cumulative
Preferred Stock, assuming distributions consisting of three different
proportions of L/T Capital Gains and Ordinary Income for an investor in the
39.6% Federal marginal tax bracket and assuming no change in the current maximum
Federal long-term capital gains tax rate of 28.0%.
<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE
PREFERRED STOCK A CUMULATIVE PREFERRED STOCK
DIVIDEND COMPOSED OF* DIVIDEND RATE OF
- ------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
7.50% 7.75% 8.00%
<CAPTION>
ORDINARY IS EQUIVALENT TO AN ORDINARY
L/T CAPITAL GAINS INCOME INCOME YIELD OF
- ----------------- -------- -------------------------------------------
<S> <C> <C> <C> <C>
75.0% 25.0% 8.58% 8.87% 9.15%
50.0% 50.0% 8.22% 8.49% 8.77%
25.0% 75.0% 7.86% 8.12% 8.38%
</TABLE>
- ------------
(1) For the fiscal years of the Fund ended December 31, 1993, 1994 and 1995,
distributions paid by the Fund on its Common Stock consisted of 71.3% L/T
Capital Gains and 28.7% Ordinary Income, 83.8% L/T Capital Gains and 16.2%
Ordinary Income, and 70.5% L/T Capital Gains and 29.5% Ordinary Income,
respectively.
* A number of factors could affect the composition of the Fund's distributions.
Such factors include (i) active management of the Fund's assets, which may
result in varying proportions of L/T Capital Gains, Ordinary Income and/or
return of capital in Fund distributions; (ii) for as long as the Notes or
other indebtedness of the Fund are outstanding, the Fund's distributions
consisting of a larger proportion of L/T Capital Gains than would be the case
in the absence of such indebtedness because interest is normally paid out of
Ordinary Income; and (iii) possible revocation or revision of the IRS revenue
ruling requiring the proportionate allocation of L/T Capital Gains among
holders of various classes of capital stock and, to the extent they receive
constructive distributions, the Notes.
8
<PAGE>
<PAGE>
As illustrated in the table below, the yield advantage of the lower Federal
long-term capital gains tax rate would be diminished for investors in tax
brackets below the 39.6% rate assumed in the table above, and there would be no
effect on the yield for an investor in a Federal marginal income tax bracket of
28.0% or lower. Assuming a Cumulative Preferred Stock dividend composed of 75.0%
L/T Capital Gains and 25.0% Ordinary Income (representing approximately the
average annual composition of distributions paid by the Fund for its last three
fiscal years), the following table shows the pure Ordinary Income equivalent
yields that would be generated at the assumed dividend rates for taxpayers in
the indicated tax brackets.
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED STOCK
DIVIDEND RATE OF
-------------------------------------------
<S> <C> <C> <C>
7.50% 7.75% 8.00%
<CAPTION>
1996 FEDERAL IS EQUIVALENT TO AN ORDINARY
TAX BRACKET`D' INCOME YIELD OF
- ------------------------------ -------------------------------------------
<S> <C> <C> <C>
39.6%......................... 8.58% 8.87% 9.15%
36.0%......................... 8.20% 8.48% 8.75%
31.0%......................... 7.74% 8.00% 8.26%
28.0% or lower................ 7.50% 7.75% 8.00%
</TABLE>
- ------------
`D' Annual taxable income levels corresponding to the 1996 Federal marginal tax
brackets are as follows: 39.6% -- over $263,750 for both single and joint
returns; 36.0% -- $121,301-$263,750 for single returns, $147,701-$263,750
for joint returns; 31.0% -- $58,151-$121,300 for single returns,
$96,901-$147,700 for joint returns; and 28.0% -- $24,001-$58,150 for single
returns, $40,101-$96,900 for joint returns. An investor's marginal tax
rates may exceed the rates shown in the above table due to the reduction,
or possible elimination, of the personal exemption deduction for
high-income taxpayers and an overall limit on itemized deductions. Income
also may be subject to certain state, local and foreign taxes. For
investors who pay alternative minimum tax, equivalent yields may be lower
than those shown above. The tax rates shown above do not apply to corporate
taxpayers.
------------------------
The tax characteristics of the Fund are described more fully under
'Taxation'. Consult your tax adviser for further details.
The charts above are for illustrative purposes only and cannot be taken as
an indication of an anticipated yield on the Cumulative Preferred Stock or of
the composition of future distributions by the Fund.
9
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The selected data set forth below is for a share of Common Stock
outstanding for the periods presented. The financial information was derived
from and should be read in conjunction with the Financial Statements of the Fund
incorporated by reference into this Prospectus and the Statement of Additional
Information. The financial information for the year ended December 31, 1995 has
been audited by Ernst & Young LLP, independent auditors, as stated in their
report accompanying such Financial Statements. The financial information for
each of the four years ended December 31, 1994 has been audited by Coopers &
Lybrand L.L.P., independent accountants. The financial information for the years
ended prior to December 31, 1991 and for the period from November 26, 1986
(commencement of operations) to December 31, 1986 is covered in prior reports of
Coopers & Lybrand L.L.P., upon which unqualified opinions were issued.
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------------------------- DEC. 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
SIX-MONTHS ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
ENDED
JUNE 30,
1996
----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............ $ 13.56 $12.34 $13.47 $12.50 $11.23 $ 8.58 $10.35 $ 9.25 $7.98 $ 9.29 $9.30
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Income from
Investment
Operations(a)
Net investment
income............ 0.07 0.04 0.04 0.09 0.15 0.17 0.17 0.15 0.13 0.28 0.03
Net realized and
unrealized gains
(losses) on
investments....... 0.85 2.70 0.09 2.12 2.12 3.20 (1.49) 1.59 1.68 (1.04) (0.04)
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Total from
Investment
Operations.... 0.92 2.74 0.13 2.21 2.27 3.37 (1.32) 1.74 1.81 (0.76) (0.01)
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Less Distributions
Dividends from net
investment
income............ -- (0.03) (0.01) (0.09) (0.15) (0.17) (0.17) (0.17) (0.06) (0.36) (0.00)
Distributions from
capital gains..... -- (1.26) (1.04) (1.06) (0.75) (0.44) (0.15) (0.35) (0.45) (0.16) (0.00)
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Total
Distributions... -- (1.29) (1.05) (1.15) (0.90) (0.61) (0.32) (0.52) (0.51) (0.52) (0.00)
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Capital Stock
Transactions
Effect of rights
offering.......... -- (0.12) (0.14) (0.08) (0.06) (0.10) (0.08) (0.09) (0.00) (0.00) (0.00)
Effect of
reinvestment of
distributions..... -- (0.11) (0.07)* (0.01) (0.04) (0.01) (0.05) (0.03) (0.03) (0.03) (0.00)
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Total Capital
Stock
Transactions... -- (0.23) (0.21) (0.09) (0.10) (0.11) (0.13) (0.12) (0.03) (0.03) (0.00)
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Net Asset Value, End
of Period(a)...... $ 14.48 $13.56 $12.34 $13.47 $12.50 $11.23 $ 8.58 $10.35 $9.25 $ 7.98 $9.29
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Market Value, End of
Period............ $ 12.375 $11.875 $11.00 $12.875 $12.25 $10.375 $ 8.125 $ 9.50 $8.125 $ 6.75 $9.875
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
---------- ------- ------ ------- ------ ------- ------- ------ ------ ------- --------
Total Investment
Return(b)
Net Asset
Value(a)........ 6.8% 22.6% 1.1% 17.9% 19.9% 39.5% -13.1% 19.2% 22.4% -9.1% 0.1%
Market Value...... 4.2% 20.5% -5.6% 14.8% 26.8% 35.3% -10.8% 23.9% 27.4% -26.5% -1.3%
Ratios Based on
Average Net Assets
Total Expenses(c)... 1.29% `D' 2.01% 2.01% 1.33% 0.81% 0.79% 0.94% 0.95% 1.09% 0.40% 1.79% *`D'
Management Fees..... 0.38% `D' 0.97% 1.21% 1.09% 0.53% 0.43% 0.44% 0.44% 0.49% 0.00% 1.04% *`D'
Interest Expense.... 0.70% `D' 0.75% 0.46% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% *`D'
Other Operating
Expenses.......... 0.21% `D' 0.29% 0.34% 0.24% 0.28% 0.36% 0.75% 0.40% 0.60% 0.51% 0.50%
Net Investment
Income............ 0.92% `D' 0.34% 0.31% 0.74% 1.31% 1.52% 1.78% 1.48% 1.42% 2.92% 3.45% *`D'
Supplemental Data:
Net Assets, End of
Period
(millions)........ $364 $339 $269 $247 $202 $167 $118 $131 $107 $90 $100
Portfolio Turnover
Rate.............. 13% 32% 35% 33% 40% 34% 28% 36% 29% 66% 13%
Average Commission
Paid#............. 0$.0574 -- -- -- -- -- -- -- -- -- --
</TABLE>
- ------------
* Includes distributions paid January 31, 1994 and December 30, 1994.
`D' Annualized.
# For fiscal years beginning on or after October 1, 1995, the Fund is required
to disclose its average commission rate paid per share for purchases and
sales of investments.
(a) Commencing June 21, 1995, Net Asset Value per share, Net Asset Value Total
Investment Return and Income from Investment Operations are calculated
assuming the Notes are fully converted except when the effect of doing so
results in a higher Net Asset Value per share than was calculated without
such assumption. If it were
assumed that the Notes had not been converted, Net Asset Value per share
would have been increased by $0.12 at June 30, 1996 and $0.09 at December
31, 1995.
(b) The Net Asset Value and Market Value Total Investment Return assume a
continuous stockholder who reinvested all net investment income dividends
and capital gains distributions and fully participated in primary rights
offerings.
(c) Expense ratios before waiver of fees by the investment adviser would have
been 2.04% and 2.02% for the years ended December 31, 1995 and 1994,
respectively.
10
<PAGE>
<PAGE>
THE FUND
Royce Value Trust, Inc. (the 'Fund') is a closed-end diversified management
investment company, incorporated under the laws of the State of Maryland on July
1, 1986 and registered under the Investment Company Act of 1940 (the '1940
Act'). The Fund commenced operations in November 1986. As of June 30, 1996, the
Fund had 24,836,018 shares of Common Stock issued and outstanding, with an
aggregate net asset value of $364,428,204. The Fund's principal office is
located at 1414 Avenue of the Americas, New York, New York 10019, and its
telephone number is (800) 221-4268.
The Fund seeks to achieve its primary investment objective of long-term
capital appreciation principally through investment in common stocks and fixed
income securities convertible into common stocks of companies, generally with
stock market capitalizations ranging from $100 million to $1 billion. See
'Investment Objectives and Policies.'
USE OF PROCEEDS
The net proceeds of the offering are estimated at , after
deduction of the underwriting discounts and estimated offering expenses payable
by the Fund. The Fund's investment adviser expects to invest such proceeds in
accordance with the Fund's investment objectives and policies within six months
from the completion of the offering, depending on market conditions for the
types of securities in which the Fund principally invests. Pending such
investment, the proceeds will be held in high quality short-term debt securities
and instruments.
CAPITALIZATION
The following table sets forth the capitalization of the Fund as of June
30, 1996, and as adjusted to give effect to this offering.
<TABLE>
<CAPTION>
OUTSTANDING AS ADJUSTED
------------ ------------
<S> <C> <C>
Long-term debt
5 3/4% Investment Company Convertible Notes due June 30, 2004............... $ 40,000,000 $ 40,000,000
------------ ------------
Total long-term debt.............................................. $ 40,000,000 $ 40,000,000
------------ ------------
------------ ------------
Stockholders' equity:
Preferred Stock, $.001 par value:
Authorized 50,000,000 shares; issued and outstanding 0 shares; as
adjusted, 2,400,000 shares of % Cumulative Preferred Stock
issued and outstanding............................................... $ 0 $ 60,000,000
------------ ------------
------------ ------------
Common Stock, $.001 par value:
Authorized 150,000,000 shares; issued and outstanding
24,836,018 shares.................................................... $ 24,836 $ 24,836
Additional paid-in capital............................................. 254,574,002 252,314,002(1)
Undistributed net investment income.................................... 2,181,080 2,181,080
Accumulated net realized gains on investments.......................... 22,313,646 22,313,646
Unrealized appreciation on investments................................. 85,334,640 85,334,640
------------ ------------
Net assets applicable to outstanding Common Stock................. $364,428,204 $362,168,204
------------ ------------
------------ ------------
</TABLE>
- ------------
(1) After deducting underwriting discounts and estimated costs of this offering
of .
11
<PAGE>
<PAGE>
PORTFOLIO COMPOSITION
The following tables set forth certain information with respect to the
Fund's investment portfolio as of June 30, 1996.
<TABLE>
<CAPTION>
VALUE PERCENTAGE
------------ ----------
<S> <C> <C>
Common stock......................................................................... $371,214,067 91.4%
Preferred stocks..................................................................... 175,375 0.0
Corporate bonds...................................................................... 3,049,330 0.8
Repurchase agreement................................................................. 31,500,000 7.8
------------ ----------
Total investments............................................................... $405,938,772 100.0%
------------ ----------
------------ ----------
</TABLE>
SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO
<TABLE>
<CAPTION>
VALUE PERCENTAGE
------------ ----------
<S> <C> <C>
Financial............................................................................ $ 93,226,190 25.1%
Industrial cyclicals................................................................. 88,364,842 23.8
Services............................................................................. 58,552,541 15.8
Consumer durables.................................................................... 41,463,586 11.1
Retail............................................................................... 26,098,348 7.0
Technology........................................................................... 18,365,887 5.0
Consumer staples..................................................................... 15,565,380 4.2
Energy............................................................................... 12,580,388 3.4
Miscellaneous........................................................................ 10,584,705 2.9
Health............................................................................... 6,260,950 1.7
Utilities............................................................................ 151,250 0.0
------------ ----------
Total common stocks............................................................. $371,214,067 100.0%
------------ ----------
------------ ----------
</TABLE>
OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
<TABLE>
<S> <C>
Number of issuers................................................................................. 298
Weighted average market capitalization (total portfolio).......................................... $359,000,000
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
The Fund's primary investment objective and one of its fundamental policies
is long-term capital appreciation, which it seeks to achieve by normally
investing more than 75% of its assets in common stocks, convertible preferred
stocks and convertible debentures. Portfolio securities are selected primarily
with a view to achievement of this objective. Current income is a secondary
investment objective of the Fund, but is not one of its fundamental policies.
See ' -- Changes in Investment Objectives and Policies.' The Fund seeks to
achieve this secondary objective by investing in dividend-paying common stocks,
convertible preferred stocks and convertible debentures, to the extent that
these investments also further its primary objective. There are market risks
inherent in any investment, and there is no assurance that the primary or
secondary investment objective of the Fund will be achieved.
INVESTMENT POLICIES
Quest uses a value approach in managing the Fund's assets. Accordingly, in
its selection process, Quest puts primary emphasis on analysis of various
internal returns indicative of profitability, balance sheets and cash flows and
the relationships that these factors have to the price of a given security.
Quest's value approach is based on its belief that the securities of
certain small or medium-sized companies may sell at a discount from its estimate
of such companies' 'private worth', that is, what a knowledgeable buyer would
pay for the entire company. Quest attempts to identify and have the Fund invest
in such securities, with the expectation that such value 'discount' will narrow
over time and thus provide capital appreciation for the Fund's portfolio.
12
<PAGE>
<PAGE>
The securities of the small and medium-sized companies in which Quest
invests for the Fund generally have stock market capitalizations ranging from
$100 million to $1 billion. (Stock market capitalization is calculated by
multiplying the total number of common shares issued and outstanding by the per
share market price of the common stock.)
Such companies are often not well-known to the investing public, may not
have significant institutional ownership and may have cyclical, static or only
moderate growth prospects. Their share prices may be volatile, and their shares
may have limited trading volumes. Quest's investment approach
therefore requires unusual investor patience and a long-term investment horizon.
An investment in the Fund's shares should not be used to play short-term swings
in the market and may involve more risk than investment companies which invest
in the common stocks of larger, more well-known companies.
The Fund may invest up to 10% of its assets in securities of foreign
issuers. Foreign investments involve certain additional 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 Fund.
The Fund may also invest up to 25% of its assets in non-convertible
preferred stocks and non-convertible debt securities of various companies,
including up to 5% of its net assets in below investment-grade debt securities
also known as high yield fixed income securities. Such debt securities may be in
the lowest rated categories of recognized ratings agencies (Ca by Moody's or CC
by Standard & Poor's Ratings Group ('S&P')) or unrated, are primarily
speculative and involve a high degree of risk.
The Fund may invest up to 5% of its total assets in warrants, rights or
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, market prices of warrants, rights or call options do not
necessarily move parallel to the market prices of the underlying securities;
market prices of put options tend to move inversely to the market prices of the
underlying securities. The securities underlying warrants, rights and options
could include shares of common stock of a single company or securities market
indices representing shares of the common stocks of a group of companies, such
as the S&P 600.
The assets of the Fund are normally invested in the common stocks,
convertible preferred stocks and convertible debentures of small and
medium-sized companies. However, for temporary defensive purposes (i.e., when
Quest determines that market conditions warrant) or when it has uncommitted cash
balances, the Fund may also invest in United States Treasury bills, domestic
bank certificates of deposit, repurchase agreements with its custodian bank
covering U.S. Treasury and agency obligations having a term of not more than one
week and high-quality commercial paper, or retain all or part of its assets in
cash. Accordingly, the composition of the Fund's portfolio may vary from time to
time.
The price movements, earnings and other developments of each portfolio
security are closely monitored, with a view to selling such securities when
price objectives are reached or when a security no longer meets Quest's
criteria. Quest does not engage in market timing transactions (i.e., shifting
the portfolio or a significant portion of it in or out of the market in
anticipation of general market fluctuations).
Quest purchases and sells securities for the Fund at such times as it deems
to be in the best interest of the Fund's Common Stockholders. Although there may
be some short-term portfolio turnover, securities are generally purchased which
Quest believes will appreciate in value over the long-term. The Fund has not,
however, placed any limit on its rate of portfolio turnover, and securities may
be sold without regard to the time they have been held when, in the judgment of
Quest, investment
13
<PAGE>
<PAGE>
considerations warrant such action. For the six month period ended June 30, 1996
and the years ended December 31, 1995 and 1994, the Fund's portfolio turnover
rates were 13%, 32% and 35%, respectively.
The Fund's investment policies are subject to certain restrictions. See
' -- Investment Restrictions.'
RATING AGENCY GUIDELINES
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the end of this Prospectus.
Moody's has established guidelines in connection with the Fund's receipt of
a rating for the Cumulative Preferred Stock on their date of original issue of
'aaa' by Moody's. Moody's, a nationally-recognized securities rating
organization, issues ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines have been developed by
Moody's in connection with issuances of asset-backed and similar securities,
including debt obligations and various preferred stocks, generally on a
case-by-case basis through discussions with the issuers of these securities. The
guidelines are designed to ensure that assets underlying outstanding debt or
preferred stock will be sufficiently varied and will be of sufficient quality
and amount to justify investment-grade ratings. The guidelines do not have the
force of law but are being adopted by the Fund in order to satisfy current
requirements necessary for Moody's to issue the above-described rating for the
Cumulative Preferred Stock, which rating is generally relied upon by investors
in purchasing such securities. The guidelines provide a set of tests for
portfolio composition and discounted asset coverage that supplement (and in some
cases are more restrictive than) the applicable requirements of Section 18 of
the 1940 Act. The Moody's guidelines are included in the Articles Supplementary
and are referred to in this Prospectus as the 'Rating Agency Guidelines.'
The Fund intends to maintain a Portfolio Calculation at least equal to the
Basic Maintenance Amount. If the Fund fails to meet such requirement and such
failure is not cured, the Fund will be required to redeem some or all of the
Cumulative Preferred Stock. See 'Description of Cumulative Preferred
Stock -- Redemption -- Mandatory Redemption.' The Rating Agency Guidelines also
exclude from Moody's Eligible Assets and, therefore, from the Portfolio
Calculation, certain types of securities in which the Fund may invest and also
prohibit the Fund's acquisition of futures contracts or options on futures
contracts, prohibit reverse repurchase agreements, limit the writing of options
on portfolio securities and limit the lending of portfolio securities to 5% of
the Fund's total assets. Quest does not believe that compliance with the Rating
Agency Guidelines will have an adverse effect on its management of the Fund's
portfolio or on the achievement of the Fund's investment objectives. For a
further discussion of the Rating Agency Guidelines, see 'Description of
Cumulative Preferred Stock.'
The Fund may, but is not required to, adopt any modifications to the
Moody's guidelines that may hereafter be established by Moody's. Failure to
adopt such modifications, however, may result in a change in the Moody's rating
or a withdrawal of a rating altogether. In addition, Moody's may, at any time,
change or withdraw such rating. As set forth in the Articles Supplementary, the
Board of Directors of the Fund may, without stockholder approval, adjust,
modify, alter or change the Rating Agency Guidelines if Moody's advises the Fund
in writing that such adjustment, modification, alteration or change will not
adversely affect its then current rating on the Cumulative Preferred Stock.
Furthermore, under certain circumstances, the Board of Directors of the Fund may
determine that it is not in the best interests of the Fund to continue to comply
with the Rating Agency Guidelines. If the Fund terminates compliance with the
Rating Agency Guidelines, it is likely that Moody's will change its rating on
the Cumulative Preferred Stock or withdraw its rating altogether, which may have
an adverse effect on the market value of the Cumulative Preferred Stock. It is
the Fund's present intention to continue to comply with the Rating Agency
Guidelines.
As recently described by Moody's, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock obligations.
The rating on the Cumulative Preferred Stock is not a recommendation to
purchase, hold or sell such shares, inasmuch as the rating does not comment as
to market price or suitability for a particular investor. Nor do the Rating
Agency Guidelines address the likelihood that a holder of Cumulative Preferred
Stock will be able to sell such shares. The rating is based on current
information furnished to Moody's by the Fund and Quest and
14
<PAGE>
<PAGE>
information obtained from other sources. The rating may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such information.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective of long-term capital appreciation
principally through investment in common stocks and other equity securities is a
fundamental policy of the Fund and may not be changed without approvals of the
holders of a majority of the Fund's outstanding shares of Common Stock and
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock,
voting as a single class, and a majority of the outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock, voting as a separate class (which
for this purpose and under the 1940 Act means the lesser of (i) 67% of the
relevant shares of capital stock of the Fund present or represented at a meeting
of stockholders, at which the holders of more than 50% of the outstanding
relevant shares of capital stock are present or represented, or (ii) more than
50% of the outstanding relevant shares of capital stock of the Fund). Except as
indicated under ' -- Investment Restrictions' below, the Fund does not consider
its other policies, such as its secondary investment objective of current
income, to be fundamental, and such policies may be changed by the Board of
Directors without stockholder approval or prior notice to stockholders.
INVESTMENT RESTRICTIONS
The policies set forth below are fundamental policies of the Fund and may
not be changed without the affirmative vote of the holders of a majority of the
Fund's outstanding voting securities, as indicated above under ' -- Changes in
Investment Objectives and Policies.' The Fund may not:
1. Issue any class of senior security, or sell any such security of
which it is the issuer, except as permitted by the 1940 Act.
2. Purchase securities on margin or write call options on its
portfolio securities.
3. Sell securities short.
4. Underwrite the securities of other issuers, or invest in
restricted securities.
5. Invest more than 25% of its total assets in any one industry.
6. 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.
7. Purchase or sell commodities or commodity contracts.
8. Make loans, except for (a) 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 (b) repurchase agreements with any bank
that is the custodian of its assets covering U.S. Treasury and
agency obligations and having a term of not more than one week.
9. Invest in companies for the purpose of exercising control of
management.
10. Purchase portfolio securities from or sell such securities
directly to any of its officers, directors, employees or
investment adviser, as principal for their own accounts.
11. Invest in the securities of any one issuer (other than the United
States or any agency or instrumentality of the United States) if,
at the time of acquisition, the Fund would own more than 10% of
the voting securities of such issuer or, as to 75% of the Fund's
total assets, more than 5% of such assets would be invested in the
securities of such issuer.
12. Invest more than 5% of its total assets in warrants, rights or
options.
If a percentage restriction is met at the time of investment, a later
increase or decrease in percentage resulting from a change in the value of
portfolio securities or amount of total assets will not be considered a
violation of any of the above restrictions.
In addition to issuing and selling senior securities as set forth in No. 1
above, the Fund may obtain (i) temporary bank borrowings (not in excess of 5% of
the value of its total assets) for emergency or
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extraordinary purposes and (ii) such short-term credits (not in excess of 5% of
the value of its total assets) as are necessary for the clearance of securities
transactions. Under the 1940 Act, the Indenture relating to the Notes and the
Articles Supplementary, such temporary bank borrowings would be treated as
indebtedness in determining whether or not asset coverage was at least 300% for
senior securities of the Fund representing indebtedness.
Such repurchase transactions are in effect loans by the Fund to its
custodian, and the agreements for such transactions require the custodian to
maintain securities having a value at least equal to the amount loaned as
collateral. Repurchase agreements could involve certain risks if the custodian
defaults or becomes insolvent, including possible delays or restrictions upon
the Fund's ability to dispose of collateral.
Although there are no liquidity restrictions on investments made by the
Fund and the Fund may, therefore, invest without limit in illiquid securities,
the Fund expects to invest only in securities for which market quotations are
readily available.
INVESTMENT ADVISORY AND OTHER SERVICES
Quest Advisory Corp. ('Quest') is a New York corporation organized in
February 1967, with offices at 1414 Avenue of the Americas, New York, New York
10019. It became the investment adviser of the Fund in November 1986, when the
Fund commenced operations. Quest also serves as investment adviser to other
management investment companies, with aggregate net assets of approximately $1.3
billion as of June 30, 1996, and manages other institutional accounts.
Under the Fund's Articles of Incorporation, as amended, and Maryland
General Corporation Law, the Fund's business and affairs are managed under the
direction of its Board of Directors. Investment decisions for the Fund are made
by Quest, subject to any direction it may receive from the Fund's Board of
Directors, which periodically reviews the Fund's investment performance.
PORTFOLIO MANAGEMENT
The Fund's portfolio and the portfolios of Quest's other accounts are
managed by Quest's senior investment staff, including Charles M. Royce, Quest's
President and Chief Investment Officer, who has been primarily responsible for
supervising Quest's investment management activities for more than 20 years. Mr.
Royce is assisted by Jack E. Fockler, Jr. and W. Whitney George, Vice Presidents
of Quest, both 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 Fund's Board of
Directors who are not interested persons of the Fund will consider what action,
if any, should be taken in connection with the Fund's management arrangements.
INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Fund and Quest, Quest
determines the composition of the Fund's portfolio, the nature and timing of the
changes in the portfolio and the manner of implementing such changes; provides
the Fund with investment advisory, research and related services for the
investment of its funds; furnishes, without expense to the Fund, the services of
those of its executive officers and full-time employees as may be duly elected
executive officers or directors of the Fund and pays their salaries and
expenses; and pays all expenses incurred in performing its investment advisory
duties under the Agreement.
The Fund pays all of its own expenses (except those set forth above),
including, without limitation, registrar, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office space and
facilities; auditing; preparation, printing and distribution of its proxy
statements, stockholder reports and notices; Federal and state registration
fees; stock exchange listing fees and expenses; Federal, state and local taxes;
non-affiliated directors' fees; interest on its borrowings; brokerage
commissions; and the cost of issue, sale and repurchase of its shares. Unlike
many other investment companies, the Fund is required to pay substantially all
of its expenses, and Quest does not incur substantial fixed expenses. There are
no applicable state limitations on the Fund's operating expenses.
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ADVISORY FEE
As compensation for its services under the Investment Advisory Agreement,
Quest receives a fee comprised of a Basic Fee (the 'Basic Fee') and an
adjustment to the Basic Fee based on the investment performance of the Fund in
relation to the investment record of the S&P 600. A rolling period of 60 months
will be utilized for measuring performance and average net assets, as described
below.
Beginning with the month of July 1997 and for each succeeding month, the
Basic Fee will be a monthly fee equal to 1/12 of 1% (1% on an annualized basis)
of the average of the net assets of the Fund at the end of each month included
in the applicable performance period. The performance period for each such month
will be from July 1, 1996 to the most recent month-end, until the Investment
Advisory Agreement has been in effect for 60 full calendar months, when it will
become a rolling 60 month period ending with the most recent calendar month.
The Basic Fee for each such month will be increased or decreased at the
rate of 1/12 of .05% per percentage point, depending on the extent, if any, by
which the investment performance of the Fund exceeds by more than two percentage
points, or is exceeded by more than two percentage points by, the percentage
change in the investment record of the S&P 600 for the performance period. The
maximum increase or decrease in the Basic Fee for any month may not exceed 1/12
of .5%. Accordingly, for each month, commencing with the month of July 1997, the
maximum monthly fee rate as adjusted for performance will be 1/12 of 1.5% and
will be payable if the investment performance of the Fund exceeds the percentage
change in the investment record of the S&P 600 by 12 or more percentage points
for the performance period, and the minimum monthly fee rate as adjusted for
performance will be 1/12 of .5% and will be payable if the percentage change in
the investment record of the S&P 600 exceeds the investment performance of the
Fund by 12 or more percentage points for the performance period.
For the period from July 1, 1996 through June 30, 1997, the Basic Fee will
be a monthly fee equal to 1/12 of 1% of the net assets of the Fund at the end of
each month in such period. The performance period relating to such period will
be from July 1, 1996 through June 30, 1997. The Basic Fee for such period would
also be subject to increase or decrease as set forth in the preceding paragraph,
with the rate of such increase or decrease being applied on an annualized basis.
The maximum increase or decrease in the Basic Fee for such period may not exceed
.5%. Any portion of the fee for such period, as adjusted as set forth above, in
excess of .5% will be paid at the end of such period.
Notwithstanding the foregoing, Quest will not be entitled to receive any
fee for any month when the investment performance of the Fund for the rolling 36
month period ending with such month is negative on an absolute basis. In the
event that the Fund's investment performance for such a performance period is
less than zero, Quest will not be required to refund to the Fund any fee earned
in respect of any prior performance period.
Because the Basic Fee is a function of the Fund's net assets and not of its
total assets, Quest will not receive any fee in respect of those assets of the
Fund equal to the aggregate unpaid principal amount of the Notes or any other
indebtedness of the Fund. Quest will receive a fee in respect of any assets of
the Fund equal to the liquidation preference of and any potential redemption
premium for any Preferred Stock that may be issued and sold by the Fund,
including the Cumulative Preferred Stock.
The present Investment Advisory Agreement replaced a similar investment
advisory agreement between the Fund and Quest, under which the Fund's investment
performance was measured against the record of the Standard & Poor's 500
Composite Stock Price Index over a rolling period of 36 months. The present
Investment Advisory Agreement provides that, for the 18 month period from July
1, 1996 to December 31, 1997, the monthly fee payable to Quest will be the lower
of the fee calculated under it or the fee that would have been payable to Quest
for the month involved under the prior investment advisory agreement.
To the extent that Quest receives a fee in excess of .75% per annum of the
Fund's average net assets, its compensation may be higher than that paid by most
other investment companies with similar investment objectives.
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DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Articles Supplementary, the form of which is filed
as an exhibit to the Fund's Registration Statement. Certain of the capitalized
terms used herein are defined in the Glossary that appears at the end of this
Prospectus.
GENERAL
Under the Articles Supplementary, the Fund will be authorized to issue up
to 2,400,000 shares of Cumulative Preferred Stock. No fractional shares of
Cumulative Preferred Stock will be issued. As of the date of this Prospectus,
there were no shares of Cumulative Preferred Stock or any other Preferred Stock
of the Fund outstanding. The Board of Directors reserves the right to issue
additional shares of Preferred Stock, including Cumulative Preferred Stock, from
time to time, subject to the restrictions in the Articles Supplementary. The
shares of Cumulative Preferred Stock will, upon issuance, be fully paid and
nonassessable and will have no preemptive, exchange or conversion rights. Any
shares of Cumulative Preferred Stock repurchased or redeemed by the Fund will be
classified as authorized but unissued Preferred Stock. The Board of Directors
may by resolution classify or reclassify any authorized but unissued Preferred
Stock from time to time by setting or changing the preferences, rights, voting
powers, restrictions, limitations or terms of redemption. The Fund will not
issue any class of stock senior to the shares of Cumulative Preferred Stock.
Payments to the holders of Cumulative Preferred Stock of dividends or upon
redemption or in liquidation will be subject to the prior payments of interest
and repayment of principal then due on the Notes or any other indebtedness of
the Fund. Also, under the Indenture relating to the Notes, the Fund cannot
declare any cash dividends or distributions on the Cumulative Preferred Stock or
purchase or redeem any shares of the Cumulative Preferred Stock if, immediately
thereafter, asset coverage for senior securities representing indebtedness, as
defined under Section 18 of the 1940 Act, would be less than 300% or if the Fund
fails to maintain a certain discounted asset coverage for the Notes pursuant to
rating agency guidelines relating to the Notes. See 'Description of Capital
Stock and Other Securities -- The Notes.'
DIVIDENDS
Holders of shares of Cumulative Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Fund out of
funds legally available therefor, cumulative cash dividends at the annual rate
of % per share of the liquidation preference of $25.00 per share and no more,
payable annually on in each year (the 'Dividend Payment Date'),
commencing on , 1996, to the persons in whose names the shares of
Cumulative Preferred Stock are registered at the close of business on the
preceding . Dividends on the shares of Cumulative Preferred Stock
will accumulate from the date on which such shares are originally issued (the
'Date of Original Issue').
No dividends will be declared or paid or set apart for payment on shares of
Cumulative Preferred Stock for any dividend period or part thereof unless full
cumulative dividends have been or contemporaneously are declared and paid on all
outstanding shares of Cumulative Preferred Stock through the most recent
Dividend Payment Dates thereof. If full cumulative dividends are not declared
and paid on the Cumulative Preferred Stock, all dividends on the shares of
Cumulative Preferred Stock will be declared and paid pro rata to the holders of
the outstanding shares. Holders of Cumulative Preferred Stock will not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of full cumulative dividends. No interest, or sum of money in lieu of interest,
will be payable in respect of any dividend payment that may be in arrears.
For so long as any shares of Cumulative Preferred Stock are outstanding,
the Fund will not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Common Stock
or other stock, if any, ranking junior to the Cumulative Preferred Stock as to
dividends or upon liquidation) in respect of the Common Stock or any other stock
of the Fund ranking junior to or on a
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parity with the Cumulative Preferred Stock as to dividends or upon liquidation,
or call for redemption, redeem, purchase or otherwise acquire for consideration
any shares of its Common Stock or any other junior stock (except by conversion
into or exchange for stock of the Fund ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends and upon liquidation), unless, in
each case, (i) immediately after such transaction, the Fund will have a
Portfolio Calculation for Moody's at least equal to the Basic Maintenance Amount
and the Fund will maintain the Asset Coverage (see ' -- Asset Maintenance' and
' -- Redemption' below), (ii) full cumulative dividends on shares of Cumulative
Preferred Stock due on or prior to the date of the transactions have been
declared and paid (or sufficient Deposit Securities to cover such payment have
been deposited with the Paying Agent) and (iii) the Fund has redeemed the full
number of shares of Cumulative Preferred Stock required to be redeemed by any
provision for mandatory redemption contained in the Articles Supplementary.
ASSET MAINTENANCE
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Articles Supplementary. These requirements
are summarized below.
Asset Coverage. The Fund will be required under the Articles Supplementary
to maintain as of the last Business Day of each March, June, September and
December of each year, an asset coverage of at least 250% (or such higher
percentage as may be required under the 1940 Act) with respect to all
outstanding senior securities of the Fund which are stock, including the
Cumulative Preferred Stock (the 'Asset Coverage'). If the Fund fails to maintain
the Asset Coverage on such dates and such failure is not cured in 60 days, the
Fund will be required under certain circumstances to redeem certain of the
shares of Cumulative Preferred Stock. See ' -- Redemption' below.
If the shares of Cumulative Preferred Stock offered hereby had been issued
and sold as of June 30, 1996, the Asset Coverage immediately following such
issuance and sale (after giving effect to the deduction of the underwriting
discounts and estimated offering expenses for such shares of ), would
have been computed as follows:
<TABLE>
<S> <C> <C> <C> <C>
Value of Fund assets less
liabilities not constituting
senior securities = $460,853,218 = 461%
- ------------------------------------------------------------------ -----------------
Senior securities $100,000,000
representing indebtedness
plus liquidation
preference of the
Cumulative Preferred
Stock
</TABLE>
Basic Maintenance Amount. The Fund will be required under the Articles
Supplementary to maintain, as of each Valuation Date, portfolio holdings meeting
specified guidelines of Moody's, as described under 'Investment Objectives and
Policies -- Rating Agency Guidelines', having an aggregate discounted value (a
'Portfolio Calculation') at least equal to the Basic Maintenance Amount. If the
Fund fails to meet such requirement as to any Valuation Date and such failure is
not cured within 14 days after such Valuation Date, the Fund will be required to
redeem certain of the shares of Cumulative Preferred Stock. See ' -- Redemption'
below.
Any security not in compliance with the Moody's investment guidelines
described under 'Investment Objectives and Policies -- Rating Agency Guidelines'
will be excluded from the Portfolio Calculation.
The Moody's Discount Factors and guidelines for determining the market
value of the Fund's portfolio holdings have been based on criteria established
in connection with the rating of the Cumulative Preferred Stock. These factors
include, but are not limited to, the sensitivity of the market value of the
relevant asset to changes in interest rates, the liquidity and depth of the
market for the relevant asset, the credit quality of the relevant asset (for
example, the lower the rating of a corporate debt obligation, the higher the
related discount factor) and the frequency with which the relevant asset is
marked to market. The Moody's Discount Factor relating to any asset of the Fund
and the Basic Maintenance Amount, the assets eligible for inclusion in the
calculation of the discounted value of the
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Fund's portfolio and certain definitions and methods of calculation relating
thereto may be changed from time to time by the Board of Directors, provided
that, among other things, such changes will not impair the rating then assigned
to the Cumulative Preferred Stock by Moody's.
On or before the third Business Day after each Quarterly Valuation Date,
the Fund is required to deliver to Moody's a Basic Maintenance Report. Within
ten Business Days after delivery of such report relating to the Quarterly
Valuation Date, the Fund will deliver letters prepared by the Fund's independent
accountants regarding the accuracy of the calculations made by the Fund in its
most recent Basic Maintenance Report. If any such letter prepared by the Fund's
independent accountants shows that an error was made in the most recent Basic
Maintenance Report, the calculation or determination made by the Fund's
independent accountants will be conclusive and binding on the Fund.
REDEMPTION
Mandatory Redemption. The Fund will be required to redeem, at a redemption
price equal to $25 per share plus accumulated and unpaid dividends through the
date of redemption (whether or not earned or declared) (the 'Redemption Price'),
certain of the shares of Cumulative Preferred Stock (to the extent permitted
under the 1940 Act, Maryland law, the Indenture for the Notes and any other
agreement relating to indebtedness of the Fund) in the event that:
(i) the Fund fails to maintain the quarterly Asset Coverage and such
failure is not cured on or before 60 days following such failure (a 'Cure
Date'); or
(ii) the Fund fails to maintain a Portfolio Calculation at least equal
to the Basic Maintenance Amount as of any Valuation Date, and such failure
is not cured on or before the 14th day after such Valuation Date (also, a
'Cure Date').
The amount of such mandatory redemption will equal the minimum number of
outstanding shares of Cumulative Preferred Stock the redemption of which, if
such redemption had occurred immediately prior to the opening of business on a
Cure Date, would have resulted in the Asset Coverage having been satisfied or
the Fund having a Portfolio Calculation equal to or greater than the Basic
Maintenance Amount on such Cure Date or, if the Asset Coverage or a Portfolio
Calculation equal to or greater than the Basic Maintenance Amount, as the case
may be, cannot be so restored, all of the shares of Cumulative Preferred Stock,
at the Redemption Price. In the event that shares of Cumulative Preferred Stock
are redeemed due to the occurrence of (i) above, the Fund may, but is not
required to, redeem a sufficient number of shares of Cumulative Preferred Stock
in order to increase the 'asset coverage' of a class of senior security which is
stock, as defined in the 1940 Act, of the remaining outstanding shares of
Cumulative Preferred Stock and any other Preferred Stock after redemption up to
275%. In the event that shares of Cumulative Preferred Stock are redeemed due to
the occurrence of (ii) above, the Fund may, but is not required to, redeem a
sufficient number of shares of Cumulative Preferred Stock in order that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
by up to 10%.
If the Fund does not have funds legally available for the redemption of, or
is otherwise unable to redeem, all the shares of Cumulative Preferred Stock to
be redeemed on any redemption date, the Fund will redeem on such redemption date
that number of shares for which it has legally available funds, or is otherwise
able, to redeem ratably from each holder whose shares are to be redeemed, and
the remainder of the shares required to be redeemed will be redeemed on the
earliest practicable date on which the Fund will have funds legally available
for the redemption of, or is otherwise able to redeem, such shares upon written
notice of redemption ('Notice of Redemption').
If fewer than all shares of Cumulative Preferred Stock are to be redeemed,
such redemption will be made pro rata from each holder of shares in accordance
with the respective number of shares held by each such holder on the record date
for such redemption. If fewer than all shares of Cumulative Preferred Stock held
by any holder are to be redeemed, the Notice of Redemption mailed to such holder
will specify the number of shares to be redeemed from such holder. Unless all
accumulated and unpaid dividends for all past dividend periods will have been or
are contemporaneously paid or
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declared and Deposit Securities for the payment thereof deposited with the
Paying Agent, no redemptions of Cumulative Preferred Stock may be made.
Optional Redemption. Prior to , 2001, the Fund may, at its
option, redeem shares of Cumulative Preferred Stock at the Redemption Price per
share only to the extent that any such redemption is necessary, in the judgment
of the Fund, to maintain the Fund's status as a regulated investment company
('RIC') under the Internal Revenue Code of 1986, as amended (the 'Code').
Commencing , 2001, and at any time and from time to time
thereafter, the Fund may, at its option, redeem shares of Cumulative Preferred
Stock in whole or in part at the Redemption Price. Such redemptions are subject
to the limitations of the 1940 Act, Maryland law, the Indenture for the Notes
and any other agreement relating to indebtedness of the Fund.
Redemption Procedures. A Notice of Redemption will be given to the holders
of record of Cumulative Preferred Stock selected for redemption not less than 30
or more than 45 days prior to the date fixed for the redemption. Each Notice of
Redemption will state (i) the redemption date, (ii) the number of shares of
Cumulative Preferred Stock to be redeemed, (iii) the CUSIP number(s) of such
shares, (iv) the Redemption Price, (v) the place or places where such shares are
to be redeemed, (vi) that dividends on the shares to be redeemed will cease to
accrue on such redemption date, and (vii) the provision of the Articles
Supplementary under which the redemption is being made. No defect in the Notice
of Redemption or in the mailing thereof will affect the validity of the
redemption proceedings, except as required by applicable law.
LIQUIDATION RIGHTS
Upon a liquidation, dissolution or winding up of the affairs of the Fund
(whether voluntary or involuntary), holders of shares of Cumulative Preferred
Stock then outstanding will be entitled to receive out of the assets of the Fund
available for distribution to stockholders, after satisfying claims of creditors
but before any distribution or payment of assets is made to holders of the
Common Stock or any other class of stock of the Fund ranking junior to the
Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25 per share plus an amount equal to all unpaid
dividends accumulated thereon to and including the date fixed for such
distribution or payment (whether or not earned or declared by the Fund, but
excluding interest thereon) (the 'Liquidation Preference'), and such holders
will be entitled to no further participation in any distribution payment in
connection with any such liquidation, dissolution or winding up. If, upon any
liquidation, dissolution or winding up of the affairs of the Fund, whether
voluntary or involuntary, the assets of the Fund available for distribution
among the holders of all outstanding shares of Cumulative Preferred Stock and
any other outstanding Preferred Stock of the Fund ranking on a parity with the
Cumulative Preferred Stock as to payment upon liquidation, will be insufficient
to permit the payment in full to such holders of Cumulative Preferred Stock of
the Liquidation Preference and the amounts due upon liquidation with respect to
such other Preferred Stock, then such available assets will be distributed among
the holders of Cumulative Preferred Stock and such other Preferred Stock ratably
in proportion to the respective preferential amounts to which they are entitled.
Unless and until the Liquidation Preference has been paid in full to the holders
of Cumulative Preferred Stock, no dividends or distributions will be made to
holders of the Common Stock or any other stock of the Fund ranking junior to the
Cumulative Preferred Stock as to liquidation.
Upon any liquidation, the holders of the Common Stock, after required
payments to the holders of Preferred Stock, will be entitled to participate
equally and ratably in the remaining assets of the Fund.
VOTING RIGHTS
Except as otherwise stated in this Prospectus and as otherwise required by
applicable law, holders of shares of Cumulative Preferred Stock will be entitled
to one vote per share on each matter submitted to a vote of stockholders and
will vote together with holders of shares of Common Stock and of any other
Preferred Stock of the Fund then outstanding as a single class.
In connection with the election of the Fund's directors, holders of shares
of Cumulative Preferred Stock and any other Preferred Stock, voting as a
separate class, will be entitled at all times to elect two
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of the Fund's directors, and the remaining directors will be elected by holders
of shares of Common Stock and holders of shares of Cumulative Preferred Stock
and any other Preferred Stock, voting together as a single class. In addition,
if at any time dividends on outstanding shares of Cumulative Preferred Stock
and/or any other Preferred Stock are unpaid in an amount equal to at least two
full years' dividends thereon or if at any time holders of any shares of
Preferred Stock are entitled, together with the holders of shares of Cumulative
Preferred Stock, to elect a majority of the directors of the Fund under the 1940
Act, then the number of directors constituting the Board of Directors
automatically will be increased by the smallest number that, when added to the
two directors elected exclusively by the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock as described above, would
constitute a majority of the Board of Directors as so increased by such smallest
number. Such additional directors will be elected at a special meeting of
stockholders which will be called and held as soon as practicable, and at all
subsequent meetings at which directors are to be elected, the holders of shares
of Cumulative Preferred Stock and any other Preferred Stock, voting as a
separate class, will be entitled to elect the smallest number of additional
directors that, together with the two directors which such holders in any event
will be entitled to elect, constitutes a majority of the total number of
directors of the Fund as so increased. The terms of office of the persons who
are directors at the time of that election will continue. If the Fund thereafter
pays, or declares and sets apart for payment in full, all dividends payable on
all outstanding shares of Cumulative Preferred Stock and any other Preferred
Stock for all past dividend periods, the additional voting rights of the holders
of shares of Cumulative Preferred Stock and any other Preferred Stock as
described above will cease, and the terms of office of all of the additional
directors elected by the holders of shares of Cumulative Preferred Stock and any
other Preferred Stock (but not of the directors with respect to whose election
the holders of shares of Common Stock were entitled to vote or the two directors
the holders of shares of Cumulative Preferred Stock and any other Preferred
Stock have the right to elect in any event) will terminate automatically.
So long as shares of the Cumulative Preferred Stock are outstanding, the
Fund will not, without the affirmative vote of the holders of two-thirds of the
shares of Cumulative Preferred Stock outstanding at the time, voting separately
as one class, amend, alter or repeal the provisions of the Charter, whether by
merger, consolidation or otherwise, so as to materially adversely affect any of
the contract rights expressly set forth in the Charter of holders of shares of
the Cumulative Preferred Stock. The Board of Directors, however, without
stockholder approval, may amend, alter or repeal the Rating Agency Guidelines in
the event the Fund receives confirmation from Moody's that any such amendment,
alteration or repeal would not impair the rating then assigned to the Cumulative
Preferred Stock. Furthermore, under certain circumstances, without the vote of
stockholders, the Board of Directors of the Fund may determine that it is not in
the best interests of the Fund to continue to comply with the Rating Agency
Guidelines. See ' -- Termination of Rating Agency Guidelines' below. The
affirmative vote of a majority of the votes entitled to be cast by holders of
outstanding shares of the Cumulative Preferred Stock and any other Preferred
Stock, voting as a separate class, will be required to approve any plan of
reorganization adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act, including, among other
things, changes in the Fund's investment objective or changes in the investment
restrictions described as fundamental policies under 'Investment Objectives and
Policies.' The class vote of holders of shares of the Cumulative Preferred Stock
and any other Preferred Stock described above will be in addition to a separate
vote of the requisite percentage of shares of Common Stock and Cumulative
Preferred Stock and any other Preferred Stock, voting together as a single
class, necessary to authorize the action in question.
The foregoing voting provisions will not apply to any shares of Cumulative
Preferred Stock if, at or prior to the time when the act with respect to which
such vote otherwise would be required will be effected, such shares will have
been (i) redeemed or (ii) called for redemption and sufficient Deposit
Securities provided to the Paying Agent to effect such redemption.
TERMINATION OF RATING AGENCY GUIDELINES
The Articles Supplementary provide that the Board of Directors of the Fund
may determine that it is not in the best interests of the Fund to continue to
comply with the Rating Agency Guidelines, in
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<PAGE>
which case the Fund will no longer be required to comply with such guidelines,
provided that (i) the Fund has given the Paying Agent, Moody's and holders of
the Cumulative Preferred Stock at least 20 calendar days written notice of such
termination of compliance, (ii) the Fund is in compliance with the Rating Agency
Guidelines at the time the notice required in clause (i) above is given and at
the time of termination of compliance with the Rating Agency Guidelines, (iii)
at the time the notice required in clause (i) above is given and at the time of
termination of compliance with the Rating Agency Guidelines, the Cumulative
Preferred Stock is listed on the New York Stock Exchange or on another exchange
registered with the Securities and Exchange Commission as a national securities
exchange and (iv) at the time of termination of compliance with the Rating
Agency Guidelines, the cumulative cash dividend rate payable on a share of the
Cumulative Preferred Stock is increased by .50% per annum.
If the Fund voluntarily terminates compliance with the Rating Agency
Guidelines, Moody's may change its rating on the Cumulative Preferred Stock or
withdraw its rating altogether, which may have an adverse effect on the market
value of the Cumulative Preferred Stock. It is the Fund's present intention to
continue to comply with the Rating Agency Guidelines.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND ISSUANCE OF ADDITIONAL
PREFERRED STOCK
So long as any shares of Cumulative Preferred Stock are outstanding, the
Fund may issue and sell one or more series of a class of senior securities of
the Fund representing indebtedness under the 1940 Act and/or otherwise create or
incur indebtedness in addition to the Notes, provided that (i) if the Fund is
using the proceeds (net of all offering expenses payable by the Fund) of such
additional indebtedness to purchase all or a portion of the Notes or any shares
of the Cumulative Preferred Stock or to repay, redeem or otherwise refinance all
or a portion of the Notes or any shares of the Cumulative Preferred Stock and/or
any other indebtedness or Preferred Stock then outstanding or if such
indebtedness constitutes a temporary bank borrowing (not in excess of 5% of the
value of the Fund's total assets) for emergency or extraordinary purposes, then
the Fund will, immediately after giving effect to the incurrence of such
indebtedness and to its receipt and application of the proceeds thereof, have an
'asset coverage' for all senior securities of the Fund representing
indebtedness, as defined in the 1940 Act, of at least 300% of the amount of all
indebtedness of the Fund then outstanding, or (ii) if the Fund is using the
proceeds (net of all offering expenses payable by the Fund) of such additional
indebtedness for any other purpose, then the Fund will, immediately after giving
effect to the incurrence of such indebtedness and to its receipt and application
of the proceeds thereof, have an 'asset coverage' for all senior securities
representing indebtedness, as defined in the 1940 Act, of at least 500% of the
amount of all indebtedness of the Fund then outstanding. Any possible liability
resulting from lending and/or borrowing portfolio securities, entering into
reverse repurchase agreements, entering into futures contracts and writing
options, to the extent such transactions are made in accordance with the
investment restrictions of the Fund then in effect, will not be considered to be
indebtedness limited by the Articles Supplementary.
So long as any shares of Cumulative Preferred Stock are outstanding, the
Fund may issue and sell shares of one of more other series of Preferred Stock
constituting a series of a class of senior securities of the Fund representing
stock under the 1940 Act in addition to the shares of Cumulative Preferred
Stock, provided that (i) if the Fund is using the proceeds (net of all offering
expenses payable by the Fund) of such additional Preferred Stock to purchase all
or a portion of the shares of Cumulative Preferred Stock or to redeem or
otherwise refinance all or a portion of the shares of Cumulative Preferred
Stock, any other Preferred Stock and/or any indebtedness of the Fund then
outstanding, then the Fund will, immediately after giving effect to the issuance
of such additional Preferred Stock and to its receipt and application of the
proceeds thereof, have an 'asset coverage' for all senior securities of the Fund
which are stock, as defined in the 1940 Act, of at least 250% of the shares of
Cumulative Preferred Stock and all other Preferred Stock of the Fund then
outstanding, or (ii) if the Fund is using the proceeds (net of all offering
expenses payable by the Fund) of such additional Preferred Stock for any other
purpose, then the Fund will, immediately after giving effect to the issuance of
such additional Preferred Stock and to its receipt and application of the
proceeds thereof, have an 'asset coverage' for all senior securities of the Fund
which are stock, as defined in the 1940 Act, of at least 300% of the shares of
Cumulative Preferred Stock and all other Preferred Stock of the Fund then
outstanding, and,
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<PAGE>
in the case of either (i) or (ii) above, (iii) no such additional Preferred
Stock will have any preference or priority over any other Preferred Stock of the
Fund upon the distribution of the assets of the Fund or in respect of the
payment of dividends.
REPURCHASE OF CUMULATIVE PREFERRED STOCK
The Fund is a closed-end investment company and, as such, holders of
Cumulative Preferred Stock do not, and will not, have the right to redeem their
shares of the Fund. The Fund, however, may repurchase shares of the Cumulative
Preferred Stock when it is deemed advisable by the Board of Directors in
compliance with the requirements of the 1940 Act and the rules and regulations
thereunder.
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
CAPITAL STOCK
Common Stock. The Fund is authorized to issue 150,000,000 shares of Common
Stock, par value $.001 per share. Each share of Common Stock has equal voting,
dividend, distribution and liquidation rights. The shares of Common Stock
outstanding are fully paid and non-assessable. The shares of Common Stock are
not redeemable and have no preemptive, conversion or cumulative voting rights.
As a New York Stock Exchange-listed company, the Fund is required to hold annual
meetings of its stockholders.
Preferred Stock. The Fund's Board of Directors has authority to cause the
Fund to issue and sell up to 50,000,000 shares of Preferred Stock, par value
$.001 per share, that may be convertible into shares of the Fund's Common Stock.
The terms of such Preferred Stock would be fixed by the Board of Directors and
would materially limit and/or qualify the rights of the holders of the Fund's
Common Stock. The Board of Directors has designated 2,400,000 shares of
Preferred Stock as the Cumulative Preferred Stock offered hereby. See
'Description of Cumulative Preferred Stock.'
The following table shows the number of shares of (i) capital stock
authorized, (ii) capital stock held by the Fund for its own account and (iii)
capital stock outstanding for each class of authorized securities of the Fund as
of June 30, 1996.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD (EXCLUSIVE OF
BY FUND AMOUNT HELD
AMOUNT FOR ITS OWN BY FUND FOR ITS
TITLE OF CLASS AUTHORIZED ACCOUNT OWN ACCOUNT)
- ----------------------------------------------------------------- ------------ ----------- ---------------
<S> <C> <C> <C>
Common Stock..................................................... 150,000,000 0 24,836,018
Cumulative Preferred Stock....................................... 50,000,000 0 0
</TABLE>
THE NOTES
General. On June 22, 1994, the Fund issued and sold $40,000,000 aggregate
principal amount of its 5 3/4% Investment Company Convertible Notes due June 30,
2004 (the 'Notes') under an Indenture dated June 15, 1994 (the 'Indenture')
between the Fund and United States Trust Company of New York, as trustee (the
'Trustee'). The Notes, which are listed on the New York Stock Exchange, are
unsecured obligations of the Fund. Interest on the Notes at the rate of 5 3/4%
per annum is payable semi-annually, on each June 30 and December 31, to holders
of record at the close of business on the immediately preceding June 15 and
December 15. Interest may be increased on July 1, 1999, as described below. Set
forth below is a summary of the material terms of the Notes. The asset coverage
per $1,000 of the Notes as of June 30, 1996, December 31, 1995 and December 31,
1994 was $10,078, $9,439 and $7,687, respectively. The last reported sale price
for the Notes on the NYSE on or about those dates was 101.25%, 101.50% and
94.25%.
Conversion Rights. Each Note is convertible into shares of the Common Stock
of the Fund, at the option of its holder, at any time prior to maturity, except
during the period from the second trading day prior to the ex-dividend date
through the record date for distributions to Common Stockholders (and,
24
<PAGE>
<PAGE>
in certain cases, through December 31 of) each year and unless previously
redeemed at the option of the Fund. The initial conversion price was $14.00 per
share. The conversion price as of June 30, 1996 was $13.30, entitling the holder
to acquire 75.19 shares of Common Stock for each $1,000 principal amount of
Notes converted.
In order to compensate the Fund's Common Stockholders for the preferential
return payable to Noteholders, the Notes provide for an annual escalation of
6.75% in the conversion price. In order to compensate Noteholders for the
decline in net asset value attributable to the annual distributions payable to
Common Stockholders, the Notes also provide for a reduction in the conversion
price in the same proportion that such distributions reduce net asset value per
share of Common Stock. The annual escalation of 6.75% and the annual reduction
for distributions are made simultaneously with one another, resulting in a
single annual net adjustment to the conversion price then in effect. This annual
net adjustment is made on the trading day in December of each year when the
Fund's Common Stock trades without (i.e., 'ex-dividend') any distributions of
net investment income and capital gains to be paid on the payment date therefor
to its Common Stockholders. The conversion price is also subject to customary
adjustment in the event of any stock splits or stock dividends and for certain
rights offerings and other capital share transactions, and the annual escalation
may be reduced or eliminated for certain years.
Reset of Terms. If the average market price per $1,000 principal amount of
Notes for the 45 trading days ending May 31, 1999 is less than $950, then on
July 1, 1999, the Fund will either call all of the Notes for redemption or reset
one or more terms of the Notes in order to increase their market value on such
date to or as nearly as possible to par. Such reset terms may include an
increase in the rate of interest, an increase or a decrease in the rate at which
the conversion price escalates (before reduction for distributions) and/or a
decrease in the conversion price then in effect.
Asset Coverage. Under the 1940 Act and the Indenture, the Fund cannot
declare any cash or other non-stock dividends or distributions on shares of the
Cumulative Preferred Stock or any other Preferred Stock or its Common Stock or
purchase any shares of its capital stock if, immediately thereafter, asset
coverage for the Notes and any other senior securities of the Fund representing
indebtedness would be less than 300%. Under the Code, the Fund must, among other
things, distribute at least 90% of its investment company taxable income each
year in order to maintain its qualification for tax treatment as a regulated
investment company and must distribute additional amounts in order to avoid
becoming liable for income and excise taxes. See 'Taxation.'
Under the Indenture, the Fund has agreed to maintain, as of the last day of
March, June, September and December of each calendar year while any Notes are
outstanding, asset coverage for senior securities representing indebtedness
equal to at least 300% of the amount of any senior securities representing
indebtedness, including the Notes. If the required asset coverage is not met as
of the last day of March, June, September or December in any calendar year while
the Notes are outstanding, and is not restored as of the last business day of a
month ending within 20 days after notice by the Trustee, an event of default is
deemed to have occurred under the Indenture, entitling the Trustee to accelerate
the due date of the Notes (for this purpose, without limitation, the default
will be deemed cured if, within the prescribed period, the Fund has notified the
Trustee to call for redemption such portion of the Notes as, alone or together
with other action taken by the Fund, would cause the Fund to have the requisite
asset coverage).
For so long as any Notes are outstanding, the Fund will be required
pursuant to the Rating Agency Provisions (as defined below) of the Indenture to
maintain, as of the last business day of each week, a discounted asset coverage
of the Notes for Moody's equal to a basic maintenance amount (currently,
approximately $40,000,000 plus accrued and accruing interest on the Notes). If
the Fund fails to maintain the required discounted asset coverage of the Notes
for Moody's equal to such basic maintenance amount, the Rating Agency Provisions
provide that the Fund will use its best efforts to reattain such asset coverage.
The Rating Agency Provisions also prevent the Fund from paying dividends or
other distributions on shares of the Cumulative Preferred Stock or any other
Preferred Stock or its Common Stock and from repurchasing or redeeming any
shares of capital stock unless, after giving effect to such dividends, other
distributions, and purchases, the Fund continues to maintain the required
discounted asset coverage for Moody's.
25
<PAGE>
<PAGE>
Optional Redemption by the Fund. Commencing July 1, 1997, and any time
thereafter prior to maturity, the Fund may, at its option, redeem the Notes in
whole or in part for cash at a price equal to 100% of their principal amount,
together with accrued interest thereon.
Prior to July 1, 1997, the Fund has the option to redeem the Notes for cash
at a price equal to 100% of their principal amount, together with accrued
interest thereon, to the extent that such a redemption may become necessary for
the Fund to maintain an asset coverage of not less than 300% and up to 330% for
the Notes and for any other senior securities of the Fund representing
indebtedness then outstanding and/or to enable the Fund to continue to qualify
for treatment as a regulated investment company under the Code.
Mandatory Redemption by the Fund. The Notes are subject to mandatory
partial redemption by the Fund if the Fund fails to maintain the discounted
asset coverage of the Notes for Moody's and such failure is not cured on or
before the cure date. The aggregate principal amount of Notes subject to such
mandatory partial redemption will equal the minimum aggregate principal amount
of outstanding Notes (rounded to the next higher increment to $1,000) the
redemption of which would have caused the Fund to have the required asset
coverage on a pro forma basis at the close of business on the cure date,
provided that, if there is no such minimum aggregate principal amount of
outstanding Notes the redemption of which would have such result, all of the
outstanding Notes will be redeemed. Such mandatory redemption will be at a
redemption price equal to 100% of the principal amount of Notes to be redeemed,
together with interest accrued thereon to the date fixed for redemption.
Rating Agency Provisions. The Indenture governing the Notes contains
certain provisions (the 'Rating Agency Provisions') which reflect guidelines
established by Moody's in order to obtain the Aaa rating on the Notes on the
date of their issuance. Under certain circumstances, the Board of Directors of
the Fund may determine that it is not in the best interests of the Fund to
continue to comply with the Rating Agency Provisions. If the Fund terminates
compliance with the Rating Agency Provisions, the rate of interest payable on
the Notes will be increased by .25% per annum, provided that if such termination
occurs prior to July 1, 1999 and the terms of the Notes are reset on such date,
as provided above, in order to increase their market value on such date at or as
nearly as possible to par, then such increase in the rate of interest will
terminate as of June 30, 1999.
TAXATION
The following Federal income tax discussion is based on the advice of Brown
& Wood LLP. The discussion reflects applicable tax laws of the United States as
of the date of this Prospectus, which tax laws are subject to being changed
retroactively or prospectively.
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ('RICs') under the Code. If it so
qualifies, the Fund (but not its stockholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital gains
which it distributes to stockholders. The Fund intends to distribute
substantially all of such income.
TAXATION OF STOCKHOLDERS
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as 'ordinary income dividends') are taxable to
stockholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains or
losses from certain transactions in warrants, rights and options) ('capital gain
dividends') are taxable to stockholders as long-term capital gains, regardless
of the length of time the stockholder has owned Fund shares. Any loss upon the
sale or exchange of Fund shares held for six months or less, however, will be
treated as long-term capital loss to the extent of any capital gain dividends
received by the stockholder. Distributions in excess of the Fund's earnings and
profits will first reduce the adjusted tax basis of a holder's shares and, after
such adjusted tax basis is reduced to zero, will constitute capital gains to
such holder (assuming the shares are held as a capital asset).
The tax rate that can be imposed on the excess of net long-term capital
gains over net short-term capital losses is subject to a ceiling which, for
non-corporate taxpayers, is currently less than the
26
<PAGE>
<PAGE>
maximum tax rate on ordinary income. In recent years, a number of legislative
proposals concerning the tax treatment of capital gains have been introduced in
Congress. The proposals have ranged from eliminating the preferential treatment
of capital gains to eliminating tax on capital gains of individuals, and have
included both restoration of a deduction for capital gains and a 15% maximum tax
rate for capital gains of individuals and corporations. It cannot be predicted
whether any of these proposals may ultimately become law, nor can the effective
date of any legislation be anticipated. Any change in the tax treatment of
capital gains, however, would have an effect on the tax consequences of an
investment in the Cumulative Preferred Stock.
Stockholders may be entitled to offset their capital gain dividends with
capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their own tax advisers.
Dividends are taxable to stockholders whether they are paid in cash or, in
the case of Common Stockholders, paid in additional shares of Common Stock under
the Fund's plan for the automatic investment of dividends. Not later than 60
days after the close of its taxable year, the Fund will provide its stockholders
with a written notice designating the amounts of any ordinary income dividends
or capital gain dividends. Although it is anticipated that most of the Fund's
dividends will continue to be designated as capital gain dividends, for which no
dividends received deduction is available, a portion of the Fund's ordinary
income dividends may be eligible for the dividends received deduction allowed to
corporations under the Code, if certain requirements are met. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to stockholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its stockholders on December 31 of the year in which such
dividend was declared.
The Code provides that capital gain recognized on the termination of a
position held as part of a 'conversion transaction' will be treated as ordinary
income, to the extent it does not exceed the interest that would have accrued on
the net investment in the conversion transaction at an interest rate prescribed
by the Code. A 'conversion transaction,' for these purposes, is a transaction
substantially all of the return from which is attributable to the time value of
the net investment in the transaction, and which is marketed as producing
capital gains, but having the characteristics of a loan. Although there are no
regulations construing this provision, the conversion transaction rules would
not apply to an investment in the Cumulative Preferred Stock because dividends
paid with respect to the Cumulative Preferred Stock will not constitute gain
which is recognized on the disposition or other termination of any position
which was held as part of a conversion transaction.
Ordinary income dividends (but not long-term capital gains distributions)
paid to stockholders who are nonresident aliens or foreign entities will be
subject to a 30% United States withholding tax under existing provisions of the
Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Nonresident stockholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
Under certain provisions of the Code, some stockholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ('backup withholding'). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where the
stockholder maintains his or her account), certifying under penalties of perjury
that such stockholder's taxpayer identification number is correct and that such
stockholder (i) has never been notified by the IRS that he or she is subject to
backup withholding, (ii) has been notified by the IRS that he or she is no
longer subject to backup withholding or (iii) is exempt from backup withholding.
Corporate stockholders and certain other stockholders are exempt from backup
withholding. Backup withholding is not an
27
<PAGE>
<PAGE>
additional tax. Any amounts withheld under the backup withholding rules from
payments made to a stockholder may be credited against such stockholder's
Federal income tax liability.
At the time of a stockholder's purchase, the market price of the Fund's
Common Stock or Cumulative Preferred Stock may reflect undistributed net
investment income or capital gains. A subsequent distribution of these amounts
by the Fund will be taxable to the stockholder even though the distribution
economically is a return of part of the stockholder's investment. Investors
should carefully consider the tax implications of acquiring shares just prior to
a distribution, as they will receive a distribution that would nevertheless be
taxable to them.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares of the same class are acquired within a 61-day
period beginning 30 days before and ending 30 days after the date that the
shares are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss.
Designation of Capital Gain Dividends to Cumulative Preferred Stock. The
IRS has taken the position in Revenue Ruling 89-81 that if a RIC has two classes
of shares, it may designate distributions made to each class in any year as
consisting of no more than such class's proportionate share of particular types
of income, such as long-term capital gain. A class's proportionate share of a
particular type of income is determined according to the percentage of total
dividends paid by the RIC during such year that was paid to such class.
Consequently, the Fund will designate distributions made to the Common Stock and
Cumulative Preferred Stock and any other Preferred Stock and any constructive
distributions with respect to the Notes as consisting of particular types of
income in accordance with the classes' proportionate shares of such income.
Because of this rule, the Fund is required to allocate a portion of its net
capital gains to holders of Common Stock, holders of Cumulative Preferred Stock
and any other Preferred Stock and, to the extent they receive constructive
distributions, holders of the Notes. The amount of net capital gains and other
types of income allocable among holders of the Cumulative Preferred Stock and
any other Preferred Stock, the Common Stock and the Notes will depend upon the
amount of such gains and other income realized by the Fund and the total
dividends or, in the case of the Notes, constructive distributions, paid by the
Fund on shares of Common Stock and Cumulative Preferred Stock and any other
Preferred Stock and on the Notes during a taxable year. In identifying dividends
and other distributions during a taxable year, the Fund will take into account
those paid under Section 855 of the Code, which relates to certain distributions
paid after the close of the Fund's taxable year, but attributable to such
taxable year.
In the opinion of Brown & Wood LLP, special counsel to the Fund, under
current law the manner, as described above, in which the Fund intends to
allocate net capital gains and other taxable income between shares of Common
Stock and Cumulative Preferred Stock and, to the extent that they receive
constructive distributions, holders of the Notes will be respected for Federal
income tax purposes. However, there is currently no direct guidance from the IRS
or other sources specifically addressing whether the Fund's method of allocation
will be respected for Federal income tax purposes, and it is possible that the
IRS could disagree with counsel's opinion and attempt to reallocate the Fund's
net capital gains or other taxable income. Brown & Wood LLP has advised the Fund
that, in its opinion, if the IRS were to challenge in court the Fund's
allocation of income and gain, the IRS would be unlikely to prevail. The opinion
of Brown & Wood LLP, however, represents only its best legal judgment and is not
binding on the IRS or the courts.
TAXATION OF THE FUND
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. While the Fund intends to distribute its ordinary
income and capital gains in the manner necessary to minimize imposition of the
4% excise tax, there can be no assurance that sufficient amounts of the Fund's
taxable income and capital gains will be distributed to avoid entirely the
imposition of the tax. In such event, the Fund will be liable for the tax only
on the amount by which it does not meet the foregoing distribution requirements.
28
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The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ('high yield securities'). Some of these high yield securities may be
purchased at a discount and may therefore cause the Fund to accrue income before
amounts due under the obligations are paid. In addition, a portion of the
interest payments on such high yield securities may be treated as dividends for
Federal income tax purposes.
If the Fund does not meet the asset coverage requirements of the 1940 Act,
the Articles Supplementary or the Indenture, the Fund will be required to
suspend distributions to the holders of the Cumulative Preferred Stock and/or
Common Stock until the asset coverage is restored. See 'Description of
Cumulative Preferred Stock -- Dividends' and 'Description of Capital Stock and
Other Securities -- The Notes.' Such a suspension of distributions might prevent
the Fund from distributing 90% of its investment company taxable income, as is
required in order to avoid Fund-level taxation on the Fund's distributions, or
might prevent it from distributing enough income and capital gain to avoid
completely imposition of the excise tax. Upon any failure to meet the asset
coverage requirements of the 1940 Act, the Articles Supplementary or the
Indenture, the Fund may, and in certain circumstances will be required to,
partially redeem shares of the Cumulative Preferred Stock in order to maintain
or restore the requisite asset coverage and avoid the adverse consequences to
the Fund and its stockholders of failing to qualify as a RIC. If asset coverage
were restored, the Fund would again be able to pay dividends and might be able
to avoid Fund-level taxation on the Fund's distributions.
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify to be taxed as a RIC in any year, it would be
subject to tax in such year on all of its taxable income, whether or not the
Fund made any distributions. Furthermore, all distributions from the Fund's
earnings and profits would be taxed as ordinary income, regardless of the
character of the underlying income and gain in the Fund's hands; the Fund could
no longer designate capital gain dividends. To qualify again to be taxed as a
RIC in a subsequent year, the Fund would be required to distribute to Cumulative
Preferred Stockholders and Common Stockholders as an ordinary income dividend,
its earnings and profits attributable to non-RIC years reduced by an interest
charge on 50% of such earnings and profits payable by the Fund to the IRS. In
addition, if the Fund failed to qualify as a RIC for a period greater than one
taxable year, then the Fund would be required to recognize and pay tax on any
net built-in gains (the excess of aggregate gains, including items of income,
over aggregate losses that would have been realized if the Fund had been
liquidated) in order to qualify as a RIC in a subsequent year. In this
situation, an election to be taxed only to the extent that it realizes such
gains within a ten-year period may be available to the Fund.
If the Fund invests in stock of a so-called passive foreign investment
company ('PFIC'), the 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 the year to which it was
allocated, 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 stockholders.
The Fund may be able to make an election, in lieu of being taxable in the
manner described above, 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. The Fund may make either of these elections with
respect to its investments (if any) in PFICs.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury regulations promulgated thereunder. The Code and the
29
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Treasury regulations are subject to change by legislative, judicial or
administrative action, either prospectively or retroactively.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
OTHER TAXATION
Distributions may also be subject to additional state, local and foreign
taxes, depending on each stockholder's particular situation. Stockholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Cumulative Preferred Stock.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
State Street, which is located at 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian of the securities, cash and other assets
of the Fund, as dividend-paying agent and as transfer agent and registrar for
the Fund's Cumulative Preferred Stock. Stockholder inquiries should be directed
to P.O. Box 8200, Boston, Massachusetts 02266-8200 (Tel. No. (800) 426-5523).
UNDERWRITING
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below have severally
agreed to purchase, and the Fund has agreed to sell to the Underwriters
severally, the respective number of shares of Cumulative Preferred Stock set
forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..........................................................
A.G. Edwards & Sons, Inc...................................................................
PaineWebber Incorporated...................................................................
Prudential Securities Incorporated.........................................................
Smith Barney Inc. .........................................................................
---------
Total............................................................................ 2,400,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Cumulative
Preferred Stock offered hereby are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The Underwriters are
committed to take and pay for all of the shares of Cumulative Preferred Stock
offered hereby if any are taken.
The Underwriters initially propose to offer part of the shares of
Cumulative Preferred Stock offered hereby directly to the public at the public
offering price set forth on the cover page hereof and part to certain dealers at
a price that represents a concession not in excess of $ per share. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial offering of the
Cumulative Preferred Stock, the offering price and other selling terms may from
time to time be varied by the Underwriters named on the cover page of this
Prospectus. The underwriting discount of $ per share is equal to % of
the initial public offering price. Investors must pay for any shares of
Cumulative Preferred Stock purchased on or before August , 1996.
30
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The Fund and Quest have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
The Fund anticipates that the Underwriters may, subsequent to the
completion of the offering of Cumulative Preferred Stock hereunder, from time to
time act as brokers or dealers in connection with the execution of portfolio
transactions for the Fund. The Underwriters may also, during the pendency of the
offering of Cumulative Preferred Stock hereunder, act as brokers with respect to
such transactions. See 'Brokerage Allocation and Other Practices' in the
Statement of Additional Information.
Prior to this offering, there has been no public market for the Cumulative
Preferred Stock. Application has been made to list the Cumulative Preferred
Stock on the New York Stock Exchange. However, during an initial period which is
not expected to exceed 30 days from the date of this Prospectus, the Cumulative
Preferred Stock will not be listed on any securities exchange. During such
period, the Underwriters do not intend to make a market in the Cumulative
Preferred Stock. Consequently, it is anticipated that an investment in the
Cumulative Preferred Stock will be illiquid during such period. The Underwriters
have undertaken to sell shares to a minimum of 100 beneficial owners.
LEGAL MATTERS
Certain matters concerning the legality under Maryland law of the
Cumulative Preferred Stock will be passed on by Venable, Baetjer and Howard,
LLP, Baltimore, Maryland. Certain legal matters will be passed on by Brown &
Wood LLP, New York, New York, special counsel to the Fund, and by Davis Polk &
Wardwell, New York, New York, counsel to the Underwriters. Brown & Wood LLP and
Davis Polk & Wardwell will each rely as to matters of Maryland law on the
opinion of Venable, Baetjer and Howard, LLP.
EXPERTS
Ernst & Young LLP, independent auditors, are the independent auditors of
the Fund. The audited financial statements of the Fund and certain of the
information appearing under the caption 'Financial Highlights' included in this
Prospectus have been audited by Ernst & Young LLP and Coopers & Lybrand L.L.P.
for the periods indicated in their reports with respect thereto, and are
included in reliance upon such reports and upon the authority of such firms as
experts in accounting and auditing. Ernst & Young LLP has an office at 787
Seventh Avenue, New York, New York 10019, and also performs tax and other
professional services for the Fund. The address of Coopers & Lybrand L.L.P. is 1
Post Office Square, Boston, Massachusetts 02109.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith files reports
and other information with the SEC. Reports, proxy statements and other
information filed by the Fund with the SEC pursuant to the informational
requirements of such Acts can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the SEC: Northeast Regional Office, Seven World Trade Center, Suite 1300, New
York, New York 10048; Pacific Regional Office, 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648; and Midwest Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and copies of such material can be obtained from the Public
Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with it.
The Fund's Common Stock is listed on the New York Stock Exchange, and
reports, proxy statements and other information concerning the Fund and filed
with the SEC by the Fund can be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
31
<PAGE>
<PAGE>
This Prospectus constitutes part of a Registration Statement filed by the
Fund with the SEC under the Securities Act of 1933 and the 1940 Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Fund and the
Cumulative Preferred Stock offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such
statement is qualified in its entirety by such reference. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by its rules and regulations.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information dated August , 1996 has been filed
with the SEC and is incorporated by reference in this Prospectus. A copy of the
Statement of Additional Information may be obtained without charge by writing to
the Fund at its address at 1414 Avenue of the Americas, New York, New York
10019, or calling the Fund toll-free at (800) 221-4268. The Table of Contents of
the Statement of Additional Information is as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Principal Stockholders........................................................................... 2
Directors and Officers........................................................................... 2
Code of Ethics and Related Matters............................................................... 4
Investment Advisory and Other Services........................................................... 5
Brokerage Allocation and Other Practices......................................................... 6
Net Asset Value.................................................................................. 7
Financial Statements............................................................................. 7
</TABLE>
32
<PAGE>
<PAGE>
GLOSSARY
'Articles Supplementary' means the Fund's Articles Supplementary creating
and fixing the rights of the Cumulative Preferred Stock.
'Asset Coverage' has the meaning set forth on page 19 of this Prospectus.
'Basic Maintenance Amount' means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by the
Liquidation Preference; (B) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the initial Dividend Payment Date with respect to the Cumulative
Preferred Stock, then from the Date of Original Issue) through the Valuation
Date plus all dividends to accumulate on the Cumulative Preferred Stock then
outstanding during the 70 days following such Valuation Date; (C) the Fund's
other liabilities due and payable as of such Valuation Date (except that
dividends and other distributions payable by the Fund by the issuance of Common
Stock will not be included as a liability) and such liabilities projected to
become due and payable the Fund during the 90 days following such Valuation Date
(excluding liabilities for investments to be purchased and for dividends and
other distributions not declared as of such Valuation Date but including accrued
interest on the Notes); (D) the aggregate outstanding principal amount of Notes;
(E) any current liabilities of the Fund as of such Valuation Date to the extent
not reflected in any of (i)(A) through (i)(D) (including, without limitation,
and immediately upon determination, any amounts due and payable by the Fund
pursuant to reverse repurchase agreements and any payables for assets purchased
as of such Valuation Date) less (ii) (A) the Discounted Value of any of the
Fund's assets and/or (B) the face value of any of the Fund's assets if, in the
case of both (ii)(A) and (ii)(B), such assets are either cash or securities
which mature prior to or on the date of redemption or repurchase of Cumulative
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or securities which have a rating assigned by Moody's of at least
Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+ or A-1+, in both
cases irrevocably held by the Fund's custodian bank in a segregated account or
deposited by the Fund with the Paying Agent for the payment of the amounts
needed to redeem or repurchase Cumulative Preferred Stock subject to redemption
or repurchase or any of (i)(B) through (i)(E) and provided that in the event the
Fund has repurchased Cumulative Preferred Stock at a price of less than the
Liquidation Preference thereof and/or Notes at a price of less than the
principal amount thereof plus accrued but unpaid interest thereon and
irrevocably segregated or deposited assets as described above with its custodian
bank or the Paying Agent or the Indenture trustee in the case of the Notes for
the payment of the repurchase price the Fund may deduct 100% of the Liquidation
Preference of such Cumulative Preferred Stock to be repurchased and/or 100% of
the aggregate principal amount and accrued but unpaid interest on the Notes to
be repurchased from (i) above.
'Business Day' means a day on which the New York Stock Exchange is open for
trading and that is neither a Saturday, Sunday nor any other day on which banks
in the City of New York are authorized by law to close.
'Charter' means the Articles of Incorporation, as amended and supplemented
(including these Articles Supplementary), of the Fund on file in the State
Department of Assessments and Taxation of Maryland.
'Common Stock' means the Common Stock, par value $.001 per share, of the
Fund.
'Cumulative Preferred Stock' means the % Cumulative Preferred Stock,
par value $.001 per share, of the Fund.
'Date of Original Issue' has the meaning set forth on page 18 of this
Prospectus.
'Deposit Securities' means cash, Short-Term Money Market Instruments and
U.S. Government Obligations. Except for determining whether the Fund has a
Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security will be deemed to have a value equal to its principal or
face amount payable at maturity plus any interest payable thereon after delivery
of such
33
<PAGE>
<PAGE>
Deposit Security but only if payable on or prior to the applicable payment date
in advance of which the relevant deposit is made.
'Discounted Value' means, with respect to a Moody's Eligible Asset, the
quotient of (A) in the case of non-convertible fixed income securities, the
lower of the principal amount and the market value thereof or (B) in the case of
any other Moody's Eligible Assets, the market value thereof, divided by the
applicable Moody's Discount Factor.
'Dividend Payment Date' has the meaning set forth on page 18 of this
Prospectus.
'Fund' means Royce Value Trust, Inc., a Maryland corporation.
'Indenture' means the Indenture, dated June 15, 1994, between the Fund and
the United States Trust Company of New York, as trustee, relating to the Notes,
as supplemented or otherwise amended from time to time.
'Liquidation Preference' has the meaning set forth on page 21 of this
Prospectus.
'Moody's' means Moody's Investors Service, Inc., or its successor.
'Moody's Discount Factor' means, with respect to a Moody's Eligible Asset
specified below, the following applicable number:
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
Moody's Short Term Money Market Instruments (other than U.S. Government Obligations set
forth below) and other commercial paper:
Demand or time deposits, certificates of deposit and bankers' acceptances
includible in Moody's Short Term Money Market Instruments........................ 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less................. 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days but in 270
days or less..................................................................... 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less................... 1.25
Repurchase obligations includible in Moody's Short Term Money Market Instruments
if term is less than 30 days and counterparty is rated at least A2............... 1.00
Discount Factor
applicable
to underlying
Other repurchase obligations...................................................... assets
Common stocks.......................................................................... 3.00
Preferred stocks:
Auction rate preferred stocks..................................................... 3.50
Other preferred stocks issued by issuers in the financial and industrial
industries....................................................................... 2.35
Other preferred stocks issued by issuers in the utilities industry................ 1.60
U.S. Government Obligations (other than U.S. Treasury Securities Strips set forth
below) with remaining terms to maturity of:
1 year or less.................................................................... 1.08
2 years or less................................................................... 1.15
3 years or less................................................................... 1.20
4 years or less................................................................... 1.26
5 years or less................................................................... 1.31
7 years or less................................................................... 1.40
10 years or less.................................................................. 1.48
15 years or less.................................................................. 1.54
20 years or less.................................................................. 1.61
30 years or less.................................................................. 1.63
U.S. Treasury Securities Strips with remaining terms to maturity of:
1 year or less.................................................................... 1.08
</TABLE>
(table continued on next page)
34
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
2 years or less................................................................... 1.16
3 years or less................................................................... 1.23
4 years or less................................................................... 1.30
5 years or less................................................................... 1.37
7 years or less................................................................... 1.51
10 years or less.................................................................. 1.69
15 years or less.................................................................. 1.99
20 years or less.................................................................. 2.28
30 years or less.................................................................. 2.56
Corporate bonds:
Corporate bonds rated Aaa with remaining terms to maturity of:
1 year or less............................................................... 1.14
2 years or less.............................................................. 1.21
3 years or less.............................................................. 1.26
4 years or less.............................................................. 1.32
5 years or less.............................................................. 1.38
7 years or less.............................................................. 1.47
10 years or less............................................................. 1.55
15 years or less............................................................. 1.62
20 years or less............................................................. 1.69
30 years or less............................................................. 1.71
Corporate bonds rated Aa with remaining terms to maturity of:
1 year or less............................................................... 1.19
2 years of less.............................................................. 1.26
3 years or less.............................................................. 1.32
4 years or less.............................................................. 1.38
5 years or less.............................................................. 1.44
7 years or less.............................................................. 1.54
10 years or less............................................................. 1.63
15 years or less............................................................. 1.69
20 years or less............................................................. 1.77
30 years or less............................................................. 1.79
Corporate bonds rated A with remaining terms to maturity of:
1 year or less............................................................... 1.24
2 years or less.............................................................. 1.32
3 years or less.............................................................. 1.38
4 years or less.............................................................. 1.45
5 years or less.............................................................. 1.51
7 years or less.............................................................. 1.61
10 years or less............................................................. 1.70
15 years or less............................................................. 1.77
20 years or less............................................................. 1.85
30 years or less............................................................. 1.87
Convertible corporate bonds with senior debt securities rated Aa issued by the
following type of issuers:
Utility...................................................................... 1.80
Industrial................................................................... 2.97
Financial.................................................................... 2.92
</TABLE>
(table continued on next page)
35
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
Transportation............................................................... 4.27
Convertible corporate bonds with senior debt securities rated A issued by the
following type of issuers:
Utility...................................................................... 1.85
Industrial................................................................... 3.02
Financial.................................................................... 2.97
Transportation............................................................... 4.32
Convertible corporate bonds with senior debt securities rated Baa issued by the
following type of issuers:
Utility...................................................................... 2.01
Industrial................................................................... 3.18
Financial.................................................................... 3.13
Transportation............................................................... 4.48
Convertible corporate bonds with senior debt securities rated Ba issued by the
following type of issuers:
Utility...................................................................... 2.02
Industrial................................................................... 3.19
Financial.................................................................... 3.14
Transportation............................................................... 4.49
Convertible corporate bonds with senior debt securities rated B1 or B2 issued by
the following type of issuers:
Utility...................................................................... 2.12
Industrial................................................................... 3.29
Financial.................................................................... 3.24
Transportation............................................................... 4.59
</TABLE>
'Moody's Eligible Assets' means:
i. cash (including, for this purpose, receivables for investments sold
to a counterparty whose senior debt securities are rated at least Baa3 by
Moody's or a counterparty approved by Moody's and payable within five
Business Days following such Valuation Date and dividends and interest
receivable within 70 days on investments);
ii. Short-Term Money Market Instruments;
iii. commercial paper that is not includible as a Short-Term Money
Market Instrument having on the Valuation Date a rating from Moody's of at
least P-1 and maturing within 270 days;
iv. preferred stocks (A) which either (1) are issued by issuers whose
senior debt securities are rated at least Baa1 by Moody's or (2) are rated
at least 'baa3' by Moody's (or in the event an issuer's senior debt
securities or preferred stock is not rated by Moody's, which either (1) are
issued by an issuer whose senior debt securities are rated at least A by
S&P or (2) are rated at least A by S&P and for this purpose have been
assigned a Moody's equivalent rating of at least 'baa3'), (B) of issuers
which have (or, in the case of issuers which are special purpose
corporations, whose parent companies have) common stock listed on the New
York Stock Exchange or the American Stock Exchange, (C) which have a
minimum issue size (when taken together with other of the issuer's issues
of similar tenor) of $50,000,000, (D) which have paid cash dividends
consistently during the preceding three-year period (or, in the case of new
issues without a dividend history, are rated at least 'a1' by Moody's or,
if not rated by Moody's, are rated at least AA by S&P), (E) which pay
cumulative cash dividends in U.S. dollars, (F) which are not convertible
into any other class of stock and do not have warrants attached, (G) which
are not issued by issuers in the transportation industry and (H) in the
case of auction rate preferred stocks, which are rated at least 'aa' by
Moody's, or if not rated by Moody's, AAA by S&P or are otherwise approved
in writing by Moody's and have never had a failed auction; provided,
however, that for this purpose the aggregate
36
<PAGE>
<PAGE>
Market Value of the Company's holdings of any issue of preferred stock will
not be less than $500,000 nor more than $5,000,000;
v. common stocks (A) which are traded on the New York Stock Exchange,
the American Stock Exchange or in the over-the-counter market, (B) which,
if cash dividend paying, pay cash dividends in U.S. dollars, and (C) which
are not privately placed; provided, however, that (1) common stock which,
while a Moody's Eligible Asset owned by the Fund, ceases paying any regular
cash dividend will no longer be considered a Moody's Eligible Asset until
71 days after the date of the announcement of such cessation, unless the
issuer of the common stock has senior debt securities rated at least A3 by
Moody's and (2) the aggregate Market Value of the Fund's holdings of the
common stock of any issuer will not exceed 4% in the case of utility common
stock and 6% in the case of non-utility common stock of the number of
outstanding shares times the Market Value of such common stock;
vi. U.S. Government Obligations;
vii. corporate bonds (A) which are not privately placed, rated at
least B3 (Caa subordinate) by Moody's (or, in the event the bond is not
rated by Moody's, the bond is rated at least BB- by S&P and which for this
purpose is assigned a Moody's equivalent rating of one full rating category
lower), with such rating confirmed on each Valuation Date, (B) which have a
minimum issue size of at least (x) $100,000,000 if rated at least Baa3 or
(y) $50,000,000 if rated B or Ba3, (C) which are U.S. dollar denominated
and pay interest in cash in U.S. dollars, (D) which are not convertible or
exchangeable into equity of the issuing corporation and have a maturity of
not more than 30 years, (E) for which, if rated below Baa3, the aggregate
Market Value of the Company's holdings do not exceed 10% of the aggregate
Market Value of any individual issue of corporate bonds calculated at the
time of original issuance, (F) the cash flow from which must be controlled
by an Indenture trustee and (G) which are not issued in connection with a
reorganization under any bankruptcy law;
viii. convertible corporate bonds (A) which are issued by issuers
whose senior debt securities are rated at least B2 by Moody's (or, in the
event an issuer's senior debt securities are not rated by Moody's, which
are issued by issuers whose senior debt securities are rated at least BB by
S&P and which for this purpose is assigned a Moody's equivalent rating of
one full rating category lower), (B) which are convertible into common
stocks which are traded on the New York Stock Exchange or the American
Stock Exchange or are quoted on the NASDAQ National Market System and (C)
which, if cash dividend paying, pay cash dividends in U.S. dollars;
provided, however, that once convertible corporate bonds have been
converted into common stock, the common stock issued upon conversion must
satisfy the criteria set forth in clause (v) above and other relevant
criteria set forth in this definition in order to be a Moody's Eligible
Asset;
provided, however, that the Fund's investment in preferred stock, common stock,
corporate bonds and convertible corporate bonds described above must be within
the following diversification requirements (utilizing Moody's industry and
sub-industry categories) in order to be included in Moody's Eligible Assets:
ISSUER:
<TABLE>
<CAPTION>
NON-UTILITY
MOODY'S RATING MAXIMUM SINGLE ISSUER UTILITY MAXIMUM SINGLE ISSUER
(1)(2) (3)(4) (3)(4)
- -------------------------------------------------- --------------------- -----------------------------
<S> <C> <C>
'aaa', Aaa........................................ 100% 100%
'aa', Aa.......................................... 20% 20%
'a', A............................................ 10% 10%
CS/CB, 'Baa', Baa(5).............................. 6% 4%
Ba................................................ 4% 4%
B1/B2............................................. 3% 3%
B3 (Caa subordinate).............................. 2% 2%
</TABLE>
37
<PAGE>
<PAGE>
INDUSTRY AND STATE:
<TABLE>
<CAPTION>
UTILITY
MAXIMUM SINGLE
NON-UTILITY MAXIMUM SUB-
MOODY'S RATING(1) SINGLE INDUSTRY(3) INDUSTRY(3)(6) UTILITY MAXIMUM SINGLE STATE(3)
- ------------------------------- ------------------- -------------- -------------------------------
<S> <C> <C> <C>
'aaa', Aaa..................... 100% 100% 100%
'aa', Aa....................... 60% 60% 20%
'a', A......................... 40% 50% 10%(7)
CS/CB, 'baa', Baa(5)........... 20% 50% 7%(7)
Ba............................. 12% 12% N/A
B1/B2.......................... 8% 8% N/A
B3 (Caa subordinate)........... 5% 5% N/A
</TABLE>
- ------------
(1) The equivalent Moody's rating must be lowered one full rating category for
preferred stocks, corporate bonds and convertible corporate bonds rated by
S&P but not by Moody's.
(2) Corporate bonds from issues ranging $50,000,000 to $100,000,000 are limited
to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for the
related Moody's rating category and each lower Moody's rating category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility bonds
and utility convertible bonds, the definition of industry refers to
sub-industries (electric, water, hydro power, gas, diversified). Investments
in other sub-industries are eligible only to the extent that the combined
sum represents a percentage position of the Moody's Eligible Assets less
than or equal to the percentage limits in the diversification tables above.
(7) Such percentage will be 15% in the case of utilities regulated by
California, New York and Texas.
; and provided, further, that the Fund's investments in auction rate preferred
stocks described in clause (iv) above will be included in Moody's Eligible
Assets only to the extent that the aggregate Market Value of such stocks does
not exceed 10% of the aggregate Market Value of all of the Fund's investments
meeting the criteria set forth in clauses (i) through (viii) above less the
aggregate Market Value of those investments excluded from Moody's Eligible
Assets pursuant to the immediately preceding proviso; and
ix. no assets which are subject to any lien or irrevocably deposited
by the Fund for the payment of amounts needed to meet the obligations
described in clauses (i)(A) through (i)(E) of the definition of 'Basic
Maintenance Amount' may be includible in Moody's Eligible Assets.
'1940 Act' means the Investment Company Act of 1940, as amended.
'Notes' means the Fund's $40,000,000 aggregate principal amount of 5 3/4%
Investment Company Convertible Notes due June 30, 2004, as the same may be
modified pursuant to the terms of the Indenture.
'Notice of Redemption' has the meaning set forth on page 20 of this
Prospectus.
'Paying Agent' means State Street Bank and Trust Company and its successors
or any other paying agent appointed by the Fund.
'Portfolio Calculation' means the aggregate Discounted Value of all Moody's
Eligible Assets.
'Preferred Stock' means the preferred stock, par value $.001 per share, of
the Fund, and includes the Cumulative Preferred Stock.
'Redemption Price' has the meaning set forth on page 19 of this Prospectus.
38
<PAGE>
<PAGE>
'Short-Term Money Market Instruments' means the following types of
instruments if, on the date of purchase or other acquisition thereof by the Fund
(or, in the case of an instrument specified by clauses (i) and (ii) below, on
the Valuation Date), the remaining terms to maturity thereof are not in excess
of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is issued by
an issuer (or guaranteed or supported by a person or entity other than the
issuer) whose long-term unsecured debt obligations are rated at least Aa by
Moody's;
(iii) demand or time deposits in or certificates of deposit of or
banker's acceptances issued by (A) a depository institution or trust
company incorporated under the laws of the United States of America or any
state thereof or the District of Columbia or (B) a United States branch
office or agency of a foreign depository institution (provided that such
branch office or agency is subject to banking regulation under the laws of
the United States, any state thereof or the District of Columbia) if, in
each case, the commercial paper, if any, and the long-term unsecured debt
obligations (other than such obligations the ratings of which are based on
the credit of a person or entity other than such depository institution or
trust company) of such depository institution or trust company at the time
of purchase or acquisition and the Valuation Date, have (1) credit ratings
from Moody's of at least P-1 in the case of commercial paper and (2) credit
ratings from Moody's of at least Aa in the case of long-term unsecured debt
obligations; provided, however, that in the case of any such investment
that matures in no more than one Business Day from the date of purchase or
other acquisition by the Fund, all of the foregoing requirements will be
applicable except that the required long-term unsecured debt credit rating
of such depository institution or trust company from Moody's will be at
least A2; and provided, further, however, that the foregoing credit rating
requirements will be deemed to be met with respect to a depository
institution or trust company if (1) such depository institution or trust
company is the principal depository institution in a holding company
system, (2) the commercial paper, if any, of such depository institution or
trust company is not rated below P-1 by Moody's and (3) the holding company
will meet all of the foregoing credit rating requirements (including the
preceding proviso in the case of investments that mature in no more than
one Business Day from the date of purchase or other acquisition by the
Fund);
(iv) repurchase obligations with respect to any U.S. Government
Obligation entered into with a depository institution, trust company or
securities dealer (acting as principal) which is rated (A) at least Aa3 if
the maturity is three months or less, (B) at least A1 if the maturity is
two months or less and (C) at least A2 if the maturity is one month or
less; and
(v) Eurodollar demand or time deposits in, or certificates of deposit
of, the head office or the London branch office of a depository institution
or trust company meeting the credit rating requirements of commercial paper
and long-term unsecured debt obligations specified in clause (iii) above,
provided that the interest receivable by the Fund will be payable in U.S.
dollars and will not be subject to any withholding or similar taxes.
'S&P' means Standard & Poor's Ratings Group, or its successor.
'U.S. Government Obligations' means direct non-callable obligations of the
United States, provided that such direct obligations are entitled to the full
faith and credit of the United States and that any such obligations, other than
United States Treasury Bills and U.S. Treasury Securities Strips, provide for
the periodic payment of interest and the full payment of principal at maturity.
'Valuation Date' means every Friday or, if such day is not a Business Day,
the immediately preceding Business Day.
39
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
STATEMENT OF ADDITIONAL INFORMATION (SUBJECT TO COMPLETION, ISSUED AUGUST 9,
1996)
2,400,000 SHARES
ROYCE VALUE TRUST, INC.
% CUMULATIVE PREFERRED STOCK,
LIQUIDATION PREFERENCE $25.00 PER SHARE
The % Cumulative Preferred Stock, liquidation preference $25.00 per
share (the 'Cumulative Preferred Stock'), to be issued by Royce Value Trust,
Inc. (the 'Fund') will be senior securities of the Fund. The Fund will use the
net proceeds of the offering to purchase additional portfolio securities in
accordance with its investment objectives and policies.
The Fund is a closed-end diversified management investment company. The
Fund's primary investment objective is long-term capital appreciation, which it
seeks by normally investing more than 75% of its assets in common stocks and
securities convertible into common stocks of small and medium-sized companies.
The Fund's address is 1414 Avenue of the Americas, New York, New York 10019, and
its telephone number is (212) 355-7311. Quest Advisory Corp. is its investment
adviser.
This Statement of Additional Information is not a prospectus, but should be
read in conjunction with the Fund's Prospectus (dated August , 1996). Please
retain this document for future reference. To obtain an additional copy of the
Prospectus, the Fund's Annual Report to Stockholders for the year ended December
31, 1995, or the Fund's Semi-Annual Report to Stockholders for the six months
ended June 30, 1996, please call Investor Information at 1-800-221-4268.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Principal Stockholders..................................................................................... 2
Directors and Officers..................................................................................... 2
Code of Ethics and Related Matters......................................................................... 4
Investment Advisory and Other Services..................................................................... 5
Brokerage Allocation and Other Practices................................................................... 6
Net Asset Value............................................................................................ 7
Financial Statements....................................................................................... 7
</TABLE>
Dated August , 1996
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
As of June 30, 1996, the following person owned of record or was known by
the Fund to have owned beneficially 5% or more of the 24,836,016 shares of its
Common Stock then outstanding:
<TABLE>
<CAPTION>
NAME AND ADDRESS TYPE AND PERCENTAGE OF OWNERSHIP
- ----------------------------------------------------------------- ------------------------------------
<S> <C> <C>
Cede & Co., Inc. ............................................... Of record only 90.54%
c/o Depository Trust Company
P.O. Box 20, Bowling Green Station
New York, New York 10274
</TABLE>
All officers and directors of the Fund as a group owned approximately 1% of
the Fund's outstanding shares of Common Stock as of such date.
DIRECTORS AND OFFICERS
The following table sets forth certain information as to each Director and
officer of the Fund.
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE THE FUND DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------ ------------------------------------------------
<S> <C> <C>
Charles M. Royce* (56) ................ Director, President, Secretary, Treasurer, sole director
1414 Avenue of the Americas President and and sole voting shareholder of Quest Advisory
New York, NY 10019 Treasurer Corp. ('Quest'), the Fund's 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, and its predecessors; Director,
President and Treasurer of the Fund and, since
September 1993, of Royce Micro- Cap Trust,
Inc. ('OTCM'), a closed-end diversified
management investment company of which Quest
is the investment adviser (the Fund, TRF and
OTCM collectively, 'The Royce Funds');
Secretary and sole director and shareholder of
Quest Distributors, Inc. ('QDI'), the
distributor of TRF's shares; and managing
general partner of Quest Management Company
('QMC'), a registered investment adviser, and
its predecessors.
Thomas R. Ebright* (52) ............... Director Vice President of Quest; Trustee of TRF and one
50 Portland Pier of its predecessors; Vice President of TRF and
Portland, ME 04101 one of its predecessors; Director of the Fund
and, since September 1993, of OTCM; Vice
President since November 1995 (President until
October 1995) and Treasurer of QDI; general
partner of QMC and its predecessor until June
1994; President, Treasurer and a director and
principal shareholder of Royce, Ebright &
Associates, Inc., the investment adviser for a
series of TRF, since June 1994; director of
Atlantic Pro Sports, Inc. and of the Strasburg
Rail Road Co. since March 1993; and President
and principal owner of Baltimore Professional
Hockey, Inc. until May 1993.
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATIONS AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE THE FUND DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------ ------------------------------------------------
<S> <C> <C>
Richard M. Galkin (58) ................ Director Private investor and President of Richard M.
5284 Boca Marina Galkin Associates, Inc., telecommunications
Boca Raton, FL 33487 consultants.
Stephen L. Isaacs (56) ................ Director Director of Columbia University Development Law
60 Haven Street, Fl. B-2 and Policy Program; Professor at Columbia
New York, NY 10032 University; and President of Stephen L. Isaacs
& Associates, Consultants.
David L. Meister (56) ................. Director Consultant to the communications industry since
111 Marquez Place January 1993; and Executive officer of Digital
Pacific Palisades, CA 90272 Planet Inc. from April 1991 to December 1992.
Jack E. Fockler, Jr.*(37) ............. Vice President Vice President (since August 1993) and senior
1414 Avenue of the Americas associate of Quest, having been employed by
New York, NY 10019 Quest since October 1989; Vice President of
The Royce Funds since April 1995; Vice
President of QDI since November 1995; and
general partner of QMC since July 1993.
W. Whitney George* (38) ............... Vice President Vice President (since August 1993) and senior
1414 Avenue of the Americas analyst of Quest, having been employed by
New York, NY 10019 Quest since October 1991; Vice President of
The Royce Funds since April 1995; general
partner of QMC and its predecessor since
January 1992.
Daniel A. O'Byrne* (34) ............... Vice President Vice President of Quest since May 1994, having
1414 Avenue of the Americas been employed by Quest since October 1986; and
New York, NY 10019 Vice President of The Royce Funds since July
1994.
John E. Denneen* (29) ................. Secretary Associate General Counsel and Chief Compliance
1414 Avenue of the Americas Officer of Quest since May 1996; Secretary of
New York, NY 10019 The Royce Funds since June 1996; and Associate
of Seward & Kissel from September 1992 to May
1996.
</TABLE>
- ------------
* An 'interested person' of the Fund and/or Quest under Section 2(a)(19) of the
1940 Act.
------------------------
Normally, holders of shares of Preferred Stock of the Fund, including the
Cumulative Preferred Stock, voting as a separate class, will elect two members
of the Fund's Board of Directors, and holders of Preferred Stock, including the
Cumulative Preferred Stock, and Common Stock, voting as a single class, will
elect the remaining directors. See 'Description of Cumulative Preferred
Stock -- Voting Rights' in the Prospectus. Messrs. Ebright and Meister have been
designated as the Preferred Stock directors, subject to election at the first
meeting of the Fund's stockholders to be called after issuance of the Cumulative
Preferred Stock.
All of the Fund's directors are also trustees of TRF and directors of OTCM.
The Board of Directors has an Audit Committee, comprised of Richard M.
Galkin, Stephen L. Isaacs and David L. Meister. The Audit Committee is
responsible for recommending the selection and nomination of the independent
auditors of the Fund and for conducting post-audit reviews of its financial
condition with such auditors.
3
<PAGE>
<PAGE>
REMUNERATION OF DIRECTORS AND OFFICERS
Set forth below is the compensation paid by the Fund and the other
registered investment companies comprising The Royce Funds to each Director of
the Fund for the year ended December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE FUND AND
DIRECTOR FROM THE FUND OTHER ROYCE FUNDS
- ----------------------------------------------------------------------------- ------------- ------------------
<S> <C> <C>
Charles M. Royce............................................................. $ 0 $ 0
Thomas R. Ebright............................................................ 0 0
Richard M. Galkin............................................................ 16,000 60,000
Stephen L. Isaacs............................................................ 16,000 60,000
David L. Meister............................................................. 16,000 60,000
</TABLE>
For the year ended December 31, 1995, all directors and officers as a group
(six persons) received aggregate remuneration from the Fund of $48,000 for
services in all capacities, and no other affiliated person of the Fund (except
Quest) or any affiliated person of any affiliate of the Fund received from the
Fund during such fiscal year aggregate compensation in excess of $60,000 for
services in all capacities.
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 guidelines and procedures.
See 'Brokerage Allocation and Other Practices.'
As of June 30, 1996, Quest-related persons, interested trustees/directors,
officers and employees of The Royce Funds and members of their immediate
families beneficially owned shares of The Royce Funds having a total value of
approximately $20.7 million, and Quest's and QMC's equity interests in such
private investment companies totalled approximately $3.4 million.
4
<PAGE>
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY FEE
The following table illustrates, on an annualized basis, the full range of
permitted increases or decreases to the Basic Fee, assuming that the investment
performance of the Fund, rounded to the nearest whole point, is not less than
zero.
<TABLE>
<CAPTION>
DIFFERENCE BETWEEN
PERFORMANCE OF FUND AND % ADJUSTMENT TO
CHANGE IN S&P 600 INDEX 1% BASIC FEE FEE AS ADJUSTED
----------------------------------- ------------- ---------------
<C> <S> <C> <C>
+12 or more............................ +.5 % 1.5 %
+11 ................................... +.45 1.45
+10 ................................... +.4 1.4
+ 9 ................................... +.35 1.35
+ 8 ................................... +.3 1.3
+ 7 ................................... +.25 1.25
+ 6 ................................... +.2 1.2
+ 5 ................................... +.15 1.15
+ 4 ................................... +.1 1.1
+ 3 ................................... +.05 1.05
+ 2 ................................... 0 1
+ 1 ................................... 0 1
0 ................................... 0 1
-1 ................................... 0 1
-2 ................................... 0 1
-3 ................................... -.05 .95
-4 ................................... -.1 .9
-5 ................................... -.15 .85
-6 ................................... -.2 .8
-7 ................................... -.25 .75
-8 ................................... -.3 .7
-9 ................................... -.35 .65
-10 ................................... -.4 .6
-11 ................................... -.45 .55
-12 or less............................ -.5 .5
</TABLE>
In calculating the investment performance of the Fund and the percentage
change in the investment record of the Standard & Poor's 600 SmallCap Stock
Price Index (the 'S&P 600'), all dividends and other distributions per share of
Common Stock of realized capital gains and/or of any net investment income and
any capital gains taxes per share of Common Stock paid or payable on
undistributed realized long-term capital gains and all dividends and other
distributions on the securities comprising the S&P 600 during the performance
period are treated as having been reinvested, and no effect is given to gain or
loss resulting from capital share transactions of the Fund. Fractions of a
percentage point are rounded to the nearest whole point (to the higher whole
point if exactly one-half).
For the years ended December 31, 1995, 1994 and 1993, Quest received
investment advisory fees from the Fund of $2,951,325 (net of $104,206
voluntarily waived by Quest), $3,170,118 (net of $37,010 voluntarily waived by
Quest) and $2,564,267, respectively.
OTHER
The Investment Advisory Agreement provides that the Fund may use 'Royce' as
part of its name only for so long as the Investment Advisory Agreement remains
in effect. The name 'Royce' is a property right of Quest, and it may at any time
permit others, including other investment entities, to use such name.
The Investment Advisory Agreement protects and indemnifies Quest against
liability to the Fund, its stockholders or others for any action taken or
omitted to be taken by Quest in connection with the
5
<PAGE>
<PAGE>
performance of any of its duties or obligations under the Investment Advisory
Agreement or otherwise as an investment adviser to the Fund. However, Quest is
not protected or indemnified against liabilities to which it would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its duties
and obligations under the Investment Advisory Agreement.
Quest's services to the Fund are not deemed to be exclusive, and Quest or
any of its affiliates may provide similar services to other investment companies
and other clients or engage in other activities.
The Investment Advisory Agreement will remain in effect until April 30,
1998 and may be continued in effect from year to year thereafter if such
continuance is specifically approved at least annually by the Board of Directors
or by the vote of a majority of the Fund's outstanding voting securities and, in
either case, by a majority of the directors who are not parties to the Agreement
or interested persons of any such party. The Investment Advisory Agreement will
automatically terminate if it is assigned (as defined by the 1940 Act and the
rules thereunder) and may be terminated without penalty by vote of a majority of
the Fund's outstanding voting securities or by either party thereto on not less
than 60 days' written notice.
SERVICE CONTRACT WITH STATE STREET
State Street Bank and Trust Company ('State Street'), the custodian of the
Fund's assets, provides certain management-related services to the Fund. Such
services include keeping books of accounts and rendering such financial and
other statements as may be requested by the Fund from time to time and generally
assisting in the preparation of reports to the Fund's stockholders, to the
Securities and Exchange Commission and others, in the auditing of accounts and
in other ministerial matters of like nature, as agreed to between the Fund and
State Street. During the years ended December 31, 1995, 1994 and 1993, the Fund
paid $100,010, $98,118 and $97,977 in fees to State Street for management-
related and custodial services.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Quest is responsible for selecting the brokers who effect the purchases and
sales of the Fund's portfolio securities. No broker is selected to effect a
security transaction for the Fund unless such broker is believed by Quest to be
capable of obtaining the best price for the securities 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 Fund, to pay a broker
a 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 the 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 Fund.
Even though investment decisions for the Fund are made independently from
those for 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
6
<PAGE>
<PAGE>
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
the Fund or the size of the position obtained for the Fund.
During the year ended December 31, 1995, the Fund did not acquire any
securities of any of its regular brokers or dealers (as defined in Rule 10b-1
under the 1940 Act) or of any of their parents.
One or more of the Underwriters have effected purchases and sales of the
portfolio securities of the Fund and of other accounts managed by Quest and QMC
and may be chosen to effect future transactions for the Fund and such other
accounts.
NET ASSET VALUE
The Fund calculates the net asset value of its shares of Common Stock daily
and makes that information available daily by telephone (800-221-4268) and
weekly for publication. Currently, The Wall Street Journal, The New York Times
and Barron's publish net asset values for closed-end investment companies
weekly. Net asset value per share of Common Stock is determined at the close of
regular trading on the New York Stock Exchange (currently 4:00 P.M., Eastern
time) on each day on which the Exchange is open. The net asset value of the
Fund's Common Stock is calculated by dividing the current value of the Fund's
total assets less the sum of all of its liabilities and the aggregate
liquidation preference of its outstanding shares of Preferred Stock, by the
total number of shares of the Common Stock outstanding.
In determining net asset value, securities listed on an exchange or on the
National Association of Securities Dealers Automated Quotation System are valued
on the basis of the last reported sale prior to the time the valuation is made
or, if no sale is reported for such day, at their electronically-reported bid
price for exchange-listed securities and at the average of their
electronically-reported bid and asked prices for NASDAQ securities. Quotations
are taken from the market where the security is primarily traded. Other
over-the-counter securities for which market quotations are readily available
are valued at their electronically-reported bid price or, if there is no such
price, then at their representative bid price. Securities for which market
quotations are not readily available are valued at their fair value under
procedures established and supervised by the Fund's Board of Directors.
Notwithstanding the above, 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.
Net asset value per share of Common Stock is calculated assuming that the
Fund's 5 3/4% Investment Company Convertible Notes due June 30, 2004 (the
'Notes') have been converted, except when the effect of doing so is
anti-dilutive (i.e., results in a higher net asset value per share than would
otherwise be the case), and this value is reported by the Fund by telephone and
for publication as its net asset value per share. The offering costs of the
Notes (including the underwriting discount) is being amortized over the term of
the Notes. If the Notes are earlier redeemed or otherwise purchased by the Fund,
the unamortized cost attributable to the Notes will be charged against
operations. Similarly, upon conversion of any Notes, the unamortized cost
attributable to the converted Notes will be charged against operations.
The offering costs of the Cumulative Preferred Stock (including the
underwriting discount) will be charged to additional paid-in capital.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the
Fund's Stockholders for the fiscal year ended December 31, 1995, together with
the report of Ernst & Young LLP thereon, and the unaudited financial statements
included in the Semi-Annual Report to the Fund's Stockholders for the six months
ended June 30, 1996 are incorporated herein by reference.
7
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS
<S> <C>
Included in Part A:
-- Selected Per Share Data and Ratios for the six months ended June 30, 1996 (unaudited), and the nine years
ended December 31, 1995 and the period November 26, 1986 (commencement of operations) to December 31, 1986.
Incorporated by reference in Part B:
-- Schedule of Investments at December 31, 1995*
-- Statement of Assets and Liabilities at December 31, 1995*
-- Statement of Operations for the year ended December 31, 1995*
-- Statement of Changes in Net Assets for the years ended December 31, 1995 and 1994*
-- Statement of Cash Flows for the year ended December 31, 1995*
-- Selected Per Share Data and Ratios for the five years ended December 31, 1995*
-- Notes to Financial Statements*
-- Report of Independent Auditors*
Also Incorporated by reference in Part B:
--Schedule of Investments at June 30, 1996 (unaudited)**
--Statement of Assets and Liabilities at June 30, 1996 (unaudited)**
--Statement of Operations for the six months ended June 30, 1996 (unaudited)**
--Statement of Changes in Net Assets for the six months ended June 30, 1996 (unaudited) and for the year ended
December 31, 1995**
--Financial Highlights for the six months ended June 30, 1996 (unaudited) and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991**
--Notes to Financial Statements**
</TABLE>
- ------------
* Incorporated by reference to the Registrant's 1995 Annual Report to
Stockholders filed with the Securities and Exchange Commission (the 'SEC')
for the year ended December 31, 1995 pursuant to Rule 30b2-1 under the
Investment Company Act of 1940, as amended ('1940 Act').
**_ Incorporated by reference to the Registrant's Semi-Annual Report to
Stockholders for the six-months ended June 30, 1996, filed with the SEC
pursuant to Rule 30b2-1 under the 1940 Act.
<TABLE>
<S> <C> <C>
2. EXHIBITS
(a)(1) --Articles of Incorporation of the Registrant were filed with the State of Maryland's Department of
Assessments and Taxation (the 'Maryland State Department') on July 1, 1986 and as Exhibit 1 to its
Registration Statement on Form N-2 filed with the Securities and Exchange Commission (the 'SEC' or
the 'Commission') on October 15, 1986 (File No. 811-4875), and are incorporated herein by reference.
(2) --Articles of Amendment to the Articles Incorporation of the Registrant were filed with the Maryland
State Department on June 3, 1988 and as Exhibit 77Q(a) to its Semi-Annual Report on Form N-SAR for
the six months ended June 30, 1988 (File No. 811-4875), and are incorporated herein by reference.
(3) --Articles of Amendment to the Articles of Incorporation of the Registrant were filed with the
Maryland State Department on May 4, 1989 and as Exhibit (1)(C) to Amendment No. 4 to the
Registrant's Registration Statement on Form N-2 on August 14, 1989 (File No. 811-4875), and are
incorporated herein by reference.
(4) --Form of Articles Supplementary of the Registrant to be filed with the Maryland State Department.
</TABLE>
(exhibit list continued on next page)
C-1
<PAGE>
<PAGE>
(exhibit list continued from previous page)
<TABLE>
<CAPTION>
<S> <C> <C>
(b) --Amended and Restated By-laws of the Registrant dated March 2, 1995 were filed as Exhibit (2)(b) to
Amendment No. 19 to the Registrant's Registration Statement on Form N-2 on August 11, 1995 (File No.
811-4875), and are incorporated herein by reference.
(c) --Not applicable.
(d)(1)--Form of specimen certificate for % Cumulative Preferred Stock was filed as Exhibit (d)(1)
to Amendment No. 20 to the Registrant's Registration Statement on Form N-2 on July 12, 1996 (File
No. 811-4875), and is incorporated herein by reference.
(2)--Portions of the Articles of Supplementary of the Registrant defining the rights of holders of %
Cumulative Preferred Stock. (i)
(e)(1)--Registrant's Distribution Reinvestment and Cash Purchase Plan dated November 1994 was filed as
Exhibit (2)(e) to Amendment No. 19 to the Registrant's Registration Statement on Form N-2 on August
11, 1995 (File No. 811-4875), and is incorporated herein by reference.
(2)--Amended and Restated Distribution Reinvestment and Cash Purchase Plan of the Registrant dated
November 1995 were filed as Exhibit (e)(2) to Amendment No. 20 to the Registrant's Registration
Statement on Form N-2 on July 12, 1996 (File No. 811-4875), and are incorporated herein by
reference.
(f)(1)--Form of Indenture by and between the Registrant and United States Trust Company of New York, as
Trustee, including the form of Note, was filed as Exhibit (d) (ii) to its Registration Statement on
Form N-2 on June 15, 1994 (File No. 811-4875), and is incorporated herein by reference.
(2)--First Supplemental Indenture by and between the Registrant and United States Trust Company of New
York, as Trustee, was filed as Exhibit (f)(ii) to Amendment No. 19 to the Registrant's Registration
Statement on Form N-2 on August 11, 1995 (File No. 811-4875), and is incorporated herein by
reference.
(3)--Second Supplemental Indenture by and between the Registrant and United States Trust Company of New
York, as Trustee was filed as Exhibit (f)(3) to Amendment No. 20 to the Registrant's Registration
Statement on Form N-2 on July 12, 1996 (File No. 811-4875), and is incorporated herein by reference.
(g)(1)--Investment Advisory Agreement dated as of October 21, 1992 by and between the Registrant and Quest
Advisory Corp. ('Quest') was filed as Exhibit (g) to the Registrant's Registration Statement on Form
N-2 on July 19, 1993 (File No. 811-4875), and is incorporated herein by reference.
(2)--Investment Advisory Agreement dated as of June 30, 1996 by and between the Registrant and Quest was
filed as Exhibit (g)(2) to Amendment No. 20 to the Registrant's Registration Statement on Form N-2
on July 12, 1996 (File No. 811-4875), and is incorporated herein by reference.
(3)--Form of letter agreement dated August , 1996 by and between the Registrant and Quest.
(h)(1)--Form of Underwriting Agreement with Morgan Stanley & Co. Incorporated.
(2)--Form of Master Agreement Among Underwriters.
(3)--Form of Master Dealer Agreement.
(i) --Not applicable.
(j)(1)--Custodian Contract dated as of October 20, 1986 between the Registrant and State Street Bank and
Trust Company ('State Street') was filed as Exhibit 9 to Amendment No. 1 to the Registrant's
Registration Statement on Form N-2 on November 19, 1986 (File No. 811-4875), and is incorporated
herein by reference.
(2)--Amendment to such Custodian Contract made December 11, 1987.
</TABLE>
(exhibit list continued on next page)
C-2
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<PAGE>
(exhibit list continued from previous page)
<TABLE>
<CAPTION>
<S> <C> <C>
(3)--Amendment to such Custodian Contract made May 13, 1988 was filed as Exhibit 9.1 to Amendment No. 9
to the Registrant's Registration Statement on Form N-2 on March 27, 1991 (File No. 811-4875), and is
incorporated herein by reference.
(4)--Amendment to such Custodian Contract made April 2, 1992 was filed as Exhibit 9(C) to the
Registrant's Registration Statement on Form N-2 on July 22, 1992 (File No. 811-4875), and is
incorporated herein by reference.
(k)(1)--Registrar, Transfer Agency and Service Agreement dated as of October 20, 1986 between the
Registrant and State Street was filed as Exhibit 10 to Amendment No. 1 to the Registrant's
Registration Statement on Form N-2 on November 19, 1986 (File No. 811-4875), and is incorporated
herein by reference.
(2)--Form of Registrar, Transfer Agency and Paying Agency Agreement between the Registrant and State Street.
(l) --Opinion and Consent of Venable, Baetjer and Howard, LLP, Maryland counsel to the Registrant.
(m) --Not applicable.
(n)(1)--Consent of Ernst & Young LLP, independent auditors for the Registrant.
(2)--Consent of Coopers & Lybrand L.L.P., independent auditors.
(o) --Not applicable.
(p) --Not applicable.
(q) --Not applicable.
(r) --Financial Data Schedule.
</TABLE>
- ------------
(i) Reference is made to Article II (Sections 1,2,3,4,7 and 8) of the
Registrant's Articles of Supplementary filed herewith as Exhibit 2(a)(4).
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit (2)(h) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<CAPTION>
SEC Registration fees....................................................................... $ 20,689
<S> <C>
New York Stock Exchange listing fee......................................................... 22,150
Rating Agency fee........................................................................... 20,000
Printing and engraving expenses............................................................. 100,000
Accounting fees and expenses................................................................ 25,000
Legal fees and expenses..................................................................... 146,500
Blue Sky fees and expenses.................................................................. 20,000
Miscellaneous............................................................................... 15,661
--------
Total.................................................................................. $370,000
--------
--------
</TABLE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- --------------------------------------------------------------------------------------- --------------
<S> <C>
Common Stock ($.001 par value)......................................................... 2,631
Preferred Stock ($.001 par value)...................................................... 0
5 3/4% Investment Company Convertible Notes............................................ 9
</TABLE>
C-3
<PAGE>
<PAGE>
ITEM 29. INDEMNIFICATION
Reference is made to (i) Item 3 of Part II (page II-1), filed as part of
Amendment No. 1 to the Registration Statement of the Registrant on Form N-2 on
November 19, 1986 (File No. 811-4875), and (ii) Item 3 of Part II (pages II-1 to
II-3), filed as part of Amendment No. 5 to the Registration Statement of the
Registrant on Form N-2 on August 23, 1989 (File No. 811-4875), which are
incorporated herein by reference.
Reference is made to Section 9 of the Underwriting Agreement filed as
Exhibit 2(h)(1) to this Registration Statement for provisions relating to
indemnification of the Underwriters.
The Investment Advisory Agreement between the Registrant and Quest
obligates the Registrant to indemnify Quest and hold it harmless from and
against all damages, liabilities, costs and expenses (including reasonable
attorneys' fees) incurred by Quest in or by reason of any action, suit,
investigation or other proceeding arising out of or otherwise based upon any
action actually or allegedly taken or omitted to be taken by Quest in connection
with the performance of any of its duties or obligations under the Agreement or
otherwise as an investment adviser of the Registrant. Quest is not entitled to
indemnification in respect of any liability to the Registrant or its security
holders to which it would otherwise be subject by reason of its willful
misfeasance, bad faith or gross negligence.
The Registrant has agreed to indemnify Quest and hold it harmless from and
against certain damages, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses reasonably paid in settlement) incurred by Quest
under the Underwriting Agreement.
Insofar as indemnification for liability arising under the Securities Act
of 1933, as amended (the 'Securities Act'), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent
or such claim is to be paid under insurance policies, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant, its officers and directors, Quest and certain others are
presently insured under a Directors and Officers/Errors and Omissions Liability
Insurance Policy issued by ICI Mutual Insurance Company, which generally covers
claims by the Registrant's stockholders and third persons based on or alleging
negligent acts, misstatements or omissions by the insureds and the costs and
expenses of defending those claims, up to a limit of $10,000,000, with a
deductible amount of $150,000.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to Schedules D and F to Quest's amended Form ADV (File
No. 801-8268), which are incorporated herein by reference.
C-4
<PAGE>
<PAGE>
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Records are located at:
1. Royce Value Trust, Inc., 10th Floor
1414 Avenue of the Americas
New York, New York 10019
(Corporate records and records relating to the function of Quest as
investment adviser)
2. State Street Bank and Trust Company
P.O. Box 9061
Boston, Massachusetts 02205-8686
Attention: Royce Value Trust, Inc.
(Records relating to its functions as Custodian, Registrar and Transfer
Agent and Dividend Paying Agent for the Registrant)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. Not applicable.
2. Not applicable.
3. Not applicable.
4. Registrant undertakes to file, during any period in which offers or
sales are being made, a post-effective amendment to the registration
statement to include any prospectus required by Section 10(a)(3) of the
Securities Act, to reflect in the prospectus any facts or events after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement, and to include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment will be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time will
be deemed to be the initial bona fide offering thereof.
Registrant undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
5. Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of
prospectus filed as part of the Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 497(h) will be deemed to be a part of the
Registration Statement as of the time it was declared effective.
Registrant undertakes that, for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a
form of prospectus will be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide
offering thereof.
6. Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information constituting Part B of this Registration Statement.
C-5
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the fifth day of
August, 1996.
ROYCE VALUE TRUST, INC.
BY: /S/ CHARLES M. ROYCE
...................................
CHARLES M. ROYCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/S/ CHARLES M. ROYCE President, Treasurer and Director August 5, 1996
......................................... (Principal Executive, Financial and
CHARLES M. ROYCE Accounting Officer)
/S/ THOMAS R. EBRIGHT Director August 5, 1996
.........................................
THOMAS R. EBRIGHT
/S/ RICHARD M. GALKIN Director August 5, 1996
.........................................
RICHARD M. GALKIN
/S/ STEPHEN L. ISSACS Director August 5, 1996
.........................................
STEPHEN L. ISSACS
/S/ DAVID L. MEISTER Director August 5, 1996
.........................................
DAVID L. MEISTER
</TABLE>
C-6
<PAGE>
<PAGE>
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
(a)(4) --Form of Articles Supplementary.
(g)(3) --Form of letter agreement.
(h)(1) --Form of Underwriting Agreement.
(2) --Form of Master Agreement Among Underwriters.
(3) --Form of Master Dealer Agreement.
(j)(2) --Amendment to Custodian Contract.
(k)(2) --Form of Registrar, Transfer Agency and Paying Agency Agreement.
(l) --Opinion and Consent of Venable, Baetjer and Howard, LLP.
(n)(1) --Consent of Ernst & Young LLP.
(2) --Consent of Coopers & Lybrand L.L.P.
(27) --Financial Data Schedule.
</TABLE>
<PAGE>
<PAGE>
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
______% CUMULATIVE PREFERRED STOCK OF
ROYCE VALUE TRUST, INC.
ROYCE VALUE TRUST, INC., a Maryland corporation, having its principal
office in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article FIFTH of the Charter of the Corporation, the Board
of Directors has authorized the issuance of a series of 2,400,000 shares of
preferred stock, par value $.001 per share, of the Corporation designated as the
"____% Cumulative Preferred Stock" (the "Cumulative Preferred Stock")
and has provided for the issuance of shares of such series.
SECOND: The preferences, voting powers, rights, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of shares of the Cumulative Preferred Stock of the Corporation, as
set by the Board of Directors, are as follows:
ARTICLE I
DEFINITIONS
Unless the context or use indicates another or different meaning or
intent, the following terms when used in these Articles Supplementary shall have
the meanings set forth below, whether such terms are used in the singular or
plural and regardless of their tense:
"Accountant's Confirmation"* means a letter from an Independent
Accountant delivered to Moody's with respect to certain Basic Maintenance
Reports substantially to the effect that:
(i) the Independent Accountant has read the Basic Maintenance
Report for the current Quarterly Valuation Date and a randomly selected
Basic Maintenance Report prepared by the Corporation during the quarter
ending on such Quarterly
Valuation Date (the "Reports");
(ii) with respect to the issue size compliance, issuer
diversification and industry diversification calculations, such
calculations and the resulting Market Value of Moody's
<PAGE>
<PAGE>
Eligible Assets and Portfolio Calculation are numerically correct;
(iii) with respect to the calculation of the Basic Maintenance
Amount, such calculation has been compared with the definition of Basic
Maintenance Amount in these Articles Supplementary and is calculated in
accordance with such definition and the results of such calculation have
been recalculated and are numerically correct;
(iv) with respect to the excess or deficiency of the Portfolio
Calculation when compared to the Basic Maintenance Amount calculated for
Moody's, the results of the calculation set forth in the Reports have
been recalculated and are numerically correct;
(v) with respect to the Moody's and S&P ratings on corporate
bonds, convertible corporate bonds and preferred stock, issuer name,
issue size and coupon or dividend rate listed in the Reports, that
information has been traced and agrees with the information listed in
the applicable guides of the respective rating agencies (in the event
such information does not agree or such information is not listed in the
applicable guides of the respective rating agencies, the Independent
Accountant will inquire of the rating agencies what such information is,
and provide a listing in its letter of such differences, if any);
(vi) with respect to the lower of two bid prices (or alternative
permissible factors used in calculating the Market Value as provided by
these Articles Supplementary) provided by the custodian of the
Corporation's assets for purposes of valuing securities in the
portfolio, the Independent Accountant has traced the price used in the
Reports to the lower of the two bid prices listed in the report provided
by such custodian and verified that such information agrees (in the
event such information does not agree, the Independent Accountant will
provide a listing in its letter of such differences); and
(vii) with respect to the description of each security included
in the Reports, the description of Moody's Eligible Assets has been
compared to the definition of Moody's Eligible Assets contained in these
Articles Supplementary, and the description as appearing in the Reports
agrees with the definition of Moody's Eligible Assets as described in
these Articles Supplementary.
Each such letter may state: such Independent Accountant has made no
independent verification of the accuracy of the description of the investment
securities listed in the Reports or the Market Value of those securities nor
have they performed any
2
<PAGE>
<PAGE>
procedures other than those specifically outlined above for the purposes of
issuing such letter; unless otherwise stated in the letter, the procedures
specified therein were limited to a comparison of numbers or a verification of
specified computations applicable to numbers appearing in the Reports and the
schedule(s) thereto; the foregoing procedures do not constitute an examination
in accordance with generally accepted auditing standards and the Reports
discussed in the letter do not extend to any of the Corporation's financial
statements taken as a whole; such Independent Accountant does not express an
opinion as to whether such procedures would enable such Independent Accountant
to determine that the methods followed in the preparation of the Reports would
correctly determine the Market Value or Discounted Value of the investment
portfolio; accordingly, such Independent Accountant expresses no opinion as to
the information set forth in the Reports or in the schedule(s) thereto and make
no representation as to the sufficiency of the procedures performed for the
purposes of these Articles Supplementary.
Such letter shall also state that the Independent Accountant is a
"independent accountant" with respect to the Corporation within the meaning of
the Securities Act of 1933, as amended, and the related published rules and
regulations thereunder.
"Adviser" means Quest Advisory Corp., a New York
corporation.
"Asset Coverage" means, asset coverage, as defined in Section 18(h) of
the 1940 Act, of at least 250%, or such higher percentage as may be required
under the 1940 Act, with respect to all outstanding senior securities of the
Corporation which are stock, including all outstanding shares of Cumulative
Preferred Stock.
"Asset Coverage Cure Date" means, with respect to the failure by the
Corporation to maintain the Asset Coverage (as required by paragraph 5(a)(i) of
Article II hereof) as of the last Business Day of each March, June, September
and December of each year, 60 days following such Business Day.
"Basic Maintenance Amount"* means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by the
Liquidation Preference; (B) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the initial Dividend Payment Date with respect to the Cumulative
3
<PAGE>
<PAGE>
Preferred Stock, then from the Date of Original Issue) through the Valuation
Date plus all dividends to accumulate on the Cumulative Preferred Stock then
outstanding during the 70 days following such Valuation Date; (C) the
Corporation's other liabilities due and payable as of such Valuation Date
(except that dividends and other distributions payable by the Corporation by the
issuance of Common Stock shall not be included as a liability) and such
liabilities projected to become due and payable by the Corporation during the 90
days following such Valuation Date (excluding liabilities for investments to be
purchased and for dividends and other distributions not declared as of such
Valuation Date, other than dividends on the Cumulative Preferred Stock included
in (B), but including accrued interest on the Notes); (D) the aggregate
outstanding principal amount of Notes; (E) any current liabilities of the
Corporation as of such Valuation Date to the extent not reflected in any of
(i)(A) through (i)(D) (including, without limitation, and immediately upon
determination, any amounts due and payable by the Corporation pursuant to
reverse repurchase agreements and any payables for assets purchased as of such
Valuation Date) less (ii) (A) the Discounted Value of any of the Corporation's
assets and/or (B) the face value of any of the Corporation's assets if, in the
case of both (ii)(A) and (ii)(B), such assets are either cash or securities
which mature prior to or on the date of redemption or repurchase of Cumulative
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or securities which have a rating assigned by Moody's of at least
Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+ or A- 1+, in both
cases irrevocably held by the Corporation's custodian bank in a segregated
account or deposited by the Corporation with the Paying Agent for the payment of
the amounts needed to redeem or repurchase Cumulative Preferred Stock subject to
redemption or repurchase or any of (i)(B) through (i)(E) and provided that in
the event the Corporation has repurchased Cumulative Preferred Stock at a price
of less than the Liquidation Preference thereof and/or Notes at a price of less
than the principal amount thereof plus accrued but unpaid interest thereon and
irrevocably segregated or deposited assets as described above with its custodian
bank or the Paying Agent or the Indenture trustee in the case of the Notes for
the payment of the repurchase price the Corporation may deduct 100% of the
Liquidation Preference of such Cumulative Preferred Stock to be repurchased
and/or 100% of the aggregate principal amount and accrued but unpaid interest on
the Notes to be repurchased from (i) above.
"Basic Maintenance Cure Date"* means 14 calendar days following a
Valuation Date, such date being the last day upon which the Corporation's
failure to comply with paragraph 5(a)(ii)(A) of Article II hereof could be
cured.
"Basic Maintenance Report"* means a report signed by the President, the
Treasurer or any Vice President of the Corporation
4
<PAGE>
<PAGE>
which sets forth, as of the related Valuation Date, the assets of the
Corporation, the Market Value and Discounted Value thereof (seriatum and in the
aggregate), and the Basic Maintenance Amount.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means a day on which the New York Stock Exchange is open
for trading and that is neither a Saturday, Sunday nor any other day on which
banks in the City of New York are authorized by law to close.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
"Common Stock" means the Common Stock, par value $.001 per
share, of the Corporation.
"Corporation" shall mean Royce Value Trust, Inc., a Maryland
corporation.
"Cumulative Preferred Stock" means the ____% Cumulative Preferred
Stock, par value $.001 per share, of the Corporation.
"Date of Original Issue" shall have the meaning set forth in paragraph
1(a) of Article II hereof.
"Deposit Securities" means cash, Short-Term Money Market Instruments and
U.S. Government Obligations. Except for determining whether the Corporation has
a Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security shall be deemed to have a value equal to its principal or
face amount payable at maturity plus any interest payable thereon after delivery
of such Deposit Security but only if payable on or prior to the applicable
payment date in advance of which the relevant deposit is made.
"Discounted Value"* means, with respect to a Moody's Eligible Asset, the
quotient of (A) in the case of non-convertible fixed income securities, the
lower of the principal amount and the Market Value thereof or (B) in the case of
any other Moody's Eligible Asset, the Market Value thereof, divided by the
applicable Moody's Discount Factor.
"Dividend Payment Date" with respect to the Cumulative Preferred Stock,
means any date on which dividends are payable thereon pursuant to the provisions
of paragraph 1(a) of Article II hereof.
5
<PAGE>
<PAGE>
"Dividend Period" shall have the meaning set forth in paragraph 1(a) of
Article II hereof.
"Indenture" means the Indenture, dated June 15, 1994, between the
Corporation and the United States Trust Company of New York, as trustee,
relating to the Notes, as supplemented or otherwise amended from time to time.
"Independent Accountant"* means a nationally recognized accountant, or
firm of accountants, that is with respect to the Corporation an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Liquidation Preference" shall have the meaning set forth in paragraph
2(a) of Article II hereof.
"Market Value"* means the amount determined by State Street Bank and
Trust Company (so long as prices are provided to it by Telekurs N.A., Inc. or
another pricing service approved by Moody's in writing), or, if Moody's agrees
in writing, the then bank custodian of the Corporation's assets or such other
party approved by Moody's in writing, with respect to specific Moody's Eligible
Assets of the Corporation, as follows: Securities listed on an exchange or on
the NASDAQ System shall be valued on the basis of the last reported sale on the
Valuation Date or, if no sale is reported for such Valuation Date, then at their
last reported bid price for such day for exchange-listed securities and at the
average of their last reported bid and asked prices for such Valuation Date for
NASDAQ System securities. Quotations shall be taken from the market where the
security is primarily traded. 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.
Notwithstanding the foregoing, "Market Value" may, at the option of the
Corporation, mean the amount determined with respect to specific Moody's
Eligible Assets of the Corporation in the manner set forth below:
(a) as to any corporate bond or convertible corporate bond which is a
Moody's Eligible Asset, (i) the product of (A) the unpaid principal balance of
such bond as of the Valuation Date and (B)(1) if the bond is traded on a
national securities exchange or quoted on the NASDAQ System, the last sales
price reported on the Valuation Date or (2) if there was no reported sales price
on the Valuation Date or if the bond is not traded on a national securities
exchange or quoted on the NASDAQ System, the lower of two bid prices for such
bond provided by two recognized securities dealers with a minimum capitalization
of $25,000,000 (or otherwise approved for such purpose by Moody's)
6
<PAGE>
<PAGE>
or by one such securities dealer and any other source (provided that the
utilization of such source would not adversely affect Moody's then-current
rating of the Cumulative Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by any
such means by such custodian, plus (ii) accrued interest on such bond or, if two
bid prices cannot be obtained, such Moody's Eligible Asset shall have a Market
Value of zero;
(b) as to any common or preferred stock which is a Moody's Eligible
Asset, (i) if the stock is traded on a national securities exchange or quoted on
the NASDAQ System, the last sales price reported on the Valuation Date or (ii)
if there was no reported sales price on the Valuation Date, the lower of two bid
prices for such stock provided by two recognized securities dealers with a
minimum capitalization of $25,000,000 (or otherwise approved for such purpose by
Moody's) or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect Moody's then-current
rating of the Cumulative Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by any
such means by such custodian, or, if two bid prices cannot be obtained, such
Moody's Eligible Asset shall have a Market Value of zero;
(c) the product of (i) as to U.S. Government Obligations, Short Term
Money Market Instruments (other than demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements) and commercial paper,
the face amount or aggregate principal amount of such U.S. Government
Obligations or Short Term Money Market Instruments, as the case may be, and (ii)
the lower of the bid prices for the same kind of securities or instruments, as
the case may be, having, as nearly as practicable, comparable interest rates and
maturities provided by two recognized securities dealers having minimum
capitalization of $25,000,000 (or otherwise approved for such purpose by
Moody's) or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect Moody's then-current
rating of the Cumulative Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by any
such means by such custodian, or, if two bid prices cannot be obtained, such
Moody's Eligible Asset will have a Market Value of zero;
7
<PAGE>
<PAGE>
(d) as to cash, demand deposits, federal funds, bankers' acceptances and
next Business Day's repurchase agreements included in Short Term Money Market
Instruments, the face value thereof.
"Moody's" means Moody's Investors Service, Inc., or its
successor.
"Moody's Discount Factor"* means, with respect to a Moody's Eligible
Asset specified below, the following applicable number:
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------- ----------------
<S> <C>
Moody's Short Term Money Market Instruments (other than U.S. Government
Obligations set forth below) and other commercial paper:
Demand or time deposits,
certificates of deposit and bankers'
acceptances includible in Moody's Short
Term Money Market Instruments.............................. 1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less................................ 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270
days or less............................................... 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less............................... 1.25
Repurchase obligations includible in Moody's Short Term Money
Market Instruments if term is less than 30 days and
counterparty is rated at least A2.......................... 1.00
Other repurchase obligations....................................... Discount Factor
applicable to
underlying
assets
Common stocks...................................................... 3.00
</TABLE>
8
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------- ----------------
<S> <C>
Preferred stocks:
Auction rate preferred stocks.............................. 3.50
Other preferred stocks issued by issuers
in the financial and industrial
industries.......................................... 2.35
Other preferred stocks issued by issuers
in the utilities industry........................... 1.60
U.S. Government Obligations (other than U.S.
Treasury Securities Strips set forth
below) with remaining terms to maturity
of:
1 year or less............................................. 1.08
2 years or less............................................ 1.15
3 years or less............................................ 1.20
4 years or less............................................ 1.26
5 years or less............................................ 1.31
7 years of less............................................ 1.40
10 years or less........................................... 1.48
15 years or less........................................... 1.54
20 years or less........................................... 1.61
30 years or less........................................... 1.63
U.S. Treasury Securities Strips with
remaining terms to maturity of:
1 year or less............................................. 1.08
2 years or less............................................ 1.16
3 years or less............................................ 1.23
4 years or less............................................ 1.30
5 years or less............................................ 1.37
7 years or less............................................ 1.51
10 years or less........................................... 1.69
15 years or less........................................... 1.99
20 years or less........................................... 2.28
30 years or less........................................... 2.56
</TABLE>
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------- ----------------
<S> <C>
Corporate bonds:
Corporate bonds rated Aaa with remaining terms to maturity of:
1 year or less............................................. 1.14
2 years or less............................................ 1.21
3 years or less............................................ 1.26
4 years or less............................................ 1.32
5 years or less............................................ 1.38
7 years or less............................................ 1.47
10 years or less........................................... 1.55
15 years or less........................................... 1.62
20 years or less........................................... 1.69
30 years or less........................................... 1.71
Corporate bonds rated Aa with remaining terms to maturity of:
1 year or less............................................. 1.19
2 years or less............................................ 1.26
3 years or less............................................ 1.32
4 years or less............................................ 1.38
5 years or less............................................ 1.44
7 years or less............................................ 1.54
10 years or less........................................... 1.63
15 years or less........................................... 1.69
20 years or less........................................... 1.77
30 years or less........................................... 1.79
Corporate bonds rated A with remaining terms to maturity of:
1 year or less............................................. 1.24
2 years or less............................................ 1.32
3 years or less............................................ 1.38
4 years or less............................................ 1.45
5 years or less............................................ 1.51
7 years or less............................................ 1.61
10 years or less........................................... 1.70
15 years or less........................................... 1.77
20 years or less........................................... 1.85
30 years or less........................................... 1.87
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------- ----------------
<S> <C>
Convertible corporate bonds with senior debt securities
rated Aa issued by the following type of issuers:
Utility.................................................... 1.80
Industrial................................................. 2.97
Financial.................................................. 2.92
Transportation............................................. 4.27
Convertible corporate bonds with senior debt securities
rated A issued by the following type of issuers:
Utility.................................................... 1.85
Industrial................................................. 3.02
Financial.................................................. 2.97
Transportation............................................. 4.32
Convertible corporate bonds with senior debt securities
rated Baa issued by the following type of issuers:
Utility.................................................... 2.01
Industrial................................................. 3.18
Financial.................................................. 3.13
Transportation............................................. 4.48
Convertible corporate bonds with senior debt securities
rated Ba issued by the following type of issuers:
Utility.................................................... 2.02
Industrial................................................. 3.19
Financial.................................................. 3.14
Transportation............................................. 4.49
Convertible corporate bonds with senior debt securities
rated B1 or B2 issued by the following type of issuers:
Utility.................................................... 2.12
Industrial................................................. 3.29
Financial.................................................. 3.24
Transportation............................................. 4.59
</TABLE>
"Moody's Eligible Assets"* means:
(i) cash (including, for this purpose, receivables for
investments sold to a counterparty whose senior debt securities are
rated at least Baa3 by Moody's or a
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<PAGE>
counterparty approved by Moody's and payable within five Business Days
following such Valuation Date and dividends and interest receivable
within 70 days on investments);
(ii) Short-Term Money Market Instruments;
(iii) commercial paper that is not includible as a Short-Term
Money Market Instrument having on the Valuation Date a rating from
Moody's of at least P-1 and maturing within 270 days;
(iv) preferred stocks (A) which either (1) are issued by
issuers whose senior debt securities are rated at least Baa1 by Moody's
or (2) are rated at least "baa3" by Moody's (or in the event an issuer's
senior debt securities or preferred stock is not rated by Moody's, which
either (1) are issued by an issuer whose senior debt securities are
rated at least A by S&P or (2) are rated at least A by S&P and for this
purpose have been assigned a Moody's equivalent rating of at least
"baa3"), (B) of issuers which have (or, in the case of issuers which are
special purpose corporations, whose parent companies have) common stock
listed on the New York Stock Exchange or the American Stock Exchange,
(C) which have a minimum issue size (when taken together with other of
the issuer's issues of similar tenor) of $50,000,000, (D) which have
paid cash dividends consistently during the preceding three-year period
(or, in the case of new issues without a dividend history, are rated at
least "a1" by Moody's or, if not rated by Moody's, are rated at least AA
by S&P), (E) which pay cumulative cash dividends in U.S. dollars, (F)
which are not convertible into any other class of stock and do not have
warrants attached, (G) which are not issued by issuers in the
transportation industry and (H) in the case of auction rate preferred
stocks, which are rated at least "aa" by Moody's, or if not rated by
Moody's, AAA by S&P or are otherwise approved in writing by Moody's and
have never had a failed auction; provided, however, that for this
purpose the aggregate Market Value of the Company's holdings of any
issue of preferred stock shall not be less than $500,000 nor more than
$5,000,000;
(v) common stocks (A) which are traded on the New York Stock
Exchange, the American Stock Exchange or in the over-the-counter market,
(B) which, if cash dividend paying, pay cash dividends in U.S. dollars,
and (C) which are not privately placed; provided, however, that (1)
common stock which, while a Moody's Eligible Asset owned by the
Corporation, ceases paying any regular cash dividend will no longer be
considered a Moody's Eligible Asset until 71 days after the date of the
announcement of such cessation, unless the issuer of the common stock
has senior debt securities
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<PAGE>
rated at least A3 by Moody's and (2) the aggregate Market Value of the
Corporation's holdings of the common stock of any issuer shall not
exceed 4% in the case of utility common stock and 6% in the case of
non-utility common stock of the number of outstanding shares times the
Market Value of such common stock;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which are not privately placed, rated
at least B3 (Caa subordinate) by Moody's (or, in the event the bond is
not rated by Moody's, the bond is rated at least BB- by S&P and which
for this purpose is assigned a Moody's equivalent rating of one full
rating category lower), with such rating confirmed on each Valuation
Date, (B) which have a minimum issue size of at least (x) $100,000,000
if rated at least Baa3 or (y) $50,000,000 if rated B or Ba3, (C) which
are U.S. dollar denominated and pay interest in cash in U.S. dollars,
(D) which are not convertible or exchangeable into equity of the issuing
corporation and have a maturity of not more than 30 years, (E) for
which, if rated below Baa3, the aggregate Market Value of the Company's
holdings do not exceed 10% of the aggregate Market Value of any
individual issue of corporate bonds calculated at the time of original
issuance, (F) the cash flow from which must be controlled by an
indenture trustee and (G) which are not issued in connection with a
reorganization under any bankruptcy law;
(viii) convertible corporate bonds (A) which are issued by
issuers whose senior debt securities are rated at least B2 by Moody's
(or, in the event an issuer's senior debt securities are not rated by
Moody's, which are issued by issuers whose senior debt securities are
rated at least BB by S&P and which for this purpose is assigned a
Moody's equivalent rating of one full rating category lower), (B) which
are convertible into common stocks which are traded on the New York
Stock Exchange or the American Stock Exchange or are quoted on the
NASDAQ National Market System and (C) which, if cash dividend paying,
pay cash dividends in U.S. dollars; provided, however, that once
convertible corporate bonds have been converted into common stock, the
common stock issued upon conversion must satisfy the criteria set forth
in clause (v) above and other relevant criteria set forth in this
definition in order to be a Moody's Eligible Asset;
provided, however, that the Corporation's investment in preferred stock, common
stock, corporate bonds and convertible corporate bonds described above must be
within the following diversification requirements (utilizing Moody's Industry
and Sub-
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industry Categories) in order to be included in Moody's Eligible Assets:
Issuer:
<TABLE>
<CAPTION>
Non-Utility Utility Maximum
Moody's Rating Maximum Single Issuer Single Issuer
-------------- --------------------- -------------
(1)(2) (3)(4) (3)(4)
------ ------ ------
<S> <C> <C>
"aaa", Aaa 100% 100%
"aa", Aa 20% 20%
"a", A 10% 10%
CS/CB, "Baa", Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 (Caa subordinate) 2% 2%
</TABLE>
Industry and State:
<TABLE>
<CAPTION>
Utility
Non-Utility Utility Maximum
Maximum Single Maximum Single Single
Moody's Rating(1) Industry(3) Sub-Industry(3)(6) State(3)
- ----------------- ----------- ------------------ --------
<S> <C> <C> <C>
"aaa", Aaa 100% 100% 100%
"aa", Aa 60% 60% 20%
"a", A 40% 50% 10%(7)
CS/CB, "baa", Baa(5) 20% 50% 7%(7)
Ba 12% 12% N/A
B1/B2 8% 8% N/A
B3 (Caa subordinate) 5% 5% N/A
</TABLE>
(1) The equivalent Moody's rating must be lowered one full rating category
for preferred stocks, corporate bonds and convertible corporate bonds
rated by S&P but not by Moody's.
(2) Corporate bonds from issues ranging $50,000,000 to $100,000,000 are
limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for
the related Moody's rating category and each lower Moody's rating
category.
(4) Issuers subject to common ownership of 25% or more are
considered as one name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility
bonds and utility convertible bonds, the definition of industry refers
to sub-industries (electric,
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<PAGE>
water, hydro power, gas, diversified). Investments in other
sub-industries are eligible only to the extent that the combined sum
represents a percentage position of the Moody's Eligible Assets less
than or equal to the percentage limits in the diversification tables
above.
(7) Such percentage shall be 15% in the case of utilities
regulated by California, New York and Texas.
; and provided, further, that the Corporation's investments in auction rate
preferred stocks described in clause (iv) above shall be included in Moody's
Eligible Assets only to the extent that the aggregate Market Value of such
stocks does not exceed 10% of the aggregate Market Value of all of the
Corporation's investments meeting the criteria set forth in clauses (i) through
(viii) above less the aggregate Market Value of those investments excluded from
Moody's Eligible Assets pursuant to the immediately preceding proviso; and
(ix) no assets which are subject to any lien or irrevocably
deposited by the Corporation for the payment of amounts needed to meet
the obligations described in clauses (i)(A) through (i)(E) of the
definition of "Basic Maintenance Amount" may be includible in Moody's
Eligible Assets.
"Moody's Industry and Sub-Industry Categories"* means as set
forth below:
Aerospace and Defense: Major Contractor, Subsystems,
Research, Aircraft Manufacturing, Arms, Ammunition
Automobile: Automotive Equipment, Auto-Manufacturing, Auto
Parts Manufacturing, Personal Use Trailers, Motor Homes,
Dealers
Banking: Bank Holding, Savings and Loans, Consumer Credit,
Small Loan, Agency, Factoring, Receivables
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines
and Liquors, Distributors, Soft Drink Syrup, Bottlers,
Bakery, Mill Sugar, Canned Foods, Corn Refiners, Dairy
Products, Meat Products, Poultry Products, Snacks, Packaged
Foods, Distributors, Candy, Gum, Seafood, Frozen Food,
Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest
Products (building-related only), Plumbing, Roofing,
Wallboard, Real Estate, Real Estate Development, REITs, Land
Development
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<PAGE>
Chemicals, Plastics and Rubber: Chemicals (non-
agriculture), Industrial Gases, Sulphur, Plastics, Plastic
Products, Abrasives, Coatings, Paints, Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass,
Containers made of: Glass, Metal, Paper, Plastic, Wood, or
Fiberglass
Personal and Non Durable Consumer Products (Manufacturing
Only): Soaps, Perfumes, Cosmetics, Toiletries, Cleaning
Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals:
Fabricating Distribution
Ecological: Pollution Control, Waste Removal, Waste
Treatment, Waste Disposal
Electronics: Computer Hardware, Electric Equipment,
Components, Controllers, Motors, Household Appliances,
Information Service Communication Systems, Radios, TVs, Tape
Machines, Speakers, Printers, Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication,
Securities
Farming and Agriculture: Livestock, Grains, Produce;
Agricultural Chemicals, Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs,
Proprietary Drugs, Research, Health Care Centers, Nursing
Homes, HMOs, Hospitals, Hospital Supplies, Medical Equipment
Home and Office Furnishings, Housewares, and Durable
Consumer Products: Carpets, Floor Coverings, Furniture,
Cooking, Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agent,
Surety
Leisure, Amusement, Motion Pictures, Entertainment:
Boating, Bowling, Billiards, Musical Instruments, Fishing,
Photo Equipment, Records, Tapes, Sports, Outdoor Equipment
(Camping), Tourism, Resorts, Games, Toy Manufacturing,
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<PAGE>
Motion Picture Production Theaters, Motion Picture
Distribution
Machinery (Non-Agriculture, Non-Construction, Non-
Electronic): Industrial, Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper,
Lead, Uranium, Zinc, Aluminum, Stainless Steel, Integrated
Steel, Ore Production, Refractories, Steel Mill Machinery,
Mini-Mills, Fabricating, Distribution and Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service
and Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper,
Paper Products, Business Forms, Magazines, Books,
Periodicals, Newspapers, Textbooks, Radio, T.V., Cable
Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-Car
Builders, Ship Builders, Containers, Container Builders,
Parts, Overnight Mail, Trucking, Truck Manufacturing,
Trailer Manufacturing, Air Cargo, Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department,
Mail Order Catalog, Showroom
Telecommunications: Local, Long Distance, Independent,
Telephone, Telegraph, Satellite, Equipment, Research,
Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel
Manufacturer, Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-
national agencies
"1940 Act" means the Investment Company Act of 1940, as
amended.
"Notes" means the Corporation's $40,000,000 aggregate principal amount
of 5-3/4% Investment Company Convertible Notes due June 30, 2004, as the same
may be modified pursuant to the terms of the Indenture.
17
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<PAGE>
"Notice of Redemption" has the meaning set forth in paragraph 3(c)(i) of
Article II hereof.
"Officers' Certificate" means a certificate signed by any two of the
President, a Vice President, the Treasurer or the Secretary of the Corporation
or by any one of the foregoing and an Assistant Treasurer or Assistant Secretary
of the Corporation.
"Paying Agent" means State Street Bank and Trust Company and its
successors or any other paying agent appointed by the Corporation.
"Portfolio Calculation"* means the aggregate Discounted
Value of all Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $.001 per share,
of the Corporation, and includes the Cumulative Preferred Stock.
"Quarterly Valuation Date"* means the last Valuation Date in March,
June, September and December of each year, commencing September 27, 1996.
"Redemption Price" has the meaning set forth in paragraph
3(a) of Article II hereof.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Corporation (or, in the case of an instrument specified by clauses (i) and (ii)
below, on the Valuation Date), the remaining terms to maturity thereof are not
in excess of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is issued
by an issuer (or guaranteed or supported by a person or entity other
than the issuer) whose long-term unsecured debt obligations are rated at
least Aa by Moody's;
(iii) demand or time deposits in, or certificates of deposit of,
or banker's acceptances issued by (A) a depository institution or trust
company incorporated under the laws of the United States of America or
any state thereof or the District of Columbia or (B) a United States
branch office or agency of a foreign depository institution (provided
that such branch office or agency is subject to banking regulation under
the laws of the United States, any state thereof or the District of
Columbia) if, in each case, the commercial paper, if any, and the
long-term unsecured
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<PAGE>
debt obligations (other than such obligations the ratings of which are
based on the credit of a person or entity other than such depository
institution or trust company) of such depository institution or trust
company at the time of purchase or acquisition and the Valuation Date,
have (1) credit ratings from Moody's of at least P-1 in the case of
commercial paper and (2) credit ratings from Moody's of at least Aa in
the case of long-term unsecured debt obligations; provided, however,
that in the case of any such investment that matures in no more than one
Business Day from the date of purchase or other acquisition by the
Corporation, all of the foregoing requirements shall be applicable
except that the required long-term unsecured debt credit rating of such
depository institution or trust company from Moody's shall be at least
A2; and provided, further, however, that the foregoing credit rating
requirements shall be deemed to be met with respect to a depository
institution or trust company if (1) such depository institution or trust
company is the principal depository institution in a holding company
system, (2) the commercial paper, if any, of such depository institution
or trust company is not rated below P-1 by Moody's and (3) the holding
company shall meet all of the foregoing credit rating requirements
(including the preceding proviso in the case of investments that mature
in no more than one Business Day from the date of purchase or other
acquisition by the Corporation);
(iv) repurchase obligations with respect to any U.S. Government
Obligation entered into with a depository institution, trust company or
securities dealer (acting as principal) which is rated (A) at least Aa3
if the maturity is three months or less, (B) at least A1 if the maturity
is two months or less and (C) at least A2 if the maturity is one month
or less; and
(v) Eurodollar demand or time deposits in, or certificates of
deposit of, the head office or the London branch office of a depository
institution or trust company meeting the credit rating requirements of
commercial paper and long-term unsecured debt obligations specified in
clause (iii) above, provided that the interest receivable by the
Corporation shall be payable in U.S. dollars and shall not be subject to
any withholding or similar taxes.
"S&P" means Standard & Poor's Ratings Group or its successors.
"U.S. Government Obligations" means direct non-callable obligations of
the United States, provided that such direct obligations are entitled to the
full faith and credit of the United States and that any such obligations, other
than United
19
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<PAGE>
States Treasury Bills and U.S. Treasury Securities Strips, provide for the
periodic payment of interest and the full payment of principal at maturity.
"Valuation Date"* means every Friday or, if such day is not a Business
Day, the immediately preceding Business Day.
"Voting Period" shall have the meaning set forth in paragraph 4(b) of
Article II hereof.
Those of the foregoing definitions which are marked with an asterisk
have been adopted by the Board of Directors of the Corporation in order to
obtain a "aaa" rating from Moody's on the shares of Cumulative Preferred Stock
on their Date of Original Issue; and the Board of Directors of the Corporation
shall have the authority, without stockholder approval, to amend, alter or
repeal from time to time the foregoing definitions and the restrictions and
guidelines set forth thereunder if Moody's advises the Corporation in writing
that such amendment, alteration or repeal will not adversely affect their then
current rating on the Cumulative Preferred Stock. Furthermore, if the Board of
Directors determines not to continue to comply with the provisions of paragraphs
5(a)(ii), 5(c) and 6 of Article II hereof as provided in paragraph 7 of Article
II hereof, then such definitions marked with an asterisk, unless the context
otherwise requires, shall have no meaning for these Articles Supplementary.
ARTICLE II
CUMULATIVE PREFERRED STOCK
1. Dividends.
(a) Holders of shares of Cumulative Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends at the annual rate of
____% per share (computed on the basis of a 360-day year consisting of twelve
30-day months) of the initial Liquidation Preference of $25.00 per share on the
Cumulative Preferred Stock and no more, payable annually on December 23 in each
year (each a "Dividend Payment Date") commencing December 23, 1996 (or, if any
such day is not a Business Day, then on the next succeeding Business Day) to
holders of record of Cumulative Preferred Stock as they appear on the stock
register of the Corporation at the close of business on the preceding December 6
(or, if any such day is not a Business Day, then on the next succeeding Business
Day), as the case may be, in preference to dividends on shares of Common Stock
and any other capital stock of the Corporation ranking junior to the Cumulative
Preferred Stock in payment of dividends. Dividends on shares of Cumulative
Preferred Stock shall accumulate from the
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date on which such shares are originally issued ("Date of Original Issue"). Each
period beginning on and including a Dividend Payment Date (or the Date of
Original Issue, in the case of the first dividend period after issuance of such
shares) and ending on but excluding the next succeeding Dividend Payment Date is
referred to herein as a "Dividend Period." Dividends on account of arrears for
any past Dividend Period may be declared and paid at any time, without reference
to any Dividend Payment Date, to holders of record on such date, not exceeding
30 days preceding the payment date thereof, as shall be fixed by the Board of
Directors.
(b)(i) No dividends shall be declared or paid or set apart for payment
on any shares of Cumulative Preferred Stock for any Dividend Period or part
thereof unless full cumulative dividends have been or contemporaneously are
declared and paid on all outstanding shares of Cumulative Preferred Stock
through the most recent Dividend Payment Dates therefor. If full cumulative
dividends are not declared and paid on the shares of Cumulative Preferred Stock,
any dividends on the shares of Cumulative Preferred Stock shall be declared and
paid pro rata on all outstanding shares of Cumulative Preferred Stock. No
holders of shares of Cumulative Preferred Stock shall be entitled to any
dividends, whether payable in cash, property or stock, in excess of full
cumulative dividends as provided in this paragraph 1(b)(i) on shares of
Cumulative Preferred Stock. No interest or sum of money in lieu of interest
shall be payable in respect of any dividend payments on any shares of Cumulative
Preferred Stock that may be in arrears.
(ii) For so long as shares of Cumulative Preferred Stock are
outstanding, the Corporation shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase, Common
Stock or other stock, if any, ranking junior to the Cumulative Preferred Stock
as to dividends or upon liquidation) in respect of the Common Stock or any other
stock of the Corporation ranking junior to or on parity with the Cumulative
Preferred Stock as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any shares of Common
Stock or any other stock of the Corporation ranking junior to or on parity with
the Cumulative Preferred Stock as to dividends or upon liquidation (except by
conversion into or exchange for stock of the Corporation ranking junior to or on
parity with the Cumulative Preferred Stock as to dividends and upon
liquidation), unless, in each case, (A) immediately thereafter, the Corporation
shall have a Portfolio Calculation at least equal to the Basic Maintenance
Amount and the Corporation shall maintain the Asset Coverage, (B) full
cumulative dividends on all shares of Cumulative Preferred Stock due on or prior
to the date of the transaction have been declared and paid (or shall
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have been declared and sufficient funds for the payment thereof deposited with
the Paying Agent) and (C) the Corporation has redeemed the full number of shares
of Cumulative Preferred Stock required to be redeemed by any provision contained
herein for mandatory redemption.
(iii) Any dividend payment made on the shares of Cumulative Preferred
Stock shall first be credited against the dividends accumulated with respect to
the earliest Dividend Period for which dividends have not been paid.
(c) Not later than the Business Day next preceding each Dividend Payment
Date, the Corporation shall deposit with the Paying Agent Deposit Securities
having an initial combined value sufficient to pay the dividends that are
payable on such Dividend Payment Date, which Deposit Securities shall mature on
or prior to such Dividend Payment Date. The Corporation may direct the Paying
Agent with respect to the investment of any such Deposit Securities, provided
that such investment consists exclusively of Deposit Securities and provided
further that the proceeds of any such investment will be available at the
opening of business on such Dividend Payment Date.
(d) The Board of Directors may declare an additional dividend on the
Cumulative Preferred Stock each year in order to permit the Corporation to
distribute its income in accordance with Section 855 (or any successor
provision) of the Internal Revenue Code of 1986, as amended (the "Code"), which
attributes such distribution to the preceding year of the Corporation for
federal income tax purposes so that the Corporation may avoid incurring a
corporate-level tax, and with the rules and regulations under Subchapter M of
the Code. Such additional dividend declaration will be paid to holders of the
Cumulative Preferred Stock on the Dividend Payment Date, shall be part of the
normal annual dividend paid to holders of record pursuant to paragraph 1(a)
hereof and shall not result in any increase in the amount of cash dividends paid
pursuant to paragraph 1(a) hereof.
2. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of Cumulative Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, after
claims of creditors but before any distribution or payment shall be made in
respect of the Common Stock or any other stock of the Corporation ranking junior
to the Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25.00 per share plus an amount equal to all
unpaid dividends thereon accumulated to and including the date fixed for such
distribution or payment (whether or not earned or declared by the
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Corporation, but excluding interest thereon) (the "Liquidation Preference"), and
such holders shall be entitled to no further participation in any distribution
or payment in connection with any such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the holders of all outstanding
shares of Cumulative Preferred Stock, and any other outstanding class or series
of Preferred Stock of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to payment upon liquidation, shall be insufficient to permit
the payment in full to such holders of Cumulative Preferred Stock of the
Liquidation Preference and the amounts due upon liquidation with respect to such
other Preferred Stock, then such available assets shall be distributed among the
holders of shares of Cumulative Preferred Stock and such other Preferred Stock
ratably in proportion to the respective preferential amounts to which they are
entitled. Unless and until the Liquidation Preference has been paid in full to
the holders of shares of Cumulative Preferred Stock, no dividends or
distributions shall be made to holders of the Common Stock or any other stock of
the Corporation ranking junior to the Cumulative Preferred Stock as to
liquidation.
3. Redemption.
Shares of the Cumulative Preferred Stock shall be redeemed by the
Corporation as provided below:
(a) Mandatory Redemptions.
If the Corporation is required to redeem any shares of Cumulative
Preferred Stock pursuant to paragraphs 5(b) or 5(c) of Article II hereof, then
the Corporation shall, to the extent permitted by the 1940 Act, Maryland law,
the Indenture and any other agreements in respect of indebtedness of the
Corporation to which it may be a party or by which it may be bound, by the close
of business on such Asset Coverage Cure Date or Basic Maintenance Amount Cure
Date (herein collectively referred to as a "Cure Date"), as the case may be, fix
a redemption date and proceed to redeem shares as set forth in paragraph 3(c)
hereof. On such redemption date, the Corporation shall redeem, out of funds
legally available therefor, the number of shares of Cumulative Preferred Stock
equal to the minimum number of shares the redemption of which, if such
redemption had occurred immediately prior to the opening of business on such
Cure Date, would have resulted in the Asset Coverage having been satisfied or
the Corporation having a Portfolio Calculation equal to or greater than the
Basic Maintenance Amount, as the case may be, immediately prior to the opening
of business on such Cure Date or, if the Asset Coverage or a Portfolio
Calculation equal to or
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greater than the Basic Maintenance Amount, as the case may be, cannot be so
restored, all of the shares of Cumulative Preferred Stock, at a price equal to
$25.00 per share plus accumulated but unpaid dividends thereon (whether or not
earned or declared by the Corporation) through the date of redemption (the
"Redemption Price"). In the event that shares of Cumulative Preferred Stock are
redeemed pursuant to paragraph 5(b) of Article II hereof, the Corporation may,
but shall not be required to, redeem a sufficient number of shares of Cumulative
Preferred Stock pursuant to this paragraph 3(a) in order that the "asset
coverage" of a class of senior security which is stock, as defined in Section
18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock after redemption is up to 275%.
(b) Optional Redemptions.
Prior to September 1, 2001, the Corporation may, at its option, redeem
shares of Cumulative Preferred Stock at the Redemption Price per share only if
and to the extent that any such redemption is necessary, in the judgment of the
Corporation, to maintain the Corporation's status as a regulated investment
company under Subchapter M of the Code. Commencing September 1, 2001 and at any
time and from time to time thereafter, the Corporation may, at its option, to
the extent permitted by the 1940 Act, Maryland law, the Indenture and any other
agreements in respect of indebtedness of the Corporation to which it may be a
party or by which it may be bound, redeem the Cumulative Preferred Stock in
whole or in part at the Redemption Price per share.
(c) Procedures for Redemption.
(i) If the Corporation shall determine or be required to redeem shares
of Cumulative Preferred Stock pursuant to this paragraph 3, it shall mail a
written notice of redemption ("Notice of Redemption") with respect to such
redemption by first class mail, postage prepaid, to each holder of the shares to
be redeemed at such holder's address as the same appears on the stock books of
the Corporation on the record date in respect of such redemption established by
the Board of Directors. Each such Notice of Redemption shall state: (A) the
redemption date, which shall be not fewer than 30 days nor more than 45 days
after the date of such notice; (B) the number of shares of Cumulative Preferred
Stock to be redeemed; (C) the CUSIP number(s) of such shares; (D) the Redemption
Price; (E) the place or places where the certificate(s) for such shares
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require and the Notice of Redemption shall so state) are to be surrendered for
payment in respect of such redemption; (F) that dividends on the shares to be
redeemed will cease to accrue on such redemption date; and (G) the provisions of
this paragraph 3 under which such
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redemption is made. If fewer than all shares of Cumulative Preferred Stock held
by any holder are to be redeemed, the Notice of Redemption mailed to such holder
also shall specify the number of shares to be redeemed from such holder. No
defect in the Notice of Redemption or the mailing thereof shall affect the
validity of the redemption proceedings, except as required by applicable law.
(ii) If the Corporation shall give a Notice of Redemption, then by the
close of business on the Business Day preceding the redemption date specified in
the Notice of Redemption the Corporation shall (A) deposit with the Paying Agent
Deposit Securities having an initial combined value sufficient to effect the
redemption of the shares of Cumulative Preferred Stock to be redeemed, which
Deposit Securities shall mature on or prior to such redemption date, and (B)
give the Paying Agent irrevocable instructions and authority to pay the
Redemption Price to the holders of the shares of Cumulative Preferred Stock
called for redemption on the redemption date. The Corporation may direct the
Paying Agent with respect to the investment of any Deposit Securities so
deposited, provided that the proceeds of any such investment will be available
at the opening of business on such redemption date. Upon the date of such
deposit (unless the Corporation shall default in making payment of the
Redemption Price), all rights of the holders of the shares of Cumulative
Preferred Stock so called for redemption shall cease and terminate except the
right of the holders thereof to receive the Redemption Price thereof and such
shares shall no longer be deemed outstanding for any purpose. The Corporation
shall be entitled to receive, promptly after the date fixed for redemption any
cash in excess of the aggregate Redemption Price of the shares of Cumulative
Preferred Stock called for redemption on such date and any remaining Deposit
Securities. Any assets so deposited that are unclaimed at the end of two years
from such redemption date shall, to the extent permitted by law, be repaid to
the Corporation, after which the holders of the shares of Cumulative Preferred
Stock so called for redemption shall look only to the Corporation for payment
thereof. The Corporation shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the Deposit Securities so
deposited.
(iii) On or after the redemption date, each holder of shares of
Cumulative Preferred Stock that are subject to redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
the Notice of Redemption and shall then be entitled to receive the cash
Redemption Price, without interest.
(iv) In the case of any redemption of less than all of the shares of
Cumulative Preferred Stock pursuant to these Articles Supplementary, such
redemption shall be made pro rata from each
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holder of shares of Cumulative Preferred Stock in accordance with the respective
number of shares held by each such holder on the record date for such
redemption.
(v) Notwithstanding the other provisions of this paragraph 3, the
Corporation shall not redeem shares of Cumulative Preferred Stock unless all
accumulated and unpaid dividends on all outstanding shares of Cumulative
Preferred Stock for all applicable past Dividend Periods (whether or not earned
or declared by the Corporation) shall have been or are contemporaneously paid or
declared and Deposit Securities for the payment of such dividends shall have
been deposited with the Paying Agent as set forth in paragraph 1(c) of Article
II hereof.
(vi) If the Corporation shall not have funds legally available for the
redemption of, or is otherwise unable to redeem, all the shares of the
Cumulative Preferred Stock to be redeemed on any redemption date, the
Corporation shall redeem on such redemption date the number of shares of
Cumulative Preferred Stock as it shall have legally available funds, or is
otherwise able, to redeem ratably from each holder whose shares are to be
redeemed, and the remainder of the shares of the Cumulative Preferred Stock
required to be redeemed shall be redeemed on the earliest practicable date on
which the Corporation shall have funds legally available for the redemption of,
or is otherwise able to redeem, such shares.
4. Voting Rights.
(a) General.
Except as otherwise provided by law or as specified in the Charter or
By-Laws, each holder of shares of Cumulative Preferred Stock shall be entitled
to one vote for each share held on each matter submitted to a vote of
stockholders of the Corporation, and the holders of outstanding shares of
Preferred Stock, including Cumulative Preferred Stock, and of shares of Common
Stock shall vote together as a single class; provided that, at any meeting of
the stockholders of the Corporation held for the election of directors, the
holders of outstanding shares of Preferred Stock, including Cumulative Preferred
Stock, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation, to elect two
directors of the Corporation. Subject to paragraph 4(b) of Article II hereof,
the holders of outstanding shares of capital stock of the Corporation, including
the holders of outstanding shares of Preferred Stock (including the Cumulative
Preferred Stock), voting as a single class, shall elect the balance of the
directors.
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(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting Period"),
the number of directors constituting the Board of Directors shall be
automatically increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock, would
constitute a majority of the Board of Directors as so increased by such smallest
number; and the holders of shares of Preferred Stock shall be entitled, voting
separately as one class (to the exclusion of the holders of all other securities
and classes of capital stock of the Corporation), to elect such smallest number
of additional directors, together with the two directors that such holders are
in any event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned
or declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding shares of Cumulative
Preferred Stock equal to at least two full years' dividends shall be due
and unpaid and sufficient Deposit Securities shall not have been
deposited with the Paying Agent for the payment of such accumulated
dividends; or
(ii) if at any time holders of any other shares of Preferred
Stock are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 4(b) shall cease, subject always, however, to the reverting of
such voting rights in the holders of Preferred Stock upon the further occurrence
of any of the events described in this paragraph 4(b).
(c) Right to Vote with Respect to Certain Other Matters.
So long as any shares of Cumulative Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the holders of two-thirds
of the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the Charter of holders
of shares of Cumulative Preferred Stock.
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The Corporation shall notify Moody's ten Business Days prior to any such vote
described above. Unless a higher percentage is provided for under the Charter,
the affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock, including Cumulative Preferred Stock, voting together as a
single class, will be required to approve any plan of reorganization adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. For purposes of the preceding sentence, the
phrase "vote of the holders of a majority of the outstanding shares of Preferred
Stock" shall have the meaning set forth in the 1940 Act. The class vote of
holders of shares of Preferred Stock, including Cumulative Preferred Stock,
described above will be in addition to a separate vote of the requisite
percentage of shares of Common Stock and shares of Preferred Stock, including
Cumulative Preferred Stock, voting together as a single class, necessary to
authorize the action in question. An increase in the number of authorized shares
of Preferred Stock pursuant to the Charter or the issuance of additional
shares of any series of Preferred Stock (including Cumulative Preferred Stock)
pursuant to the Charter shall not in and of itself be considered to adversely
affect the contract rights of the holders of Cumulative Preferred Stock.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the holders
of shares of Preferred Stock to elect additional directors as described in
paragraph 4(b) above, the Corporation shall call a special meeting of such
holders and instruct the Paying Agent to mail a notice of such special meeting
to such holders, such meeting to be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send such
notice to the Paying Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding the
day on which such notice is mailed. At any such special meeting and at each
meeting held during a Voting Period, such holders of Preferred Stock, voting
together
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as a class (to the exclusion of the holders of all other securities and classes
of capital stock of the Corporation), shall be entitled to elect the number of
directors prescribed in paragraph 4(b) above. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders present in person
or by proxy shall have the power to adjourn the meeting without notice, other
than by an announcement at the meeting, to a date not more than 120 days after
the original record date.
(ii) For purposes of determining any rights of the holders of Cumulative
Preferred Stock to vote on any matter or the number of shares required to
constitute a quorum, whether such right is created by these Articles
Supplementary, by the other provisions of the Charter, by statute or otherwise,
a share of Cumulative Preferred Stock which is not outstanding shall not be
counted.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Preferred Stock,
including Cumulative Preferred Stock, to elect directors shall continue,
notwithstanding the election at such meeting by such holders of the number of
directors that they are entitled to elect, and the persons so elected by such
holders, together with the two incumbent directors elected by the holders of
Preferred Stock, including Cumulative Preferred Stock, and the remaining
incumbent directors elected by the holders of the Common Stock and Preferred
Stock, shall constitute the duly elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the terms of
office of the additional directors elected by the holders of Preferred Stock,
including Cumulative Preferred Stock, pursuant to paragraph 4(b) above shall
terminate, the remaining directors shall constitute the directors of the
Corporation and the voting rights of such holders of Preferred Stock, including
Cumulative Preferred Stock, to elect additional directors pursuant to paragraph
4(b) above shall cease, subject to the provisions of the last sentence of
paragraph 4(b).
(e) Exclusive Remedy.
Unless otherwise required by law, the holders of shares of Cumulative
Preferred Stock shall not have any rights or preferences other than those
specifically set forth herein. The holders of shares of Cumulative Preferred
Stock shall have no preemptive rights or rights to cumulative voting. In the
event that the Corporation fails to pay any dividends on the shares of
Cumulative Preferred Stock, the exclusive remedy of the holders shall be the
right to vote for directors pursuant to the provisions of this paragraph 4.
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(f) Notification to Moody's.
In the event a vote of holders of Cumulative Preferred Stock is required
pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the
Cumulative Preferred Stock is rated by Moody's, the Corporation shall, not later
than ten Business Days prior to the date on which such vote is to be taken,
notify Moody's that such vote is to be taken and the nature of the action with
respect to which such vote is to be taken and, not later than ten Business Days
after the date on which such vote is taken, notify Moody's of the result of such
vote.
5. Coverage Tests.
(a) Determination of Compliance.
For so long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation shall make the following determinations:
(i) Asset Coverage. The Corporation shall maintain, as of the last
Business Day of each March, June, September and December of each year in which
any shares of Cumulative Preferred Stock are outstanding, the Asset Coverage.
(ii) Basic Maintenance Amount Requirement.
(A) For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall maintain, on each Valuation Date, a Portfolio
Calculation at least equal to the Basic Maintenance Amount, each as of such
Valuation Date. Upon any failure to maintain the required Portfolio Calculation,
the Corporation shall use its best efforts to reattain a Portfolio Calculation
at least equal to the Basic Maintenance Amount on or prior to the Basic
Maintenance Amount Cure Date, by altering the composition of its portfolio or
otherwise.
(B) The Corporation shall prepare a Basic Maintenance Report relating to
each Valuation Date. On or before 5:00 P.M., New York City time, on the third
Business Day after the first Valuation Date following the Date of Original Issue
of the Cumulative Preferred Stock and after each (A) Quarterly Valuation Date,
(B) Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) above, (C) Basic Maintenance Amount Cure Date following a
Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) above and (D) Valuation Date and any immediately
succeeding Business Day on which the Portfolio Calculation exceeds the Basic
Maintenance Amount by 5% or less, the Corporation shall complete and deliver to
Moody's a Basic Maintenance Report, which will be deemed to have been delivered
to Moody's if Moody's receives a copy or telecopy, telex or other
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electronic transcription setting forth at least the Portfolio Calculation and
the Basic Maintenance Amount each as of the relevant Valuation Date and on the
same day the Corporation mails to Moody's for delivery on the next Business Day
the full Basic Maintenance Report. The Corporation also shall provide Moody's
with a Basic Maintenance Report relating to any other Valuation Date on Moody's
specific request. A failure by the Corporation to deliver a Basic Maintenance
Report under this paragraph 5(a)(ii)(B) shall be deemed to be delivery of a
Basic Maintenance Report indicating a Portfolio Calculation less than the Basic
Maintenance Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery to Moody's of a
Basic Maintenance Report in accordance with paragraph 5(a)(ii)(B) above relating
to a Quarterly Valuation Date, the Corporation shall deliver to Moody's an
Accountant's Confirmation relating to such Basic Maintenance Report and any
other Basic Maintenance Report, randomly selected by the Independent
Accountants, that was prepared by the Corporation during the quarter ending on
such Quarterly Valuation Date. Also, within ten Business Days after the date of
delivery to Moody's of a Basic Maintenance Report in accordance with paragraph
5(a)(ii)(B) above relating to a Valuation Date on which the Corporation fails to
satisfy the requirements of such paragraph 5(a)(ii)(B) and any Basic Maintenance
Amount Cure Date, the Corporation shall deliver to Moody's an Accountant's
Confirmation relating to such Basic Maintenance Report. If any Accountant's
Confirmation delivered pursuant to this paragraph 5(a)(ii)(C) shows that an
error was made in the Basic Maintenance Report for such Quarterly Valuation
Date, or shows that a lower Portfolio Calculation was determined by the
Independent Accountants, the calculation or determination made by such
Independent Accountants shall be final and conclusive and shall be binding on
the Corporation, and the Corporation shall accordingly amend the Basic
Maintenance Report and deliver the amended Basic Maintenance Report to Moody's
promptly following Moody's receipt of such Accountant's Confirmation.
(D) In the event the Portfolio Calculation shown in any Basic
Maintenance Report prepared pursuant to paragraph 5(a)(ii)(B) above is less than
the applicable Basic Maintenance Amount, the Corporation shall have until the
Basic Maintenance Amount Cure Date to achieve a Portfolio Calculation at least
equal to the Basic Maintenance Amount, and upon such achievement (and not later
than such Basic Maintenance Amount Cure Date) the Corporation shall inform
Moody's of such achievement in writing by delivery of a revised Basic
Maintenance Report showing a Portfolio Calculation at least equal to the Basic
Maintenance Amount as of the date of such revised Basic Maintenance Report,
together with an Officers' Certificate to such effect.
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(E) On or before 5:00 P.M., New York City time, on the first Business
Day after shares of Common Stock are repurchased by the Corporation, the
Corporation shall complete and deliver to Moody's a Basic Maintenance Report as
of the close of business on such date that Common Stock is repurchased. A Basic
Maintenance Report delivered as provided in paragraph 5(a)(ii)(B) above also
shall be deemed to have been delivered pursuant to this paragraph 5(a)(ii)(E).
(b) Failure to Meet Asset Coverage.
If the Asset Coverage is not satisfied as provided in paragraph 5(a)(i)
hereof and such failure is not cured as of the related Asset Coverage Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock to enable it to meet the requirements of
paragraph 5(a)(i) above, and, at the Corporation's discretion, such additional
number of shares of Cumulative Preferred Stock in order that the "asset
coverage" of a class of senior security which is stock, as defined in Section
18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock is up to 275%, and deposit with
the Paying Agent Deposit Securities having an initial combined value sufficient
to effect the redemption of the shares of Cumulative Preferred Stock to be
redeemed, as contemplated by paragraph 3(a) of Article II hereof.
(c) Failure to Maintain a Portfolio Calculation At Least
Equal to the Basic Maintenance Amount.
If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A) above
and such failure is not cured by the related Basic Maintenance Amount Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock to enable it to meet the requirements of
paragraph 5(a)(ii)(A) above, and, at the Corporation's discretion, such
additional number of shares of Cumulative Preferred Stock in order that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
by up to 10%, and deposit with the Paying Agent Deposit Securities having an
initial combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, as contemplated by paragraph 3(a) of
Article II hereof.
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(d) Status of Shares Called for Redemption.
For purposes of determining whether the requirements of paragraphs
5(a)(i) and 5(a)(ii)(A) hereof are satisfied, (i) no share of the Cumulative
Preferred Stock shall be deemed to be outstanding for purposes of any
computation if, prior to or concurrently with such determination, sufficient
Deposit Securities to pay the full Redemption Price for such share shall have
been deposited in trust with the Paying Agent and the requisite Notice of
Redemption shall have been given, and (ii) such Deposit Securities deposited
with the Paying Agent shall not be included in determining whether the
requirements of paragraphs 5(a)(i) and 5(a)(ii)(A) hereof are satisfied.
6. Certain Other Restrictions.
(a) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation will not, and will cause the Adviser not to, (i) knowingly and
willfully purchase or sell a portfolio security for the specific purpose of
causing, and with the actual knowledge that the effect of such purchase or sale
will be to cause, the Portfolio Calculation as of the date of the purchase or
sale to be less than the Basic Maintenance Amount as of such date, (ii) in the
event that, as of the immediately preceding Valuation Date, the Portfolio
Calculation exceeded the Basic Maintenance Amount by 5% or less, alter the
composition of the Corporation's portfolio securities in a manner reasonably
expected to reduce the Portfolio Calculation, unless the Corporation shall have
confirmed that, after giving effect to such alteration, the Portfolio
Calculation exceeded the Basic Maintenance Amount or (iii) declare or pay any
dividend or other distribution on any shares of Common Stock or repurchase any
shares of Common Stock, unless the Corporation shall have confirmed that, after
giving effect to such declaration, other distribution or repurchase, the
Corporation continues to satisfy the requirements of paragraph 5(a)(ii)(A) of
Article II hereof.
(b) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation shall not (a) acquire or otherwise invest in (i) future
contracts or (ii) options on futures contracts, (b) engage in reverse repurchase
agreements, (c) engage in short sales, (d) overdraw any bank account, (e) write
options on portfolio securities other than call options on securities held in
the Corporation's portfolio or that the Corporation has an immediate right to
acquire through conversion or exchange of securities held in its portfolio, or
(f) borrow money (other than the $40,000,000 aggregate principal amount of Notes
previously issued by the Corporation), except for the purpose of clearing and/or
settling transactions in portfolio securities (which borrowings shall under any
circumstances be limited to the lesser of $10,000,000 and an amount equal to 5%
of the Market Value of the Corporation's assets at the time of such
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borrowings and which borrowings shall be repaid within 60 days and not be
extended or renewed), unless in any such case, the Corporation shall have
received written confirmation from Moody's that such investment activity will
not adversely affect Moody's then-current rating of the Cumulative Preferred
Stock. Furthermore, for so long as the Cumulative Preferred Stock is rated by
Moody's, unless the Corporation shall have received the written confirmation
from Moody's referred to in the preceding sentence, the Corporation may engage
in the lending of its portfolio securities only in an amount of up to 5% of the
Corporation's total assets, provided that the Corporation receives cash
collateral for such loaned securities which is maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities and, if invested, is invested only in money market mutual funds
meeting the requirements of Rule 2a-7 under the 1940 Act that maintain a
constant $1.00 per share net asset value. In determining the Portfolio
Calculation, the Corporation shall use the Moody's Discount Factor applicable to
the loaned securities rather than the Moody's Discount Factor applicable to the
collateral.
(c) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation shall not consolidate the Corporation with, merge the
Corporation into, sell or otherwise transfer all or substantially all of the
Corporation's assets to another entity or adopt a plan of liquidation of the
Corporation, in each case without providing prior written notification to
Moody's.
7. Termination of Rating Agency Provisions.
(a) The Board of Directors may determine that it is not in the best
interests of the Corporation to continue to comply with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's, in
which case the Corporation will no longer be required to comply with any of the
provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect
to Moody's, provided that (i) the Corporation has given the Paying Agent,
Moody's and holders of the Cumulative Preferred Stock at least 20 calendar days
written notice of such termination of compliance, (ii) the Corporation is in
compliance with the provisions of paragraphs 5(a)(i), 5(a)(ii), 5(c) and 6 of
Article II hereof at the time the notice required in clause (i) hereof is given
and at the time of the termination of compliance with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
(iii) at the time the notice required in clause (i) hereof is given and at the
time of termination of compliance with the provisions of paragraphs 5(a)(ii),
5(c) and 6 of Article II hereof with respect to Moody's the Cumulative Preferred
Stock is listed on the New York Stock Exchange or on another exchange registered
with the Securities and Exchange Commission as a national securities exchange
and (iv) at the time of termination of compliance with the provisions
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of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
the cumulative cash dividend rate payable on a share of the Cumulative Preferred
Stock pursuant to paragraph 1(a) of Article II hereof shall be increased by .50%
per annum.
(b) On the date that the notice is given in paragraph 7(a) above and on
the date that compliance with the provisions of paragraphs 5(a)(ii), 5(c) and 6
of Article II hereof with respect to Moody's is terminated, the Corporation
shall provide the Paying Agent and Moody's with an Officers' Certificate as to
the compliance with the provisions of paragraph 7(a) hereof, and the provisions
of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's
shall terminate on such later date and thereafter have no force or effect.
8. Limitation on Incurrence of Additional Indebtedness and
Issuance of Additional Preferred Stock.
(a) So long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation may issue and sell one or more series of a class of senior
securities of the Corporation representing indebtedness under Section 18 of the
1940 Act and/or otherwise create or incur indebtedness in addition to the Notes,
provided that (i) if the Corporation is using the proceeds (net of all offering
expenses payable by the Corporation) of such additional indebtedness to purchase
all or a portion of the Notes or any shares of the Cumulative Preferred Stock or
to repay, redeem or otherwise refinance all or a portion of the Notes or any
shares of the Cumulative Preferred Stock and/or any other indebtedness or
Preferred Stock of the Corporation then outstanding or if such indebtedness
constitutes a temporary bank borrowing (not in excess of 5% of the value of the
Corporation's total assets) for emergency or extraordinary purposes, then the
Corporation shall, immediately after giving effect to the incurrence of such
indebtedness and to its receipt and application of the proceeds thereof, have an
"asset coverage" for all senior securities representing indebtedness, as defined
in Section 18(h) of the 1940 Act, of at least 300% of the amount of all
indebtedness of the Corporation then outstanding, or (ii) if the Corporation is
using the proceeds (net of all offering expenses payable by the Corporation) of
such additional indebtedness for any other purpose, then the Corporation shall,
immediately after giving effect to the incurrence of such indebtedness and to
its receipt and application of the proceeds thereof, have an "asset coverage"
for all senior securities representing indebtedness, as defined in Section 18(h)
of the 1940 Act, of at least 500% of the amount of all indebtedness of the
Corporation then outstanding. Any possible liability resulting from lending
and/or borrowing portfolio securities, entering into reverse repurchase
agreements, entering into futures contracts and writing options, to the extent
such transactions are made in accordance with the investment
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restrictions of the Corporation then in effect, shall not be considered to be
indebtedness limited by this paragraph 8(a).
(b) So long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation may issue and sell shares of one or more other series of
Preferred Stock constituting a series of a class of senior securities of the
Corporation representing stock under Section 18 of the 1940 Act in addition to
the shares of Cumulative Preferred Stock, provided that (i) if the Corporation
is using the proceeds (net of all offering expenses payable by the Corporation)
of such additional Preferred Stock to purchase all or a portion of the shares of
Cumulative Preferred Stock or to redeem or otherwise refinance all or a portion
of the shares of Cumulative Preferred Stock, any other Preferred Stock and/or
any indebtedness of the Corporation then outstanding, then the Corporation
shall, immediately after giving effect to the issuance of such additional
Preferred Stock and to its receipt and application of the proceeds thereof, have
an "asset coverage" for all senior securities which are stock, as defined in
Section 18(h) of the 1940 Act, of at least 250% of the shares of Cumulative
Preferred Stock and all other Preferred Stock of the Corporation then
outstanding, or (ii) if the Corporation is using the proceeds (net of all
offering expenses payable by the Corporation) of such additional Preferred Stock
for any other purpose, then the Corporation shall, immediately after giving
effect to the issuance of such additional Preferred Stock and to its receipt and
application of the proceeds thereof, have an "asset coverage" for all senior
securities which are stock as defined in Section 18(h) of the 1940 Act of at
least 300% of the shares of Cumulative Preferred Stock and all other Preferred
Stock of the Corporation then outstanding, and, in the case of either (i) or
(ii) above, (iii) no such additional Preferred Stock shall have any preference
or priority over any other Preferred Stock of the Corporation upon the
distribution of the assets of the Corporation or in respect of the payment of
dividends.
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IN WITNESS WHEREOF, ROYCE VALUE TRUST, INC. has caused these presents to
be signed in its name and on its behalf by a duly authorized officer, and its
corporate seal to be hereunto affixed and attested by its Secretary, and the
said officers of the Corporation further acknowledge said instrument to be the
corporate act of the Corporation, and state that to the best of their knowledge,
information and belief the matters and facts herein set forth with respect to
approval are true in all material respects, all on _____________, 1996.
ROYCE VALUE TRUST, INC.
By__________________________________
Name:
Title:
Attest:
__________________________________
____________________
Secretary
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ROYCE VALUE TRUST, INC.
1414 Avenue of the Americas
New York, New York 10019
August __, 1996
Quest Advisory Corp.
1414 Avenue of the Americas
New York, New York 10019
Gentlemen:
Reference is made to (i) the Investment Advisory Agreement dated as of
June 30, 1996 (the "Investment Advisory Agreement") by and between Royce Value
Trust, Inc., a Maryland corporation (the "Fund"), and Quest Advisory Corp., a
New York corporation ("Quest"), and (ii) the Underwriting Agreement made
August __, 1996 (the "Underwriting Agreement") by and between the Fund and Quest
and Morgan Stanley & Co. Incorporated, as representative of the several
underwriters named therein (the "Underwriters").
The Fund and Quest hereby acknowledge and agree (i) that Quest became a
party to the Underwriting Agreement and made representations, warranties,
covenants and indemnities therein in favor of the Underwriters at the request of
and as an accommodation to the Fund, and (ii) that as between the Fund, on the
one hand, and Quest, on the other hand, the Fund shall be primarily liable for
the payment and performance of the joint and several obligations of the Fund and
Quest to the Underwriters arising thereunder.
In order to implement the foregoing, the Fund and Quest further
acknowledge and agree that for purposes of Paragraph 8 of the Investment
Advisory Agreement (Protection of the Advisor), any liability of Quest to the
Underwriters arising under the Underwriting Agreement shall be deemed to have
been incurred by Quest as an investment adviser of the Fund, and the Fund hereby
agrees to indemnify Quest and hold Quest harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys' fees and
amounts reasonably paid in settlement) incurred by Quest under or by reason of
the Underwriting Agreement (subject, however, to the limitations and procedures
set forth in Paragraph 8 of the Investment Advisory Agreement for
indemnification of Quest by the Fund).
Very truly yours,
ROYCE VALUE TRUST, INC.
By:____________________
ACCEPTED AND AGREED
QUEST ADVISORY CORP.
By:_________________
<PAGE>
<PAGE>
[ ] Shares
ROYCE VALUE TRUST, INC.
[ ] CUMULATIVE PREFERRED STOCK
LIQUIDATION PREFERENCE $25 PER SHARE
UNDERWRITING AGREEMENT
August [ ], 1996
<PAGE>
<PAGE>
August [ ], 1996
Morgan Stanley & Co. Incorporated
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Prudential Securities Incorporated
Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
ROYCE VALUE TRUST, INC. (the "Fund"), incorporated in Maryland on
July 1, 1986, is a diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund
proposes to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") [ ] shares of its _____% Cumulative
Preferred Stock, $25 liquidation preference per share (the "Shares").
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 relating to the Shares. The
registration statement contains a form of prospectus to be used in connection
with the offering and sale of the Shares. The registration statement as
amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended, is
hereinafter referred to as the "Registration Statement;" the prospectus in the
form first used to confirm sales of Shares is hereinafter referred to as the
"Prospectus." The Securities Act of 1933, as amended, and the rules and
regulations of the Commission thereunder are collectively referred to as the
"Securities Act;" the Investment Company Act of 1940, as amended, and the
rules and regulations of the Commission thereunder are collectively referred
to as the "Investment Company Act;" and the Securities Act and the Investment
Company Act are collectively referred to as the "Acts."
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1. Representations and Warranties of the Fund and the Adviser. The
Fund and Quest Advisory Corp., a New York corporation (the "Adviser"), jointly
and severally, represent and warrant to each of the Underwriters that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of the Fund or the Adviser, threatened by the Commission.
(b) The Fund has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Maryland,
has the corporate power and authority to conduct its business as
described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Fund. The Fund has no subsidiaries.
(c) The Fund is registered with the Commission as a diversified,
closed-end management investment company under the Investment Company
Act and no order of suspension or revocation of such registration has
been issued or proceedings therefor initiated or, to the knowledge of
the Fund or the Adviser, threatened by the Commission. No person is
serving or acting as an officer or director of, or investment adviser
to, the Fund except in accordance with the provisions of the Investment
Company Act and the Investment Advisers Act of 1940, as amended, and
the rules and regulations of the Commission thereunder (such act and
rules being collectively referred to as the "Advisers Act").
(d) Each of this Agreement, the Investment Advisory Agreement
between the Adviser and the Fund (the "Advisory Agreement") and the
Custody Contract between State Street Bank and Trust Company (the
"Custodian") and the Fund (the "Custody Contract") (this Agreement, the
Advisory Agreement and the Custody Contract are referred to herein,
collectively, as the "Fundamental Agreements") has been duly
authorized, executed and delivered by the Fund. Each Fundamental
Agreement, other than this Agreement, assuming due authorization,
execution and delivery by the other parties thereto, constitutes the
legal, valid and
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binding obligation of the Fund, enforceable against the Fund in
accordance with its terms except as such enforceability may be limited
by applicable bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium
or similar laws affecting creditors' rights generally and by general
principles of equity, regardless of whether considered in a proceeding
in equity or at law.
(e) None of (A) the execution and delivery by the Fund of, and the
performance by the Fund of its obligations under, each Fundamental
Agreement, or (B) the issue and sale by the Fund of the Shares as
contemplated by this Agreement, contravenes or will contravene any
provision of applicable law or the articles of incorporation, as
amended (the "Charter"), or by-laws, as amended (the "By-Laws"), of the
Fund or any agreement or other instrument binding upon the Fund that is
material to the Fund, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Fund,
whether foreign or domestic. No consent, approval, authorization, order
or permit of, or qualification with, any governmental body or agency,
self-regulatory organization or court or other tribunal, whether
foreign or domestic, is required for the performance by the Fund of its
obligations under the Fundamental Agreements, except such as have been
obtained and as may be required by the Acts, the Securities Exchange
Act of 1934 (such act and the rules and regulations of the Commission
thereunder being collectively referred to as the "Exchange Act"), or
the securities or Blue Sky laws of the various states and foreign
jurisdictions in connection with the offer and sale of the Shares by
the Underwriters.
(f) The authorized capital stock of the Fund conforms as to legal
matters to the description thereof contained in the Prospectus, and the
Charter and By-Laws of the Fund and the Fundamental Agreements conform
as to legal matters to the descriptions thereof contained in the
Prospectus; the outstanding shares of the Fund's common stock, par
value $.001 per share, have been duly authorized and validly issued and
are fully paid and non-assessable.
(g) The Charter and By-Laws of the Fund and the Fundamental
Agreements comply with all applicable provisions of the Acts, and all
approvals of such documents required under the Investment Company Act
by
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the Fund's stockholders and Board of Directors have been obtained and
are in full force and effect.
(h) The Fundamental Agreements (other than this Agreement) are in
full force and effect and neither the Fund nor, to the Fund's
knowledge, any other party to any such agreement is in default
thereunder in any material respect and, to the knowledge of the Fund
and the Adviser, no event has occurred which with the passage of time
or the giving of notice or both would constitute a default thereunder.
The Fund is not currently in breach of, or in default under, in any
material respect, any other written agreement or instrument to which it
or its property is bound or affected.
(i) The Shares have been duly authorized and, when issued, paid for
and delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable and the issuance of the
Shares will not be subject to any pre-emptive or similar rights. No
person has rights to the registration of any securities because of the
filing of the Registration Statement.
(j) The Shares have been approved for listing on the New York Stock
Exchange, Inc. (the "New York Stock Exchange"), subject to official
notice of issuance. The Fund's Registration Statement on Form 8-A under
the Exchange Act is effective.
(k) The Shares have been, or prior to the Closing Date will be,
assigned a rating of "aaa" by Moody's Investor Service, Inc.
("Moody's").
(l) The Fund intends to direct the investment of the proceeds of the
offering described in the Prospectus in such a manner as to comply with
the requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), and the Fund is eligible to qualify as a
regulated investment company under Subchapter M of the Code.
(m) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, of the Fund, or in the investment
objectives, investment policies, liabilities, business, prospects or
operations of the Fund from that set forth in the Prospectus and there
have been no transactions entered into by the Fund which are material
to the Fund
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other than those in the ordinary course of its business or as described
in the Prospectus.
(n) There are no legal or governmental proceedings pending or, to
the knowledge of the Fund and the Adviser, threatened against or
affecting the Fund that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
that are not described or filed as required.
(o) The Fund has all necessary consents, authorizations, approvals,
orders (including exemptive orders), certificates and permits of and
from, and has made all declarations and filings with, all governmental
authorities, self-regulatory organizations and courts and other
tribunals, whether foreign or domestic, to own and use its assets and
to conduct its business in the manner described in the Prospectus,
except to the extent that the failure to obtain or file the foregoing
would not have a material adverse effect on the Fund.
(p) (i) Each document, if any, filed pursuant to the Exchange Act or
the Investment Company Act and incorporated by reference in the
Prospectus complied when so filed in all material respects with the
Exchange Act or the Investment Company Act, (ii) each part of the
Registration Statement, when such part became effective, did not
contain and each such part, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (iii) the Registration
Statement and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Acts and (iv)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph (q) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
concerning any Underwriter furnished
5
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<PAGE>
to the Fund in writing by such Underwriter through you expressly for
use therein.
(q) The financial statements included in the Registration Statement
and the Prospectus (including documents incorporated therein by
reference) present fairly the financial position of the Fund as at the
dates indicated and said statements have been prepared in conformity
with generally accepted accounting principles. Ernst & Young LLP, whose
report is incorporated by reference in the Prospectus, are independent
public accountants with respect to the Fund as required by the Acts.
(r) There are no material restrictions, limitations or regulations
with respect to the ability of the Fund to invest its assets as
described in the Prospectus, other than as described therein.
(s) Any advertisement used with the written consent of the Fund in
the public offering of the Shares pursuant to Rule 482 under the
Securities Act (an "Omitting Prospectus") complied and complies with
the requirements of Rule 482 and does not contain an untrue statement
of a material fact.
2. Representations and Warranties of the Adviser. The Adviser
represents and warrants to each of the Underwriters that:
(a) The Adviser has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of New York,
has the corporate power and authority to conduct its business as
described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business requires such qualification, except to the extent that
failure to be so qualified or be in good standing would not have a
material adverse effect on the Adviser.
(b) The Adviser is duly registered as an investment adviser under
the Advisers Act, and is not prohibited by the Advisers Act or the
Investment Company Act from acting under the Advisory Agreement as an
investment adviser to the Fund as contemplated by the Prospectus, and
no order of suspension or revocation of such registration has been
issued or proceedings therefor initiated or, to the knowledge of the
Adviser, threatened by the Commission.
6
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<PAGE>
(c) Each of this Agreement and the Advisory Agreement has been duly
authorized, executed and delivered by the Adviser and complies with all
applicable provisions of the Acts. The Advisory Agreement, assuming due
authorization, execution and delivery by the other parties thereto,
constitutes the legal, valid and binding obligation of the Adviser,
enforceable against the Adviser in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
creditors' rights generally and by general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
(d) The execution and delivery by the Adviser of, and the
performance by the Adviser of its obligations under, this Agreement and
the Advisory Agreement do not and will not contravene any provision of
applicable law or the certificate of incorporation or by-laws of the
Adviser or any agreement or other instrument binding upon the Adviser
that is material to the Adviser, or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Adviser. No consent, approval, authorization, order or permit of, or
qualification with, any governmental body or agency, self-regulatory
agency or court or other tribunal, whether foreign or domestic, is
required for the performance by the Adviser of its obligations under
this Agreement or the Advisory Agreement except such as have been
obtained and as may be required by the Acts, the Exchange Act or the
securities or Blue Sky laws of the various states and foreign
jurisdictions in connection with the offer and sale of the Shares by
the Underwriters.
(e) There are no legal or governmental proceedings pending or, to
the knowledge of the Adviser, threatened against or affecting the
Adviser that are required to be described in the Registration Statement
or the Prospectus and are not so described.
(f) The Adviser has all necessary consents, authorizations,
approvals, orders (including exemptive orders), certificates and
permits of and from, and has made all declarations and filings with,
all governmental authorities, self-regulatory organizations and courts
and other tribunals, whether foreign or domestic, to own and use its
assets and to conduct its business in the manner described in the
Prospectus,
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except to the extent that the failure to obtain or file the foregoing
would not have a material adverse effect on the Adviser.
(g) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(h) The Advisory Agreement is in full force and effect and neither
the Adviser nor, to the Adviser's knowledge, the Fund is in default
thereunder and, to the knowledge of the Adviser, no event has occurred
which with the passage of time or the giving of notice or both would
constitute a default under such document.
(i) All information furnished by and pertaining to the Adviser for
use in the Registration Statement and Prospectus, including, without
limitation, the description of the Adviser, does not, and on the
Closing Date will not, contain any untrue statement of a material fact
or omit to state any material fact necessary to make such information
not misleading.
(j) There has not been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the business or operations of
the Adviser from that set forth in the Prospectus.
3. Agreements to Sell and Purchase. The Fund hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Fund the respective numbers of Shares set forth in Schedule I hereto opposite
their names at a price of $[ ] per Share plus accumulated dividends, if any,
to the Closing Date (the "Purchase Price").
The Fund hereby agrees that, during the period beginning on the date
hereof and continuing to and including the Closing Date, it will not offer,
sell, contract to sell or otherwise dispose of any preferred stock of the Fund
or warrants to purchase preferred stock of the Fund substantially similar to
the Shares (other than the Shares) without the prior written consent of Morgan
Stanley & Co. Incorporated.
8
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4. Terms of Public Offering. The Fund and the Adviser are advised by
you that the Underwriters propose to make a public offering of their
respective portions of the Shares as soon after the Registration Statement and
this Agreement have become effective as in your judgment is advisable. The
Fund and the Adviser are further advised by you that the Shares are to be
offered (i) to the public initially at a price of $25 per share (the "Public
Offering Price") plus accrued dividends, if any, and (ii) to certain dealers
selected by you at a price that represents a concession not in excess of $[ ]
per Share under the Public Offering Price, and that any Underwriter may allow,
and such dealers may reallow, a concession, not in excess of $[ ] per Share to
any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Shares shall be made to the
Fund in Federal or other funds immediately available in New York City against
delivery of the Shares for the respective accounts of the several underwriters
at the office of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New
York, at 10:00 A.M., local time, on August , 1996 or at such other time on the
same or such other date, not later than [ ], 1996, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "Closing Date."
Certificates for the Shares shall be in definitive form and
registered in such names and in such denominations as you shall request in
writing not later than two full business days prior to the Closing Date. Such
certificates shall be made available to you for inspection not later than
10:00 A.M. local time, on the business day next preceding the Closing Date.
The certificates evidencing the Shares shall be delivered to you on the
Closing Date, for the respective accounts of the several Underwriters, with
any transfer taxes payable in connection with the transfer of the Shares to
the Underwriters duly paid, against payment of the purchase price therefor.
6. Conditions to the Underwriters' Obligations. The respective
obligations of the Fund and the Adviser and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
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(a) Subsequent to the execution an delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating
accorded any of the Fund's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act;
and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, of the Fund or the Adviser or in the
investment objectives, investment policies, liabilities, business,
prospects or operations of the Fund from that set forth in the
Registration Statement, that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in
the Prospectus.
(b) The Underwriters shall have received on the Closing Date
separate certificates, dated the Closing Date and signed by an
executive officer of each of the Fund and the Adviser in his or her
capacity as such, to the effect set forth in clause (a) above and to
the effect that the respective representations and warranties of the
Fund and the Adviser contained in this Agreement shall be true and
correct in all material respects as of the Closing Date and that the
Fund and the Adviser have in all material respects complied with all of
the agreements and satisfied all of the conditions on their part to be
performed or satisfied hereunder on or before the Closing Date.
(c) The Adviser and the Fund shall have each performed in all
material respects all of their respective obligations to be performed
hereunder on or prior to the Closing Date.
(d) You shall have received on the Closing Date an opinion of Brown
& Wood LLP, special counsel for the Fund, dated the Closing Date, to
the effect that:
(i) the Fund is qualified to do business and in good standing
as a foreign corporation in the
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State of New York, and, to such counsel's knowledge, owns,
possesses or has obtained and currently maintains, all material
governmental licenses, permits, consents, orders approvals and
other authorizations under the Federal laws of the United States
and the laws of the State of New York necessary to carry on its
business as contemplated by the Prospectus;
(ii) this Agreement has been duly authorized, executed and
delivered by the Fund and complies with the provisions of the
Investment Company Act applicable to the Fund;
(iii) the Registration Statement is effective under the
Securities Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has
been issued under the Securities Act or proceedings therefor
initiated or threatened by the Commission; the Fund's Registration
Statement on Form 8-A under the Exchange Act is effective;
(iv) at the time the Registration Statement became effective,
the Registration Statement (other than the financial statements
and other financial or statistical information included therein,
as to which no opinion need be rendered) complied as to form in
all material respects with the requirements of the Acts;
(v) to such counsel's knowledge, (A) there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments of the Fund required to be described or referred to in
the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as
exhibits thereto, (B) the descriptions thereof are correct in all
material respects, (C) references thereto are correct, and (D) no
default exists in the due performance or observance by the Fund of
any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement,
note, lease or other instrument so described, referred to or filed
as an exhibit to the Registration Statement;
(vi) no consent, approval, authorization or order of any court
or governmental authority or agency is required in connection with
the
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performance by the Fund of its obligations hereunder, except such
as has been obtained under the Acts or such as may be required
under state securities laws; and to such counsel's knowledge, the
execution and delivery of this Agreement and the consummation of
the transactions contemplated herein and therein will not conflict
with or constitute a breach of, or a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Fund pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which the Fund is a party or by which it may be
bound or to which any of the property or assets of the Fund is
subject, nor will such action result in any violation of the
provisions of the Charter or the By-Laws of the Fund, or, to such
counsel's knowledge, any Federal or New York law or administrative
regulation, or administrative or court decree;
(vii) each of the Advisory Agreement and the Custodian Contract
has been duly authorized and approved by the Fund, each complies
as to form in all material respects with all applicable provisions
of the Investment Company Act, and each has been duly executed by
the Fund;
(viii) the Fund is registered with the Commission under the
Investment Company Act as a closed-end, diversified, management
investment company, and all required action has been taken by the
Fund under the Acts to make the public offering and consummate the
sale of the Shares pursuant to this Agreement; the provisions of
the Charter and the By-Laws of the Fund comply as to form in all
material respects with the requirements of the Investment Company
Act; and, to such counsel's knowledge, no order of suspension or
revocation of such registration under the Investment Company Act,
has been issued or proceedings therefor initiated or threatened by
the Commission; and
(ix) the information in the Prospectus under the caption
"Taxation", to the extent that it constitutes matters of Federal
income tax law or legal conclusions relating to Federal income tax
matters, has been reviewed by them and is correct in all material
respects.
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In giving their opinion Brown & Wood LLP shall additionally state that
nothing has come to their attention that would lead them to believe
that the Registration Statement, at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of the
time it was first provided to the Underwriters or as of the Closing
Date, included an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that such counsel need not express any belief
with respect to the financial statements and other financial and
statistical information included in the Registration Statement and the
Prospectus. In giving their opinion, Brown & Wood LLP (i) may state
that they express no opinion as to the laws of any jurisdiction other
than the laws of the State of New York and the Federal laws of the
United States of America, (ii) may rely as to matters involving the
laws of the State of Maryland upon the opinion of Venable, Baetjer and
Howard LLP referred to in (e) below, and (iii) may rely, as to matters
of fact, upon the representations and warranties made by the Fund and
the Adviser herein and on certificates and written statements of
officers and employees of and accountants for the Fund and the Adviser
and of public officials. Except as otherwise specifically provided
herein, when giving their opinions "to such counsel's knowledge", Brown
& Wood LLP have relied solely upon an inquiry of the attorneys of that
firm who have worked on matters for the Fund, on certificates or
written statements of officers of the Fund and, where appropriate, a
review of the Registration Statement, Prospectus, exhibits to the
Registration Statement, the Fund's Charter and By-laws and a review of
the stock ledger books and minute books of the Fund and have made no
other investigation or inquiry.
(e) You shall have received on the Closing Date an opinion of
Venable, Baetjer and Howard LLP, special Maryland counsel to the Fund,
dated the Closing Date, to the effect that:
(i) the Fund has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Maryland;
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<PAGE>
(ii) the Fund has corporate power and authority, under the laws
of the State of Maryland, to own, lease and operate its properties
and conduct its business as described in the Registration
Statement and in the Prospectus;
(iii) the authorized capital stock of the Fund conforms as to
legal matters in all material respects to the description thereof
in the Registration Statement under the captions "Description of
Cumulative Preferred Stock" and "Description of Capital Stock and
Other Securities - Capital Stock";
(iv) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
the Shares will not be subject to preemptive or other similar
rights pursuant to the charter or Bylaws of the Fund or the
Maryland General Corporation Law; the form of certificate used to
evidence the Shares is in due and proper form and complies with
all provisions of applicable Maryland law;
(v) the Fund has full corporate power to enter into each
Fundamental Agreement; each Fundamental Agreement has been duly
and validly authorized, executed and delivered by the Fund;
(vi) to such counsel's knowledge, the execution and delivery of
this Agreement and the consummation of the transactions
contemplated herein will not conflict with or constitute a breach
of the Charter or the By-Laws of the Fund, or any Maryland law
(other than Maryland securities laws) or regulation, or, to their
knowledge, any order of any Maryland court, governmental
instrumentality or arbitrator; and
(vii) all descriptions in the Prospectus of Maryland statutes and
regulations or legal or governmental proceedings, if any, under
the laws of the State of Maryland are accurate in all material
respects.
In giving their opinion, Venable, Baetjer, and Howard LLP may rely, as
to matters of fact, upon the representations and warranties made by the
Fund and the Adviser herein and on certificates and written
14
<PAGE>
<PAGE>
statements of officers and employees of and accountants for the Fund
and the Adviser and of public officials. Except as otherwise
specifically provided herein, when giving their opinions "to such
counsel's knowledge", Venable, Baetjer and Howard LLP have relied
solely upon an inquiry of the attorneys of that firm who have worked on
matters for the Fund, on certificates or written statements of officers
of the Fund and, where appropriate, a review of the Registration
Statement, Prospectus, exhibits to the Registration Statement, the
Fund's Charter and By-laws and have made no other investigation or
inquiry.
(f) You shall have received on the Closing Date an opinion of Howard
J. Kashner, Esq., General Counsel for the Adviser, dated the Closing
Date, to the effect that:
(i) the Adviser has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of New York, with corporate power and authority to conduct
its business as described in the Registration Statement and in the
Prospectus;
(ii) the Adviser is duly registered as an investment adviser
under the Advisers Act and, subject to the matters covered by the
no-action letters of the Commission in Quest Advisory Corp.; Royce
Value Trust, Inc. (pub. avail. December 22, 1986) and Royce Value
Trust, Inc. (pub. avail. July 29, 1988) (hereinafter collectively
referred to as the "No-Action Letters"), is not prohibited by the
Advisers Act or the Investment Company Act, from acting under the
Advisory Agreement for the Fund as contemplated by the Prospectus;
(iii) this Agreement and the Advisory Agreement each has been
duly authorized, executed and delivered by the Adviser, and the
Advisory Agreement subject to the matters covered by the No-Action
Letters constitutes a valid and binding obligation of the Adviser,
enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or other
laws relating to or affecting creditors' rights generally and to
general equitable principles (except as to those provisions
relating to indemnity or contribution for liabilities arising
under such agreement, as to which no opinion need be expressed);
and, to
15
<PAGE>
<PAGE>
his knowledge, neither the execution and delivery of this
Agreement or the Advisory Agreement nor the performance by the
Adviser of its obligations hereunder or thereunder will conflict
with, or result in a breach of, any of the terms and provisions
of, or constitute, with or without the giving of notice or the
lapse of time or both, a default under, any agreement or
instrument to which the Adviser is a party or by which the Adviser
is bound, or, except as set forth in the No-Action Letters, any
law, order, rule or regulation applicable to the Adviser of any
jurisdiction, court, Federal or state regulatory body,
administrative agency or other governmental body, stock exchange
or securities association having jurisdiction over the Adviser or
its properties or operations;
(iv) to his knowledge, the description of the Adviser in the
Registration Statement and in the Prospectus does not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading;
In giving his opinion, Howard J. Kashner, Esq., (i) may state that
he expresses no opinion as to the laws of any jurisdiction other than
the laws of the State of New York and the federal laws of the United
States of America, and (ii) may rely, as to matters of fact, upon the
representations and warranties made by the Fund and the Adviser herein
and on certificates and written statements of officers and employees of
and accountants for the Fund and the Adviser and of public officials.
(g) You shall have received on the Closing Date an opinion of Davis
Polk & Wardwell, special counsel for the Underwriters, dated the
Closing Date, stating that the statements in the Prospectus under the
caption "Underwriters," insofar as such statements constitute a summary
of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein.
In addition to the foregoing opinion, such counsel shall advise the
Underwriters that, in the light of such counsel's understanding of the
applicable law and the experience it has gained through its practice
16
<PAGE>
<PAGE>
thereunder, nothing has come to its attention that would lead it to
believe that (except for financial statements, schedules and other
financial, economic or statistical information contained in the
Registration Statement or the Prospectus, as to which counsel need
express no belief) the Registration Statement, on the date it became
effective, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus,
as of the date thereof, contained any untrue statement of a material
fact or omitted to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. Counsel shall also be permitted to state
that because of the limitations inherent in the independent
verification of factual matters and the character of determinations
involved in the registration process, that counsel does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus.
Davis Polk & Wardwell may, with respect to the preceding paragraph,
state that its opinion and belief are based upon its participation in
the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification
except as specified.
The opinions of Brown & Wood LLP, Venable, Baetjer and Howard LLP
and Howard J. Kashner, Esq. described in paragraphs (d), (e) and (f)
above shall be rendered to the Underwriters at the request of the Fund
and shall so state therein.
(h) You shall have received on the date of this Agreement a letter
dated such date, and also on the Closing Date a letter dated the
Closing Date, in each case in form and substance satisfactory to you,
from Ernst & Young LLP, independent public accountants, containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information regarding the
Fund contained in or incorporated by reference into the Registration
Statement and the Prospectus.
17
<PAGE>
<PAGE>
(i) No proceedings shall have been instituted or threatened by the
Commission which would adversely affect the Fund's standing as a
registered investment company under the Investment Company Act or the
standing of the Adviser as a registered investment adviser under the
Advisers Act.
(j) The Shares shall have been duly authorized for listing on the
New York Stock Exchange, subject only to official notice of issuance
thereof.
(k) The Shares shall have been assigned the rating of Moody's set
forth in Section 1(k) hereof and a letter to that effect, dated the
Closing Date, shall have been received from Moody's.
(l) At the Closing Date and assuming the receipt of the net proceeds
from the sale of the Shares, the Asset Coverage requirement shall have
been met and the Portfolio Calculation for Moody's is at least equal to
the Basic Maintenance Amount (each as defined in the Prospectus), and
the Underwriters shall have received on the Closing Date a certificate,
dated the Closing Date and signed by the President, or a Vice President
or the Treasurer of the Fund, to that effect.
7. Covenants of the Fund. In further consideration of the agreements
of the Underwriters herein contained, the Fund covenants and agrees with each
Underwriter as follows:
(a) To notify you immediately, and confirm such notice in
writing, (i) of the institution of any proceedings pursuant to
Section 8(e) of the Investment Company Act and (ii) of the
happening of any event during the period described in paragraph
(d) below which in the judgment of the Fund makes any statement in
the Registration Statement or the Prospectus untrue in any
material respect or which requires the making of any change in or
addition to the Registration Statement or the Prospectus in order
to make the statements therein not misleading in any material
respect. If at any time the Commission shall issue any order
suspending the effectiveness of the Registration Statement or an
order pursuant to Section 8(e) of the Investment Company Act, the
Fund will make every reasonable effort to obtain the withdrawal of
such order at the earliest possible moment.
18
<PAGE>
<PAGE>
(b) To furnish you, without charge, signed copies of the
Registration Statement including exhibits and to each other
Underwriter conformed copies of the Registration Statement without
exhibits and, during the period described in paragraph (d) below,
as many copies of the Prospectus and any supplements and
amendments thereto as you may reasonably request.
(c) Before amending or supplementing the Registration Statement
or the Prospectus during the period described in paragraph (d)
below, to furnish you a copy of each such proposed amendment or
supplement, and to file no such proposed amendment or supplement
to which you reasonably object.
(d) If, during such period after the first date of the public
offering of the Shares as in the opinion of your counsel the
Prospectus is required by law to be delivered in connection with
sales by an Underwriter or dealer, any event shall occur as a
result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare
and furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the Fund)
to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements
in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(e) To use its best efforts to maintain its qualification as a
regulated investment company under Subchapter M of the Code.
(f) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request and to pay all expenses (including
19
<PAGE>
<PAGE>
reasonable fees and disbursements of counsel) in connection
therewith.
(g) To make generally available to the Fund's security holders
as soon as practicable, but not later than 60 days after the close
of the period covered thereby, an earning statement covering a
twelve-month period ending December 31, 1997 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules
and regulations of the Commission thereunder.
(h) To pay all costs, expenses, fees and taxes incident to (i)
the preparation, printing and filing of the Registration Statement
and of each amendment thereto, each preliminary prospectus and the
Prospectus, and any amendments or supplements thereto, (ii) the
printing of this Agreement, the Underwriters' Questionnaire and
such other agreements as you may reasonably request, (iii) the
preparation, issuance and delivery of the certificates for the
Shares to the Underwriters, including stock transfer taxes, if
any, payable upon the sale, issuance and delivery by the Fund to
the Underwriters of the Shares, (iv) the fees and disbursements of
the Fund's counsel and accountants, (v) furnishing such copies of
the Registration Statement, the Prospectus and any related
preliminary prospectus, and all amendments and supplements
thereto, as may be reasonably requested for use in connection with
the offering and sale of the Shares by the Underwriters or by
dealers to whom Shares may be sold, (vi) the copying and delivery
to the Underwriters of copies of the Blue Sky Survey, (vii) any
fees charged by Moody's for rating the Shares and (viii) the fees
and expenses incurred with respect to the listing of the Shares on
the New York Stock Exchange, including the listing fees of the New
York Stock Exchange and the preparation, printing and the filing
fees with respect to the distribution of documents relating
thereto, and the registration of the Shares under the Exchange
Act.
8. Covenants of the Adviser. The Adviser will use reasonable efforts
to cause the Fund to comply with each of its covenants and agreements
contained in paragraphs (a) through (j) of Article 7 above.
20
<PAGE>
<PAGE>
9. Indemnity and Contribution. (a) Each of the Fund and the Adviser,
jointly and severally, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (a
"controlling person") from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Underwriter or any such controlling person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus, any Omitting Prospectus or the Prospectus (as amended or
supplemented if the Fund shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission
based upon information relating to any Underwriter or furnished to the Fund in
writing by any Underwriter through you expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Fund shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf
of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares
to such person, and if the Prospectus (as so amended or supplemented) would
have cured the defect giving rise to such losses, claims, damages or
liabilities.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Fund and the Adviser, their respective directors, and
each officer of the Fund who signs the Registration Statement and each person,
if any, who controls the Fund or the Adviser within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, the Prospectus (as amended or supplemented if the
Fund shall have furnished any amendments or supplements thereto), any
preliminary prospectus, or any Omitting Prospectus, or caused by any
21
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<PAGE>
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Underwriter furnished to
the Fund in writing by such Underwriter through you expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement thereto,
any preliminary prospectus or any Omitting Prospectus.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either of paragraph (a) or (b) of this
Section 7, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for (A) the fees and expenses of more than one
separate firm (in addition to any local counsel) for all Underwriters and all
persons, if any, who control any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, (B) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for the Fund, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Fund within the meaning of
either such Section, and (C) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Adviser, its directors and
each person, if any, who controls the Adviser within the meaning of either
such Section, and that all such fees and expenses shall be reimbursed as they
are incurred. In the case of any such separate firm for the Underwriters and
such control persons of Underwriters, such firm shall be designated in writing
by
22
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<PAGE>
Morgan Stanley. In the case of any such separate firm for the Fund and such
directors, officers and control persons of the Fund, such firm shall be
designated in writing by the Fund. In the case of any such separate firm for
the Adviser and such directors and control persons of the Adviser, such firm
shall be designated in writing by the Adviser. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if, in the absence of any
settlement, there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
or (b) of this Section 9 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Fund and the Adviser on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Fund and
the Adviser on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Fund or the Adviser on
the one hand and of the Underwriters on the other hand shall be deemed to be
in the same respective proportions as the net proceeds from the offering
(before deducting expenses) received by the Fund on the one hand and the total
underwriting discounts and commissions received by the Underwriters on the
other hand, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Shares. The
relative
23
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<PAGE>
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Fund or the Adviser on the one hand or by the Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this
Section 9 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(e) The Fund, the Adviser and the Underwriters agree that it would
not be just or equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (d)
of this Section 9. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in paragraph
(d) of this Section 9 shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and offered to
the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 9 and the representations and warranties of the Fund and the Adviser
contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter, its officers or
directors or any person controlling any Underwriter, the Adviser, its officers
or directors or any person controlling the Adviser or the Fund,
24
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<PAGE>
its officers or directors or any person controlling the Fund and (iii)
acceptance of and payment for any of the Shares.
(g) It is understood that this indemnity and contribution agreement
shall have no effect on any other agreement or arrangement between the Fund
and the Adviser with respect to indemnity and contribution.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Fund, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, either of
the New York Stock Exchange or the National Association of Securities Dealers,
Inc., (ii) trading of any securities of the Fund shall have been suspended on
any exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities shall have been declared by either federal or
New York State authorities or (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in United States financial markets or
any calamity or crises that, in your judgment, is material and adverse and (b)
in the case of any of the events specified in clauses (a)(i) through (iv),
such event singly or together with any other such events makes it, in your
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus. If this Agreement is terminated pursuant to
this Section 10, such termination shall be without liability of any party to
any other party.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Underwriters shall
fail or refuse to purchase Shares that it or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number of the Shares to
be purchased on such date, the other Underwriters shall be obligated severally
in the proportions that the number of Shares set forth opposite their
respective names in Schedule I bears to the aggregate number
of Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to
25
<PAGE>
<PAGE>
purchase on such date; provided that in no event shall the number of Shares
that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 11 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder on such
date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be
purchased, and arrangements satisfactory to you and the Fund for the purchase
of such Shares are not made within 36 hours after such default, this Agreement
shall terminate without liability on the part of any non-defaulting
Underwriter, the Fund and the Adviser. In any such case either you or the Fund
shall have the right to postpone the Closing Date but in no event for longer
than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Fund or the Adviser
to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Fund or the Adviser shall be unable to
perform its obligations under this Agreement, the Fund or the Adviser, as the
case may be, will reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
26
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<PAGE>
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. Headings. The headings of the Sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
ROYCE VALUE TRUST, INC.
By___________________________________
QUEST ADVISORY CORP.
By___________________________________
Accepted, August [ ], 1996
MORGAN STANLEY & CO.
INCORPORATED
A.G. EDWARDS & SONS, INC.
PAINWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
Acting on behalf of themselves
and the several Underwriters
named in Schedule I hereto.
By MORGAN STANLEY & CO.
INCORPORATED
By_________________________________
27
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<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Shares To
Underwriter Be Purchased
----------- ------------
<S> <C>
Morgan Stanley & Co. Incorporated. . . . . . .
A.G. Edwards & Sons, Inc.. . . . . . . . . . .
PainWebber Incorporated. . . . . . . . . . . .
Prudential Securities Incorporated . . . . . .
Smith Barney Inc.. . . . . . . . . . . . . . .
[NAMES OF OTHER UNDERWRITERS]. . . . . . . . .
---------
Total. . . . . . . . . . . . . . . .
---------
---------
</TABLE>
<PAGE>
<PAGE>
MORGAN STANLEY & CO.
Incorporated
1251 Avenue of the Americas
New York, New York 10020
MASTER AGREEMENT AMONG UNDERWRITERS
August 1, 1982
Dear Sirs:
From time to time we may invite you (and others) to participate on the
terms set forth herein as underwriter in connection with certain public
offerings of securities that are managed by us. If we invite you to participate
in a specific offering (an "Offering") to which this Master Agreement Among
Underwriters shall apply, we will send you, by wire, telex or other written
means, an agreement among underwriters, substantially in the form of Exhibit A
hereto (an "AAU"). Any such AAU may exclude or revise such provisions of this
Master Agreement Among Underwriters or may contain such additional provisions as
you and we mutually deem appropriate. An Underwriters' Questionnaire to be used
in connection with such Offerings is attached as Exhibit B hereto.
Each AAU shall relate to a specific Offering and shall identify (i) the
securities to be offered, their principal terms, the issuer thereof and, if
different from the issuer, the seller or sellers of such securities, (ii) the
underwriting agreement providing for the purchase of such securities by the
several underwriters and whether such agreement provides the several
underwriters with an option to purchase additional securities to cover
over-allotments, (iii) the price at which such securities are to be purchased by
the several underwriters from the seller or sellers thereof (or a formula
establishing the maximum such price), (iv) the offering terms, including, if
applicable, the public offering price, concession, reallowance and management
fee with respect to such securities, (v) the manager or managers for such
Offering and (vi) if applicable, the trustee for the indenture under which such
securities will be issued.
Each AAU shall also set forth your proposed participation in the
Offering to which it relates and you hereby agree to accept such participation
on the terms set forth or contemplated herein and in such AAU without further
action on your part. YOU MAY DECLINE SUCH PARTICIPATION ONLY IF WE RECEIVE BY
WIRE, TELEX OR OTHER WRITTEN MEANS A NOTICE FROM YOU TO THAT EFFECT BEFORE THE
TIME SPECIFIED IN SUCH AAU FOR SUCH A NOTICE. IF WE DO NOT RECEIVE SUCH A NOTICE
BY SUCH TIME, SUCH AAU SHALL CONSTITUTE A VALID AND BINDING CONTRACT BETWEEN US.
Unless we have received by wire, telex or other written means a notice
from you stating exceptions to the Underwriters' Questionnaire attached as
Exhibit B hereto before the time specified in an AAU for such a notice, you
hereby confirm that you have no exceptions in connection with the Offering to
which such AAU relates.
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Except to the extent an AAU provides otherwise, you and we hereby agree
that the following general provisions shall be incorporated by reference in each
AAU. For purposes of such general provisions, the term Applicable AAU means the
AAU incorporating such general provisions by reference; the term Agreement means
the Applicable AAU including the general provisions incorporated therein by
reference as it applies to the Offering identified in such Applicable AAU; the
terms Securities, Issuer, Underwriting Agreement, Underwriters, Manager and
Trustee shall have the meanings set forth in the Applicable AAU; the term Firm
Securities means the Securities that the several Underwriters are initially
committed to purchase under the Underwriting Agreement; and the term Additional
Securities means the Securities, if any, that the several Underwriters have an
option to purchase under the Underwriting Agreement to cover over-allotments.
I.
1.1. You understand that the Issuer has filed with the Securities and
Exchange Commission (the "Commission") a registration statement including a
prospectus relating to the Securities. If the registration statement relates to
securities to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 (the "1933 Act"), the term Registration
Statement means such registration statement as amended to the date of the
Underwriting Agreement. Otherwise, the term Registration Statement means such
registration statement as amended at the time when it becomes effective. The
term Prospectus means the prospectus, together with the final prospectus
supplement, if any, relating to the offering of the Securities, filed pursuant
to Rule 424 under the 1933 Act. The term preliminary prospectus means any
preliminary prospectus relating to the offering of the Securities or any
preliminary prospectus supplement together with a prospectus relating to the
offering of the Securities. As used herein the terms Registration Statement,
Prospectus and preliminary prospectus shall include in each case the material,
if any, incorporated by reference therein.
1.2. You authorize the Manager, on your behalf, to determine the form
of the Underwriting Agreement and to execute and deliver to the seller or
sellers (collectively, the "Seller") of the Securities the Underwriting
Agreement to purchase (i) up to the amount of Firm Securities set forth in the
Applicable AAU and (ii) if the Manager elects on behalf of the several
Underwriters to exercise any option to purchase Additional Securities, up to the
amount of Additional Securities set forth in the Applicable AAU, subject, in
each case, to reduction pursuant to Article III. The amount of Firm Securities
set forth opposite each Underwriter's name in the Underwriting Agreement plus
any additional Firm Securities which you may become obligated to purchase under
the Underwriting Agreement or Article X hereof is hereinafter referred to as the
original purchase obligation of such Underwriter and the ratio which such
original purchase obligation bears to the total amount of Firm Securities set
forth in the Underwriting Agreement is hereinafter referred to as the
underwriting percentage of such Underwriter.
II.
2.1. You authorize the Manager to act as manager of the offering of the
Securities for sale by the Underwriters (the "Underwriters' Securities") or by
the Seller pursuant to delayed delivery contracts (the "Contract Securities"),
if any, contemplated by the Underwriting Agreement. You authorize the Manager to
(i) vary the offering terms of the Securities in effect at any time, including,
if applicable, the public offering price, concession and reallowance, (ii)
purchase any or all of the Additional Securities for the accounts of the several
Underwriters pursuant to the Underwriting Agreement, (iii) determine, within the
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limits of any formula set forth in the Applicable AAU, on your behalf, the price
at which the Securities are to be purchased by the several Underwriters from the
Seller, (iv) agree, on your behalf, to any addition to, change in or waiver of
any provision of the Underwriting Agreement (other than a change in the purchase
price of the Securities from that contemplated by the Applicable AAU or an
increase of your original purchase obligation) and (v) take any other action as
may seem advisable to the Manager in respect of the offering of the Securities.
2.2. The public offering of the Securities is to [sic] made as soon
after the Underwriting Agreement is entered into by the Seller and the Manager,
as in the Manager's judgment is advisable, on the terms and conditions set forth
in the Prospectus and the Applicable AAU. Any public advertisement of the
offering of the Securities shall be made by the Manager on behalf of the
Underwriters on such date as the Manager shall determine. You agree not to
advertise such offering prior to the date of the Manager's advertisement thereof
without the Manager's consent. Any advertisement you may make of such offering
after such date will be your own responsibility and at your own expense.
2.3. You authorize the Manager to sell for your account to institutions
such Securities purchased by you from the Seller as the Manager shall determine.
Except for sales for the accounts of Underwriters designated by a purchasing
institution, aggregate sales of Securities to institutions shall be made for the
accounts of the several Underwriters as nearly as practicable in their
respective underwriting percentages.
2.4. You authorize the Manager to sell for your account to dealers such
Securities purchased by you from the Seller as the Manager shall determine.
Sales of Securities to dealers shall be made for the account of each Underwriter
approximately in the proportion that Securities of such Underwriter held by the
Manager for such sales bears to all Securities so held.
2.5. The Manager will advise you promptly, on the date of the public
offering, as to the Securities purchased by you which you shall retain for
direct sale. At any time prior to the termination of the Agreement, any
Securities purchased by you, which are held by the Manager for sale for your
account as set forth above but not sold, may, on your request and at the
Manager's discretion, be released to you for direct sale, and Securities so
released to you shall no longer be deemed held for sale by the Manager.
2.6. From time to time prior to the termination of the Agreement, on
the request of the Manager, you will advise the Manager of the amount of
Securities remaining unsold which were retained by or released to you for direct
sale and of the amount of Securities and other securities of the Issuer
remaining unsold which were delivered to you pursuant to Article IV hereof, and,
on the request of the Manager, you will release to the Manager any such
Securities and other securities remaining unsold (i) for sale by the Manager for
your account to institutions or dealers, (ii) for sale by the Seller pursuant to
delayed delivery contracts or (iii) if, in the Manager's opinion, such
Securities or other securities are needed to make delivery against sales made
pursuant to Article IV hereof.
III.
3.1. You agree that arrangements for sales of Contract Securities will
be made only through the Manager acting either directly or through dealers
(including Underwriters acting as dealers), and you authorize the Manager to act
on your behalf in making such arrangements. The aggregate amount of Securities
to be purchased by the several Underwriters shall be reduced by the respective
amounts of Contract Securities attributed to such Underwriters as hereinafter
provided. Subject to the provisions of Section 3.2, the aggregate amount of
Contract Securities shall be attributed to the Underwriters as nearly as
practicable in their respective underwriting percentages, except that, as
determined by the Manager in its discretion, (i)
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Contract Securities directed and allocated by a purchaser to particular
Underwriters shall be attributed to such Underwriters and (ii) Contract
Securities for which arrangements have been made for sale through dealers shall
be attributed to each Underwriter approximately in the proportion that
Securities of such Underwriter held by the Manager for sales to dealers bear to
all Securities so held. The fee with respect to Contract Securities payable to
the Manager for the accounts of the Underwriters pursuant to the Underwriting
Agreement shall be credited to the accounts of the respective Underwriters in
proportion to the Contract Securities attributed to such Underwriters pursuant
to the provisions of this Section 3.1, less, in the case of each Underwriter,
the commission to dealers on Contract Securities sold through dealers and
attributed to such Underwriter.
3.2. If the amount of Contract Securities attributable to an
Underwriter pursuant to Section 3.1 would exceed such Underwriter's original
purchase obligation reduced by the amount of Underwriters' Securities sold by or
on behalf of such Underwriter, such excess shall not be attributed to such
Underwriter, and such Underwriter shall be regarded as having acted only as a
dealer with respect to, and shall receive only the commission to dealers on,
such excess.
IV.
4.1. You authorize Morgan Stanley & Co. Incorporated to buy and sell
(i) Securities, (ii) shares of common stock ("Common Stock") of the Issuer, if
the Securities are Common Stock or securities of the Issuer that may be
exchanged for or converted into Common Stock, and (iii) any other securities of
the Issuer designated in the Applicable AAU, in addition to Securities sold
pursuant to Article II hereof, in the open market or otherwise, for long or
short account, on such terms as it shall deem advisable, and to over-allot in
arranging sales. Such purchases and sales and over-allotments shall be made for
the accounts of the several Underwriters as nearly as practicable in their
respective underwriting percentages. Any securities which may have been
purchased by Morgan Stanley & Co. Incorporated for stabilizing purposes in
connection with the offering of the Securities prior to the execution of the
Applicable AAU shall be treated as having been purchased pursuant to this
Section 4.1 for the accounts of the several Underwriters. At no time shall your
net commitment pursuant to the foregoing authorization exceed 10% of your
original purchase obligation. On demand you will take up and pay for any
securities of the Issuer so purchased for your account and deliver against
payment any securities of the Issuer so sold or over-allotted for your account.
Morgan Stanley & Co. Incorporated agrees to notify you if it engages in any
stabilization transaction requiring reports to be filed pursuant to Rule 17a-2
under the Securities Exchange Act of 1934 (the "1934 Act") and to notify you of
the date of termination of stabilization. You agree to file with Morgan Stanley
& Co. Incorporated any reports required of you pursuant to such Rule not later
than five business days following the day upon which stabilization was
terminated and you authorize Morgan Stanley & Co. Incorporated to file on your
behalf with the Commission any reports required by such Rule.
4.2. If pursuant to the provisions of Section 4.1 and prior to the
termination of the Agreement (or prior to such earlier date as Morgan Stanley &
Co. Incorporated may have determined) Morgan Stanley & Co. Incorporated
purchases or contracts to purchase for the account of any Underwriter in the
open market or otherwise any Securities which were retained by, or released to,
you for direct sale, or any Securities which may have been issued on transfer or
in exchange for such Securities, and which Securities were therefore not
effectively placed for investment by you, you authorize Morgan Stanley & Co.
Incorporated either to charge your account with an amount equal to the
concession to dealers with respect thereto, which amount shall be credited
against the cost of such Securities, or to require you to repurchase such
Securities at a price equal to the total cost of such purchase, including
transfer taxes, accrued interest, dividends and commissions, if any.
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4.3. If the Securities are Common Stock or securities of the Issuer
that may be exchanged for or converted into Common Stock, you agree that you
will not, without the advanced approval of Morgan Stanley & Co. Incorporated,
buy, sell, deal or trade in (i) any Common Stock, (ii) any security of the
Issuer convertible into Common Stock or (iii) any right or option to acquire or
sell Common Stock or any security of the Issuer convertible into Common Stock,
for your own account or for the account of a customer, except:
(a) as provided for in the Agreement or the Underwriting
Agreement;
(b) that you may convert any security of the Issuer convertible
into Common Stock owned by you and sell the Common Stock acquired upon
such conversion and that you may deliver Common Stock owned by you upon
the exercise of any option written by you as permitted by the
provisions set forth herein;
(c) in brokerage transactions on unsolicited orders which have not
resulted from activities on your part in connection with the
solicitation of purchases and which are executed by you in the ordinary
course of your brokerage business; and
(d) that on or after the date of the initial public offering of
the Securities, you may execute covered writing transactions in options
to acquire Common Stock, when such transactions are covered by
Securities, for the accounts of customers.
An opening uncovered writing transaction in options to acquire Common Stock for
your account or for the account of a customer shall be deemed, for purposes of
this Section 4.3, to be a sale of Common Stock which is not unsolicited. The
term "opening uncovered writing transaction in options to acquire" as used above
means a transaction where the seller intends to become a writer of an option to
purchase any Common Stock which he does not own. An opening uncovered purchase
transaction in options to sell Common Stock for your account or for the account
of a customer shall be deemed, for purposes of this paragraph, to be a sale of
Common Stock which is not unsolicited. The term "opening uncovered purchase
transaction in options to sell" as used above means a transaction where the
purchaser intends to become an owner of an option to sell Common Stock which he
does not own.
4.4. If the Securities are not shares of Common Stock or securities of
the Issuer that may be exchanged for or converted into Common Stock, you agree
that you will not bid for or purchase, or attempt to induce any other person to
purchase, any Securities or any other securities of the Issuer designated in the
Applicable AAU other than (i) as provided for in the Agreement or the
Underwriting Agreement, (ii) as approved by Morgan Stanley & Co. Incorporated or
(iii) as a broker in executing unsolicited orders.
4.5. You represent that you have not participated, since you were
invited to participate in the offering of the Securities, in any transaction
prohibited by Sections 4.3 or 4.4 and that you have at all times complied with
the provisions of Rule 10b-6 of the Commission applicable to such offering.
V.
5.1. On the date on which the Underwriters are required to pay the
Seller for the Firm Securities, at the office of Morgan Stanley & Co.
Incorporated, 55 Water Street, New York, New York, prior to 8:45 A.M. (New York
City time) you will deliver to the Manager a certified or official bank check,
payable to the order of Morgan Stanley & Co. Incorporated in New York Clearing
House funds (or other next day funds), for (i) an amount equal to the public
offering price less the selling concession in respect of the Firm
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Securities to be purchased by you, (ii) an amount equal to the public offering
price less the selling concession in respect of such of the Firm Securities to
be purchased by you as shall have been retained by or released to you for direct
sale or (iii) the amount set forth or indicated in the Applicable AAU, as the
Manager shall advise. You will make similar payment as the Manager may direct
for Additional Securities, if any, to be purchased by you on the date specified
by the Manager for such payment. The Manager will make payment to the Seller
against delivery to the Manager for your account of the Securities to be
purchased by you and the Manager will deliver to you the Securities paid for by
you which shall have been retained by or released to you for direct sale. Unless
you promptly give the Manager instructions otherwise, if transactions in the
Securities may be settled through the facilities of The Depository Trust
Company, payment for and delivery of Securities purchased by you will be made
through such facilities, if you are a member, or, if you are not a member,
settlement may be made through your ordinary correspondent who is a member.
VI.
6.1. You authorize the Manager to charge your account as compensation
for the Manager's services in connection with the Securities, including the
purchase from the Seller and the management of the offering of the Securities,
the amount, if any, set forth as the Management Fee in the Applicable AAU.
6.2. You authorize the Manager to charge your account with your
underwriting percentage of all expenses incurred by the Manager under the
Agreement in connection with the offering of the Securities or in connection
with the purchase, carrying and sale of any securities of the Issuer under the
Agreement.
VII.
7.1. You authorize the Manager to advance the Manager's own funds for
your account, charging current interest rates, or to arrange loans for your
account for the purpose of carrying out the provisions of the Agreement, and in
connection therewith, to hold or pledge as security therefor all or any
securities of the Issuer which the Manager may be holding for your account under
the Agreement.
7.2. Out of payment received by the Manager for Securities sold for
your account which have been paid for by you, the Manager will remit to you
promptly an amount equal to the price paid by you for such Securities.
7.3. The Manager may deliver to you from time to time against payment,
for carrying purposes only, any securities of the Issuer purchased by you or for
your account under the Agreement which the Manager is holding for sale for your
account but which are not sold and paid for. You will redeliver to the Manager
against payment any securities of the Issuer delivered to you for carrying
purposes at such times as the Manager may demand.
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VIII.
8.1. The Agreement shall terminate 30 days after the date of the
initial public offering of the Securities unless sooner terminated by the
Manager. The Manager may at its discretion by notice to you prior to the
termination of the Agreement alter any of the terms or conditions of offering
determined pursuant to Article II or III hereof, or terminate or suspend the
effectiveness of Article IV hereof, or any part thereof. No termination or
suspension pursuant to this paragraph shall affect the Manager's authority under
Article IV hereof to cover any short position incurred under the Agreement.
8.2. Upon termination of the Agreement or prior thereto at the
Manager's discretion, the Manager shall deliver to you any Securities purchased
by you from the Seller and held by the Manager for sale for your account to
institutions and dealers but not sold and paid for and any securities of the
Issuer which are held by the Manager for your account pursuant to the provisions
of Article IV hereof. If at the termination of the Agreement the aggregate
amount of any securities of the Issuer so held and not sold and paid for does
not exceed 10% of the aggregate amount of Securities, Morgan Stanley & Co.
Incorporated may, in its discretion, sell for the accounts of the several
Underwriters any such securities so held, at such prices, on such terms and in
such manner as it may determine. As soon as practicable after termination of the
Agreement, your account shall be settled and paid. The Manager may reserve from
distribution such amount as the Manager deems advisable to cover possible
additional expenses. The determination by the Manager of the amount so to be
paid to or by you shall be final and conclusive. Any of your funds in the
Manager's hands may be held with the Manager's general funds without
accountability for interest.
8.3. Notwithstanding any settlement on the termination of the
Agreement, you agree to pay any transfer taxes which may be assessed and paid
after such settlement on account of any sales or transfers under the Agreement
for your account and your underwriting percentage of (i) all expenses incurred
by the Manager in investigating or defending against any claim or proceeding
which is asserted or instituted by any party (including any governmental or
regulatory body) other than an Underwriter relating to the Registration
Statement, any preliminary prospectus or Prospectus (or any amendment or
supplement thereto) and (ii) any liability, including attorneys' fees, incurred
by the Manager in respect of any such claim or proceeding, whether such
liability shall be the result of a judgment or as a result of any settlement
agreed to by the Manager, other than any such expense or liability as to which
the Manager receives indemnity pursuant to Section 8.4 or indemnity or
contribution pursuant to the Underwriting Agreement.
8.4. You agree to indemnify and hold harmless each other Underwriter
and each person, if any, who controls any such Underwriter within the meaning of
either Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the extent
and upon the terms which you agree to indemnify and hold harmless the Seller,
the Issuer, its directors, its officers who signed the Registration Statement
and any person controlling the Seller or the Issuer as set forth in the
Underwriting Agreement.
8.5. Regardless of any termination of the Agreement, your agreements
contained in Sections 8.3 and 8.4 shall remain operative and in full force and
effect regardless of (i) any termination of the Underwriting Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Seller or Issuer, its directors or
officers or any person controlling the Seller or Issuer and (iii) acceptance of
and payment for any Securities.
IX.
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9.1. You understand that it is your responsibility to examine the
Registration Statement, the Prospectus, any amendment or supplement thereto
relating to the offering of the Securities, any preliminary prospectus and the
material, if any, incorporated by reference therein and you will familiarize
yourself with the terms of the Securities and the other terms of the offering
thereof which are to be reflected in the Prospectus and the Applicable AAU. The
Manager is authorized, with the approval of counsel for the Underwriters, to
approve on your behalf any amendments or supplements to the Registration
Statement or the Prospectus.
9.2. You will keep an accurate record of the names and addresses of all
persons to whom you give copies of the Registration Statement, the Prospectus or
any preliminary prospectus (or any amendment or supplement thereto), and, when
furnished with any subsequent amendment to the Registration Statement, any
subsequent prospectus or any memorandum outlining changes in the Registration
Statement or any prospectus, you will, upon request of the Manager, promptly
forward copies thereof to such persons.
9.3. You confirm that the information that you have given or are deemed
to have given in response to the Underwriters' Questionnaire attached as Exhibit
B hereto which information has been furnished to the Issuer for use in the
Registration Statement or the Prospectus is correct. You will notify the Manager
immediately of any development before the termination of the Agreement which
makes untrue or incomplete any information that you have given or are deemed to
have given in response to the Underwriters' Questionnaire.
9.4. Unless you have promptly notified the Manager in writing
otherwise, your name as it should appear in the Prospectus and your address are
set forth on the signature pages hereof.
9.5. You represent that your commitment to purchase the Securities will
not result in a violation of the financial responsibility requirements of Rule
15c3-1 under the 1934 Act or of any similar provision of any applicable rules of
any securities exchange to which you are subject.
9.6. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or that you are a
foreign bank or dealer not eligible for membership in the NASD. In making sales
of Securities, if you are such a member, you agree to comply with all applicable
rules of the NASD, including, without limitation, the NASD's Interpretation with
Respect to Free-Riding and Withholding and Section 24 of Article III of the
NASD's Rules of Fair Practice, or, if you are such a foreign bank or dealer, you
agree to comply with such Interpretation and Sections 8, 24 and 36 of such
Article as though you were such a member and Section 25 of such Article as it
applies to a nonmember broker or dealer in a foreign country.
9.7. The Manager will file a Further State Notice with the Department
of State of New York, if required.
X.
10.1. If the Underwriting Agreement is terminated as permitted by the
terms thereof, your obligations hereunder with respect to the offering of the
Securities shall immediately terminate except (i) as set forth in Section 8.5,
(ii) that you shall remain liable for your underwriting percentage of all
expenses and for any purchases or sales which may have been made for your
account pursuant to the provisions of Article IV hereof and (iii) that such
termination shall not affect any obligations of any defaulting Underwriter.
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10.2. If any Underwriter shall default in its obligations (i) pursuant
to Section 4.1, (ii) to pay amounts charged to its account pursuant to Section
6.2 or (iii) pursuant to Section 8.3, 8.4 or 10.1, you will assume your
proportionate share (determined on the basis of the respective underwriting
percentages of the non-defaulting Underwriters) of such obligations, but no such
assumption shall relieve any defaulting Underwriter from liability for its
default.
10.3. The Manager is authorized to arrange for the purchase by others
(including the Manager or any other Underwriter) of any Securities not purchased
by any defaulting Underwriter. If such arrangements are made, the respective
amounts of Securities to be purchased by the remaining Underwriters and such
other person or persons, if any, shall be taken as the basis for all rights and
obligations hereunder, but this shall not relieve any defaulting Underwriter
from liability for its default.
10.4. If any Underwriter shall default in its obligation to purchase
the amount of Firm Securities or Additional Securities which it has agreed to
purchase under the Underwriting Agreement and to the extent that arrangements
shall not have been made by the Manager for others to assume the obligations of
such defaulting Underwriter, each non-defaulting Underwriter severally agrees to
assume, at the Manager's request, its share of the obligations of such
defaulting Underwriter in the proportion which the amount of Firm Securities set
forth opposite its name in the Underwriting Agreement bears to the aggregate
amount of Firm Securities set forth opposite the names of all non-defaulting
Underwriters in the Underwriting Agreement, or in such proportions as the
Manager may specify, provided that in no event shall the amount of Securities
which any Underwriter has agreed to purchase be increased pursuant to this
Section 10.4 and the Underwriting Agreement, without the written consent of such
Underwriter, by an amount in excess of one-ninth of the amount of Securities
which such Underwriter agreed to purchase before giving effect to any such
increase. No such assumption shall relieve any default Underwriter from
liability for its default.
XI.
11.1. If you are a foreign bank or dealer and you are not registered as
a broker-dealer under Section 15 of the 1934 Act, you agree that while you are
acting as an Underwriter in respect of the Securities and in any event during
the term of the Agreement, you will not directly or indirectly effect in, or
with persons who are nationals or residents of, the United States any
transactions (except for the purchases provided for in the Underwriting
Agreement and transactions contemplated by Articles II and IV hereof) in (i)
Securities, (ii) Common Stock, if the Securities are Common Stock or securities
of the Issuer that may be exchanged for or converted into Common Stock or (iii)
any other securities of the Issuer designated in the Applicable AAU.
11.2. If you are a foreign bank or dealer, you represent that in
connection with sales and offers to sell Securities made by you outside the
United States (a) you will not offer or sell any Securities in any jurisdiction
except in compliance with applicable laws and (b) you will either furnish to
each person to whom any such sale or offer is made a copy of the then current
preliminary prospectus, if any, or of the Prospectus (as then amended or
supplemented), as the case may be, or inform such person that such preliminary
prospectus, if any, or Prospectus will be available upon request. Any offering
material in addition to the then current preliminary prospectus or the
Prospectus furnished by you to any person in connection with any offers or sales
referred to in the preceding sentence (i) shall be prepared and so furnished at
your sole risk and expense and (ii) shall not contain information relating to
the Securities or the Issuer which is inconsistent in any respect with the
information contained in the then current preliminary prospectus, if any, or in
the Prospectus (as then amended or supplemented), as the case may be. It is
understood that no action has been
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taken by the Manager, the Seller or the Issuer to permit a public offering in
any jurisdiction other than the United States where action would be required for
such purpose.
XII.
12.1. Nothing contained in this Master Agreement Among Underwriters or
the Agreement constitutes you partners with the Manager or with the other
Underwriters and the obligations of you and of each of the other Underwriters
are several and not joint. Each Underwriter elects to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code
of 1954, as amended.
12.2. The Manager shall be under no liability to you for any act or
omission except for obligations expressly assumed by the Manager in the
Agreement.
12.3. This Master Agreement Among Underwriters may be terminated by
either party hereto upon five business days' written notice to the other party;
provided that with respect to any Offering for which an AAU was sent prior to
such notice, this Master Agreement Among Underwriters as it applies to such
Offering shall remain in full force and effect and shall terminate with respect
to such Offering in accordance with Article VIII hereof.
12.4. This Master Agreement Among Underwriters and the Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
Please confirm your acceptance of this Master Agreement Among
Underwriters by signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
MORGAN STANLEY & CO.
Incorporated
By
Managing Director
Confirmed and accepted
as of August 1, 1982
..............................
(Name of Underwriter)
..............................
..............................
(Address)
By ...........................
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Title:
(If person signing is not an officer or
partner, please attach instrument of
authorization.)
EXHIBIT A
[name of participating underwriter]
MORGAN STANLEY & CO. INCORPORATED
AGREEMENT AMONG UNDERWRITERS
[date]
[Name of Issuer]
[Title of Securities]
Dear Sirs:
[Name of Issuer] (the "Issuer") proposes to issue and sell [specify amount]
[Title of Securities] (the "Firm Securities") pursuant to the Underwriting
Agreement, to be dated , 19 (the "Underwriting Agreement"), between the Issuer
and ourselves (the "Manager"), on behalf of the several underwriters named
therein (the "Underwriters").(1) [In addition, the several Underwriters shall
have an option to purchase from [Name of Seller] an additional [specify amount]
[Title of Securities] (the "Additional Securities") to cover
over-allotments.](2) The term Securities shall mean the Firm Securities [and the
Additional Securities].(2)
Except to the extent supplemented or superseded by the terms set forth
herein, the provisions contained in the Morgan Stanley & Co. Incorporated Master
Agreement Among Underwriters, dated August 1, 1982 (the "Master Agreement"), are
incorporated by reference herein.
You hereby confirm your agreement with the Manager with respect to the
offering of the Securities and with respect to the purchase by the Manager and
the other Underwriters, including yourselves, severally of the Securities [for
which delayed delivery contracts ("Delayed Delivery Contracts") are not entered
into by the Issuer as contemplated in the Underwriting Agreement].(3) [You
hereby agree that any action that the Manager is authorized to take, under the
Underwriting Agreement, this Agreement or the Master Agreement may be taken by
Morgan Stanley & Co. Incorporated on the Manager's behalf.](4)
You hereby agree to purchase up to [specify amount] of Firm Securities [and
up to [specify amount] of Additional Securities](2) pursuant to the Underwriting
Agreement on the following terms:
Price to Public:(5)
Purchase Price:(5)
Underwriting Fee:
Selling Concession:
Reallowance:
[Fee for delayed delivery
securities:](3)
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Management Fee:
Offering Date:
Anticipated Closing Date:
together with any other additional securities of the Issuer which you may be
required to purchase pursuant to the Master Agreement.
[Principal terms of Securities, if appropriate, e.g., yield, sinking
funds, call protection, redemption rights.]
[The trustee for the indenture under which the Securities will be
issued is [Name of Trustee] [, a subsidiary of [Name of trustee's parent
company].](6)
[You will not, without the Manager's consent, sell any of the
Securities to any account over which you exercise discretionary authority].(7)
[The amount of the Securities you hereby agree to purchase may be
reduced on the terms set forth in the Master Agreement by sales of Securities
pursuant to Delayed Delivery Contracts.](3)
[[Title of Restricted Securities] are hereby designated as "other
Securities of the Issuer" referred in Sections 4.1, 4.4 and 11.1 of the Master
Agreement.](8)
Unless we receive a notice to the contrary by wire, telex or other
written means from you by [specify time], you agree to accept your participation
in the offering and confirm that you have no exceptions to the Underwriters'
Questionnaire attached as Exhibit B to the Master Agreement.
Please contact [insert name] at [insert phone number] of Morgan Stanley
& Co. Incorporated or [insert name] at [insert phone number] of the [Issuer] if
you have any questions relating to the offering of the Securities, including the
terms of the Underwriting Agreement or any other matters.
Very truly yours,
MORGAN STANLEY & CO.
Incorporated
By ..........................
Title:
[MORGAN STANLEY & CO.
Incorporated
Name of Co-Manager
By: MORGAN STANLEY & CO.
2
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Incorporated
By ..........................
Title: ] (4)
1. Use the following alternate language if the Issuer is not the only seller
of the Firm Securities: "[Names of Sellers] propose to sell [specify amount]
[Title of Securities] (the "Firm Securities") of [Name of Issuer] (the "Issuer")
pursuant to the Underwriting Agreement, to be dated , 19 (the "Underwriting
Agreement"), among [Names of Sellers] and ourselves (the "Manager"), on behalf
of the several underwriters named therein (the "Underwriters")."
2. Include bracketed material only if there is an over-allotment option.
3. Include bracketed material only if there are delayed delivery contracts.
4. Include bracketed material only if there are co-managers.
5. Include bracketed material only if there is an over-allotment option.
6. Include variable re-offering or formula price language if appropriate.
7. Include bracketed material only if the Issuer was not, immediately prior
to filing the Registration Statement, subject to the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934.
8. Include bracketed material if trading in designated securities is to be
restricted.
3
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EXHIBIT B
UNDERWRITERS' QUESTIONNAIRE
In connection with each Offering governed by the Morgan Stanley & Co.
Incorporated Master Agreement Among Underwriters, dated August 1, 1982, except
as indicated in a reply to the applicable AAU, each underwriter participating in
such Offering severally advises the Issuer that:
(a) neither such underwriter nor any of its directors, officers or partners
have a material relationship, as "material" is defined in Regulation C under the
Securities Act of 1933, with the Issuer;
(b) if the Registration Statement is on Form S-1, neither such underwriter
nor any "group" (as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934) of which such underwriter is aware is the beneficial owner
of more than 5% of any class of voting securities of the Issuer;
(c) other than as may be stated in the Morgan Stanley & Co. Incorporated
Master Agreement Among Underwriters, dated August 1, 1982, the Applicable AAU,
the dealer agreement, if any, the Prospectus or the Registration Statement, such
underwriter does not know and has no reason to believe that there is an
intention to over-allot or that the price of any security may be stabilized to
facilitate the offering of the Securities;
(d) other than as may be stated in the Prospectus, such underwriter does
not know of any other discounts or commissions to be allowed or paid to the
underwriters or of any other items that would be deemed by the National
Association of Securities Dealers, Inc. to constitute underwriting compensation
for purposes of the Association's Rules of Fair Practice and such underwriter
does not know of any discounts or commissions to be allowed or paid to dealers,
including any cash, securities, contracts or other consideration to be received
by any dealer in connection with the sale of the Securities;
(e) if the Securities are to be issued under an indenture qualified under
the Trust Indenture Act of 1939:
(i) such underwriter (if a corporation) does not have outstanding
nor has such underwriter assumed or guaranteed any securities issued
otherwise than in its present corporate name;
(ii) neither such underwriter nor any of its directors, officers or
partners is an affiliate, as defined in Rule O-2 under the Trust
Indenture Act of 1939, of the Trustee or its parent holding company, if
any, and neither of them nor any of their directors or executive
officers is a director, officer, partner, employee, appointee or
representative of such underwriter as designated in said Act; and
(iii) neither such underwriter nor any of its directors, executive
officers or partners owns beneficially any shares of voting securities
of the Trustee or its parent holding company, if any; and
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(f) such underwriter has not prepared any report or memorandum for external
use in connection with the offering of the Securities; and if the Registration
Statement is on Form S-1, such underwriter has not prepared any engineering,
management or similar reports or memoranda relating to broad aspects of the
business, operations or products of the Issuer within the past twelve months
(except for reports solely comprised of recommendations to buy, sell or hold the
securities of the Issuer, unless such recommendations have changed within the
past six months).
If an underwriter notes an exception with respect to material of the type
referred to in clause (f), such underwriter will send three copies of each item
of such material, together with a statement as to distribution identifying
classes of recipients and the number of copies distributed to each such class,
to Morgan Stanley & Co. Incorporated, 1251 Avenue of the Americas, New York, New
York 10020, Attention: Syndicate Department.
As used herein, the term "beneficially" is defined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934.
2
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MORGAN STANLEY & CO.
INCORPORATED
1251 Avenue of the Americas
New York, New York 10020
MASTER DEALER AGREEMENT
August 1, 1982
Dear Sirs:
From time to time we may invite you (and others) to participate
on the terms set forth herein as dealer in connection with certain public
offerings of securities by one or more underwriters ("Underwriters") that are
managed by us. If we invite you to participate in a specific offering (an
"Offering") to which this Master Dealer Agreement shall apply, we will give you
express notice (a "Pricing Wire") by wire, telex or other written means
specifying (i) the securities to be offered and the issuer thereof, (ii) the
offering terms, including, if applicable, the public offering price, concession
and reallowance with respect to such securities and (iii) the extent to which
the general provisions set forth in this Master Dealer Agreement shall apply.
Each Pricing Wire shall also set forth your allotment for the
Offering to which it relates and you hereby agree to accept such allotment on
the terms set forth or contemplated herein and in such Pricing Wire without
further action on your part. YOU MAY DECLINE SUCH ALLOTMENT ONLY IF WE RECEIVE
BY WIRE, TELEX OR OTHER WRITTEN MEANS A NOTICE FROM YOU TO THAT EFFECT BEFORE
THE TIME SPECIFIED IN SUCH PRICING WIRE FOR SUCH A NOTICE. IF WE DO NOT RECEIVE
SUCH A NOTICE BY SUCH TIME, SUCH PRICING WIRE SHALL BE BINDING UPON YOU AND
SHALL CONSTITUTE A RECONFIRMATION OF YOUR ACCEPTANCE OF THIS MASTER DEALER
AGREEMENT.
Except to the extent that the applicable Pricing Wire provides
otherwise, you hereby agree as follows with respect to each Offering to which we
invite you to participate as a dealer. For purposes of the following provisions,
with respect to any Offering, the term Securities means the securities to be
publicly offered; the term preliminary prospectus means any preliminary
prospectus relating to
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the offering of the Securities or any preliminary prospectus supplement together
with a prospectus relating to the offering of the Securities; the term
Prospectus means the prospectus, together with the final prospectus supplement,
if any, relating to the offering of the Securities, filed pursuant to Rule 424
under the Securities Act of 1933; and the terms Public Offering Price and
Reallowance shall mean, respectively, the public offering price and reallowance,
if any, then in effect with respect to the Securities.
I.
1.1. Securities sold to you for reoffering shall be promptly
offered to the public upon the terms set forth in the Prospectus and the Pricing
Wire. If a Reallowance is in effect for the Offering, Securities may also be
offered for sale at a concession from the Public Offering Price not in excess of
the Reallowance to any Underwriter or to any other member of the National
Association of Securities Dealers, Inc. (the "NASD") or to any foreign bank or
dealer (not eligible for membership in the NASD), who enters into an agreement
with us in the form of this Master Dealer Agreement and whom we have invited to
participate as a dealer in connection with the Offering.
1.2. If the Securities are shares of common stock ("Common
Stock") of the issuer thereof (the "Issuer") or securities of the Issuer that
may be exchanged for or converted into Common Stock, you agree that you will
not, without our approval in advance, at any time prior to the completion by you
of distribution of Securities acquired by you pursuant to this Master Dealer
Agreement and the applicable Pricing Wire, buy, sell, deal or trade in (i) any
Common Stock, (ii) any security of the Issuer convertible into Common Stock or
(iii) any right or option to acquire or sell Common Stock or any security of the
Issuer convertible into Common Stock, for your own account or for the account of
a customer, except:
(a) as provided for in this Master Dealer Agreement, the
applicable Pricing Wire, the agreement among underwriters, if any, or
the underwriting agreement relating to the Securities;
(b) that you may convert any security of the Issuer convertible
into Common Stock owned by you and sell the Common Stock acquired upon
such conversion and that you may deliver Common Stock owned by you upon
the exercise of any option written by you as permitted by the provisions
set forth herein;
(c) in brokerage transactions on unsolicited orders which have
not resulted from activities on your part in connection with the
solicitation of
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purchases and which are executed by you in the ordinary course of your
brokerage business; and
(d) that on or after the date of the initial public offering of
the Securities, you may execute covered writing transactions in options
to acquire Common Stock, when such transactions are covered by
Securities, for the accounts of customers.
An opening uncovered writing transaction in options to acquire Common Stock for
your account or for the account of a customer shall be deemed, for purposes of
this Section 1.2, to be a sale of Common Stock which is not unsolicited. The
term "opening uncovered writing transaction in options to acquire" as used above
means a transaction where the seller intends to become a writer of an option to
purchase any Common Stock which he does not own. An opening uncovered purchase
transaction in options to sell Common Stock for your account or for the account
of a customer shall be deemed, for purposes of this paragraph, to be a sale of
Common Stock which is not unsolicited. The term "opening uncovered purchase
transaction in options to sell" as used above means a transaction where the
purchaser intends to become an owner of an option to sell Common Stock which he
does not own.
1.3. If the Securities are not shares of Common Stock or
securities of the Issuer that may be exchanged for or converted into Common
Stock, you agree that you will not bid for or purchase, or attempt to induce any
other person to purchase, any Securities or any other securities of the Issuer
designated in the Pricing Wire other than (i) as provided in this Master Dealer
Agreement, the agreement among underwriters, if any, or the underwriting
agreement relating to the Securities or (ii) as a broker in executing
unsolicited orders.
1.4. You represent that you have not participated, since the date
you were invited to participate in the offering of the Securities, in any
transaction prohibited by Section 1.2 or 1.3 and that you have at all times
complied with the provisions of Rule 10b-6 of the Securities and Exchange
Commission applicable to such offering.
1.5. You agree to advise us from time to time upon request, prior
to the termination of this Master Dealer Agreement as it applies to the offering
of the Securities, of the amount of Securities remaining unsold which were
purchased by you from us or from any other Underwriter or dealer for reoffering
and, on our request, you will resell to us any such Securities remaining unsold
at the purchase price thereof if, in our opinion, such Securities are needed to
make delivery against sales made to others.
1.6. If prior to the termination of this Master Dealer Agreement
as it applies to the offering of the Securities (or prior to such earlier date
as we have
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determined) we purchase or contract to purchase in the open market or otherwise
any Securities which were purchased by you from us or from any other Underwriter
or dealer for reoffering (including any Securities which may have been issued on
transfer or in exchange for such Securities), and which Securities were
therefore not effectively placed for investment by you, you authorize us either
to charge your account with an amount equal to the concession from the Public
Offering Price at which you purchased such Securities, which shall be credited
against the cost of such Securities, or to require you to repurchase such
Securities at a price equal to the total cost of such purchase, including any
commissions and transfer taxes on redelivery.
II.
2.1. If you purchase any Securities from us in connection with
your participation as dealer in such Offering, you agree that such purchases
will be evidenced by our written confirmation and will be subject to the terms
and conditions set forth in the confirmation and in the Prospectus.
2.2. Securities purchased by you from us in connection with your
participation as dealer in such Offering shall be paid for in full at (i) the
Public Offering Price, (ii) such price less the applicable concession or (iii)
the price set forth or indicated in the Pricing Wire, as we shall advise, at the
office of Morgan Stanley & Co. Incorporated, 55 Water Street, New York, New
York, at such time and on such day as we may advise you, by certified or
official bank check payable in New York Clearing House funds (or other next day
funds) to the order of Morgan Stanley & Co. Incorporated against delivery of the
Securities. If you are called upon to pay the Public Offering Price for the
Securities purchased by you, the applicable concession will be paid to you, less
any amounts charged to your account pursuant to Article I above, after
termination of this Master Dealer Agreement as it applies to the offering of the
Securities. Unless you promptly give us written instructions otherwise, if
transactions in the Securities may be settled through the facilities of The
Depository Trust Company, payment for and delivery of Securities purchased by
you will be made through such facilities, if you are a member, or, if you are
not a member, settlement may be made through your ordinary correspondent who is
a member.
III.
3.1. We will advise you of the date and time of termination of
this Master Dealer Agreement as it applies to the offering of the Securities or
of any designated provisions hereof. This Master Dealer Agreement shall, in any
event, terminate with respect to the offering of the Securities 30 days after
the date of the initial public offering of the Securities unless sooner
terminated by us.
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IV.
4.1. In purchasing Securities, you will rely only on the
Prospectus and on no other statements whatsoever, written or oral.
4.2. You represent that you are a member in good standing of the
NASD or that you are a foreign bank or dealer, not eligible for membership in
the NASD, which agrees not to offer or sell any Securities in, or to persons who
are nationals or residents of, the United States. In making sales of Securities,
if you are such a member, you agree to comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation with Respect to
Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of
Fair Practice, or, if you are such a foreign bank or dealer, you agree to comply
with such Interpretation and Sections 8, 24 and 36 of such Article as though you
were such a member and Section 25 of such Article as it applies to a nonmember
broker or dealer in a foreign country.
4.3. If you are a foreign bank or dealer, you represent that in
connection with sales and offers to sell Securities made by you outside the
United States (a) you will not offer or sell any Securities in any jurisdiction
except in compliance with applicable laws and (b) you will either furnish to
each person to whom any such sale or offer is made a copy of the then current
preliminary prospectus, if any, or of the Prospectus (as then amended or
supplemented), as the case may be, or inform such person that such preliminary
prospectus, if any, or Prospectus will be available upon request. Any offering
material in addition to the then current preliminary prospectus or the
Prospectus furnished by you to any person in connection with any offers or sales
referred to in the preceding sentence (i) shall be prepared and so furnished at
your sole risk and expense and (ii) shall not contain information relating to
the Securities or the Issuer which is inconsistent in any respect with the
information contained in the then current preliminary prospectus, if any, or in
the Prospectus (as then amended or supplemented), as the case may be. It is
understood that no action has been taken by us or the Issuer to permit a public
offering in any jurisdiction other than the United States where action would be
required for such purpose.
4.4. You will not give any information or make any
representations other than those contained in the Prospectus, or act as agent
for the Issuer, any Underwriter or us.
4.5. You agree that we, as manager or co-manager of the offering
of the Securities, have full authority to take such action as may seem advisable
to us in respect of all matters pertaining to such offering.
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4.6. Neither we, as manager, nor any Underwriter shall be under
any liability to you for any act or omission, except for obligations expressly
assumed by us in this Master Dealer Agreement.
4.7. All communications to us relating to the offering of the
Securities shall be addressed to the Syndicate Department, Morgan Stanley & Co.
Incorporated, 1251 Avenue of the Americas, New York, New York 10020. Unless you
have otherwise notified us in writing, any notices to you shall be deemed to
have been duly given if mailed or telegraphed to you at the address shown below.
V.
5.1. Neither we, as manager, nor any Underwriter will have any
responsibility with respect to the right of any dealer to sell Securities in any
jurisdiction, notwithstanding any information we may furnish in that connection.
VI.
6.1. This Master Dealer Agreement may be terminated by either
party hereto upon five business days' written notice to the other party;
provided that with respect to any Offering for which a Pricing Wire was sent
prior to such notice, this Master Dealer Agreement as it applies to such
Offering shall remain in full force and effect and shall terminate with respect
to such Offering in accordance with Article III hereof.
6.2. This Master Dealer Agreement and each Pricing Wire shall be
governed by and construed in accordance with the laws of the State of New York.
Please confirm your acceptance of this Master Dealer Agreement by
signing and returning to us the enclosed duplicate copy hereof.
Very truly yours,
MORGAN STANLEY & CO.
INCORPORATED
By
Managing Director
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Confirmed and accepted
as of August 1, 1982
(Name of Dealer)
(Address)
By...........................
Title:
(If person signing is not an officer or partner, please attach instrument of
authorization.)
7
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AMENDMENT TO
CUSTODIAN CONTRACT
Amendment to Custodian Contract between ROYCE VALUE TRUST, INC., a
corporation organized and existing under the laws of Maryland, having a
principal place of business at 1414 Avenue of the Americas, New York, NY 10019
(hereinafter called the "Fund"), and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110 (hereinafter called the
"Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian Contract
dated October 20, 1986 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of credit
(the "Letter of Credit") on behalf of the Fund for the benefit of ICI Mutual
Insurance Company (the "Company") in accordance with the Continuing Letter of
Credit and Security Agreement and that the Fund's obligations to the Custodian
with respect to the Letter of Credit shall be fully collateralized at all times
while the Letter of Credit is outstanding by, among other things, segregated
assets of the Fund equal to 125% of the face amount of the Letter of Credit;
WHEREAS: The Custodian Contract provides for the establishment of
segregated accounts for proper Fund purposes
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upon Proper Instructions (as defined in the Custodian Contract); and
WHEREAS: The Fund and the Custodian desire to establish a segregated
account to hold the collateral for the Fund's obligations to the Custodian with
respect to the Letter of Credit and to amend the Custodian Contract to provide
for the establishment and maintenance thereof;
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto hereby amend the Custodian Contract as
follows:
1. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and maintain a
segregated account (the "Letter of Credit Custody Account") for and
in behalf of the Fund as contemplated by Section 2.11 for the
purpose of collateralizing the Fund's obligations under this
Amendment to the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian shall
hold in the Letter of Credit Custody Account cash, U.S. government
securities and other high-grade debt securities owned by the Fund
acceptable to the Custodian (collectively "Collateral Securities")
equal to 125% of the
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face amount which the Company may draw under the Letter of Credit.
Upon receipt of such Collateral Securities in the Letter of Credit
Custody Account, the Custodian shall issue the Letter of Credit to
the Company.
4. The Fund hereby grants to the Custodian a security interest in the
Collateral Securities from time to time in the Letter of Credit
Custody Account (the "Collateral") to secure the performance of the
Fund's obligations to the Custodian with respect to the Letter of
Credit, including, without limitation, under Section 5-114(3) of the
Uniform Commercial Code. The Fund shall register the pledge of
Collateral and execute and deliver to the Custodian such powers and
instruments of assignment as may be requested by the Custodian to
evidence and perfect the limited interest in the Collateral granted
hereby.
5. The Collateral Securities in the Letter of Credit Custody Account
may be substituted or exchanged (including substitutions or
exchanges which increase or decrease the aggregate value of the
Collateral) only pursuant to Proper Instructions from the Fund after
the Fund notifies the Custodian of the contemplated substitution or
exchange and the Custodian agrees that such substi-
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tution or exchange is acceptable to the Custodian, and the Custodian
shall not unreasonably withhold such agreement.
6. Upon any payment made pursuant to the Letter of Credit by the
Custodian to the Company for the account of the Fund, the Custodian
may withdraw from the Letter of Credit Custody Account Collateral
Securities in an amount equal in value to the amount actually so
paid. The Custodian shall have with respect to the Collateral so
withdrawn all of the rights of a secured creditor under the Uniform
Commercial Code as adopted in the Commonwealth of Massachusetts at
the time of such withdrawal and all other rights granted or
permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on the
Collateral to the Fund custody account unless the Custodian receives
Proper Instructions from the Fund to the contrary.
8. Upon the drawing by the Company of all amounts which may become
payable to it under the Letter of Credit for the account of the Fund
and the withdrawal of all Collateral Securities with respect thereto
by the Custodian pursuant to Section 6 hereof, or upon the
termination of that portion of the Letter of Credit issued for its
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account by the Fund with the written consent of the Company, the
Custodian shall transfer any Collateral Securities then remaining in
the Letter of Credit Custody Account to another Fund custody
account.
9. Collateral held in the Letter of Credit Custody Account shall be
released only in accordance with the provisions of this Amendment to
Custodian Contract. The Collateral shall at all times until
withdrawn pursuant to Section 6 hereof remain the property of the
Fund, subject only to the extent of the interest granted herein to
the Custodian.
10. Notwithstanding any other termination of the Custodian Contract, the
Custodian Contract shall remain in full force and effect with
respect to the Letter of Credit Custody Account until transfer of
all Collateral Securities pursuant to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation for its
issuance of the Letter of Credit and for its services in connection
with the Letter of Credit Custody Account as agreed upon from time
to time between the Fund and the Custodian.
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12. The Custodian Contract as amended hereby, shall be governed by, and
construed and interpreted under, the laws of the Commonwealth of
Massachusetts.
13. The parties agree to execute and deliver all such further documents
and instruments and to take such further action as may be required
to carry out the purposes of the Custodian Contract, as amended
hereby.
14. Except as provided in this Amendment to Custody Contract, the
Custodian Contract shall remain in full force and effect, without
amendment or modification, and all applicable provisions of the
Custodian Contract, as amended hereby, including, without
limitation, Section 8 thereof, shall govern the Letter of Credit
Custody Account and the rights and obligations of the fund and the
Custodian under this Amendment to Custodian Contract. No provision
of this Amendment to Custodian Contract shall be deemed to
constitute a waiver of any rights of the Custodian under the
Custodian Contract or under law.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Custodian Contract to be executed in its name and
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behalf by its duly authorized representatives and its seal to be hereunder
affixed as of the 11th day of December, 1987.
ROYCE VALUE TRUST, INC.
By: CHARLES M. ROYCE
------------------------
Charles M. Royce, President
STATE STREET BANK AND TRUST
COMPANY
By: E.D. HAWKES JR.
------------------------
Vice President
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________________________________________________________________________________
REGISTRAR,
TRANSFER AGENCY AND PAYING AGENCY AGREEMENT
between
ROYCE VALUE TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
________________________________________________________________________________
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK 1
ARTICLE 2 FEES AND EXPENSE 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BANK 4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND 4
ARTICLE 5 DATA ACCESS AND PROPRIETARY INFORMATION 5
ARTICLE 6 INDEMNIFICATION 6
ARTICLE 7 STANDARD OF CARE 8
ARTICLE 8 COVENANTS OF THE FUND AND THE BANK 8
ARTICLE 9 TERMINATION OF AGREEMENT 9
ARTICLE 10 ASSIGNMENT 9
ARTICLE 11 AMENDMENT 10
ARTICLE 12 MASSACHUSETTS LAW TO APPLY 10
ARTICLE 13 FORCE MAJEURE 10
ARTICLE 14 CONSEQUENTIAL DAMAGES 10
ARTICLE 15 MERGER OF AGREEMENT 10
ARTICLE 16 SURVIVAL 11
ARTICLE 17 SEVERABILITY 11
ARTICLE 18 COUNTERPARTS 11
</TABLE>
<PAGE>
<PAGE>
REGISTRAR, TRANSFER AGENCY AND PAYING AGENCY AGREEMENT
AGREEMENT made as of , 1996, by and between Royce Value Trust,
Inc., a Maryland corporation, having its principal office and place of
business at 1414 Avenue of the Americas, New York, NY 10019, (the 'Fund'), and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the 'Bank').
WHEREAS, the Fund desires to appoint the Bank as its registrar, transfer
agent, dividend paying agent and agent in connection with certain other
activities and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows;
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Bank to act as, and the Bank agrees to
act as registrar, transfer agent for the Fund's authorized and issued shares
of its Cumulative Preferred Stock ('Shares'), dividend paying agent and agent in
connection with the payment of any redemption or liquidation proceeds as set out
in the prospectus of the Fund, corresponding to the date of this Agreement.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Issue and record the appropriate number of Shares as authorized
and hold such Shares in the appropriate Shareholder account
(ii) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate documentation;
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(iii) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(iv) Prepare and transmit payments in connection with the redemption of
Shares as the payment of liquidation proceeds pursuant to instructions
by the Fund;
(v) Issue replacement certificates for those certificates alleged to have
been lost, stolen or destroyed upon receipt by the Bank of indemnification
satisfactory to the Bank and protecting the Bank and the Fund, and the
Bank at its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and without such
indemnity.
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(b) In addition to and neither in lieu nor in contravention of the services
set forth in the above paragraph (a), the Bank shall: (i) perform all of the
customary services of a registrar, transfer agent and dividend paying agent
consistent with those requirements in effect as of the date of this
Agreement. The detailed definition, frequency, limitations and associated costs
(if any) set out in the attached fee schedule, include but are not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, and mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all registered Shareholders.
(c) The Bank shall provide additional services on behalf of the Fund (i.e.,
escheatment services) which may be agreed upon in writing between the Fund and
the Bank.
ARTICLE 2 FEES AND EXPENSES
2.01 For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
to reimburse the Bank for out-of-pocket expenses, including but not limited to
confirmation production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank for the
items set out in the fee schedule attached hereto. In addition, any other
expenses incurred by the Bank at the request or with the consent of the Fund,
will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage and the
cost of materials for mailing
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of dividends, proxies, Fund reports and other mailings to all Shareholder
accounts shall be advanced to the Bank by the Fund at least seven (7) days prior
to the mailing date of such materials.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation, as amended, and By-Laws to enter into and perform this
Agreement.
4.03 All corporate proceedings required by said Articles of Incorporation,
as amended, and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is a closed-end, diversified investment company registered under
the Investment Company Act of 1940, as amended.
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4.05 To the extent required by federal securities laws a registration
statement under the Securities Act of 1933, as amended is currently effective
and appropriate state securities law filings have been made with respect to all
Shares of the Fund being offered for sale; information to the contrary will
result in immediate notification to the Bank.
4.06 It shall make all required filings under federal and state securities
laws.
ARTICLE 5 DATA ACCESS AND PROPRIETARY INFORMATION
5.01 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and other information
furnished to the Fund by the Bank are provided solely in connection with the
services rendered under this Agreement and constitute copyrighted
(a) to use such programs and databases (i) solely on the Fund computers, or
(ii) solely from equipment at the locations agreed to between the Fund and
the Bank and (iii) in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way (other than in the
normal course of performing processing on the Funds' computers) any part of
any Proprietary Information;
(c) to refrain from obtaining unauthorized access trade secrets or propriety
information of substantial value to the Bank. Such databases, programs,
formats, designs, techniques and other information are collectively referred
to below as 'Proprietary Information'. The Fund agrees that it shall treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as expressly permitted hereunder. The Fund agrees for
itself and its employees and agents to any programs, data or other
information not owned by the Funds', and if such access is accidently
obtained, to respect and safeguard the same proprietary Information;
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(d) to refrain from causing or allowing information transmitted from the
Bank's computer to the Funds' terminal to be retransmitted to any other
computer terminal or other device except as expressly permitted by the Bank,
(such permission not to be unreasonably withheld);
(e) that the Fund shall have access only to those authorized transactions
as agreed to between the Fund and the Bank; and (f) to honor reasonable written
requests made by the Bank to protect at the Bank's expense the rights of the
Bank in Proprietary Information at common law and under applicable statutes.
5.02 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity with
security procedures established by the Bank from time to time.
ARTICLE 6 INDEMNIFICATION
6.01 The Bank shall not be responsible for, and the Fund shall indemnify
and hold the Bank harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by the Bank
or its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or
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registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank or
its agents or subcontractors by telephone, in person, machine readable input,
telex, CRT data entry or other similar means authorized by the Fund, and shall
not be held to have notice of any change or authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in this Article
6 shall apply, upon the assertion of a claim for which the Fund may be required
to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim
or make any compromise in
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any case in which the Fund may be required to idemnify the Bank except with the
Fund's prior written consent.
ARTICLE 7 STANDARD OF CARE
7.01 The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct of that of its employees.
ARTICLE 8 CONVENANTS OF THE FUND AND THE BANK
8.01 The fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the
Fund authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Articles of Incorporation, as amended, and By-Laws of the
Fund and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are Fund and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be surrendered promptly to the
Fund on and in accordance with its request.
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8.04 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
8.05 In cases of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
ARTICLE 9 TERMINATION OF AGREEMENT
9.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge equivalent
to the average of three (3) month's fees.
ARTICLE 10 ASSIGNMENT
10.1 Except as provided in Section 10.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston EquiServe Limited
Partnership, a Massachusetts limited partnership ('Boston EquiServe'), which is
duly registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934 ('Section
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17A(c)(2)'), or (ii) a Boston EquiServe affiliate duly registered as a transfer
agent pursuant to Section 17A(c)(2), provided, however, that the Bank shall be
as fully responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
ARTICLE 11 AMENDMENT
11.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
ARTICLE 12 MASSACHUSETTS LAW TO APPLY
12.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
ARTICLE 13 FORCE MAJEURE
13.01 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
ARTICLE 14 CONSEQUENTIAL DAMAGES
14.01 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
ARTICLE 15 MERGER OF AGREEMENT
15.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
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ARTICLE 16 SURVIVAL
16.01 All provisions regarding indemnification, warranty, liability and
limits thereon, and confidentiality and/or protection of proprietary rights and
trade secrets shall survive the termination of this Agreement.
ARTICLE 17 SEVERABILITY
17.01 If any provision or provisions of this Agreement shall be held to be
invalid, unlawful, or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired.
ARTICLE 18 COUNTERPARTS
18.01 This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
Royce Value Trust, Inc.
BY: __________________________________
ATTEST:
- --------------------------------------
State Street Bank and Trust Company
BY: __________________________________
Executive Vice President
ATTEST:
- --------------------------------------
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Venable, Baetjer and Howard, LLP
1800 Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201-2978
(410) 244-7400, Fax (410) 244-7742
AUGUST 9, 1996
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Re: Royce Value Trust, Inc.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Royce Trust, Inc., a Maryland
corporation (the "Fund"), in connection with the issuance of 2,400,000 of its
% Cumulative Preferred Stock, par value $.001 per share (the "Cumulative
Preferred Stock").
As special Maryland counsel for the Fund, we are familiar with its Charter
and Bylaws. We have examined the prospectus included in its Registration
Statement on Form N-2 for the Cumulative Preferred Stock (Securities Act
Registration No. 333-8039, Investment Company Act File No. 811-4875) (the
"Registration Statement"), substantially in the form in which it is to become
effective (the "Prospectus"). We are also familiar with the form of Articles
Supplementary relating to the Cumulative Preferred Stock (the "Articles
Supplementary") that have been filed as a exhibit to the
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Brown & Wood LLP
August 9, 1996
Page
Registration Statement. We have further examined and relied upon a certificate
of the Maryland State Department of Assessments and Taxation ("SDAT") to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland.
We have also examined and relied upon such corporate records of the Fund
and other documents and certificates with respect to factual matters as we have
deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion and so advise you that
when Articles Supplementary have been filed with SDAT, and when the final terms
of the issuance of the Cumulative Preferred Stock have been authorized by the
Board of Directors pursuant to Section 2-203 of the Maryland General Corporation
Law, the Cumulative Preferred Stock to be offered for sale pursuant to the
Prospectus will have been duly authorized and, when thereafter sold, issued and
paid for
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Brown & Wood LLP
August 9, 1996
Page
as contemplated by the Prospectus, will have been validly and legally issued and
will be fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock, but it does not extend to the securities or "Blue Sky"
laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to the
Fund that is to be filed as an exhibit to the Registration Statement. We consent
to the reference to us under the caption "Legal Matters" in the Prospectus and
to the filing of this opinion as an exhibit to the Registration Statement. We do
not thereby admit that we are "experts" within the meaning of the Securities Act
of 1933 and the rules and regulations thereunder. This opinion may not be relied
upon by any other person on or for any other purpose without our prior written
consent.
Very truly yours,
/s/ Venable, Baetjer and Howard, LLP
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CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Financial
Highlights', 'Experts' and 'Financial Statements' and to the incorporation by
reference of our report dated February 12, 1996, in this Registration Statement
(Form N-2 No. 333-8039) of Royce Value Trust, Inc.
ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
August 6, 1996
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[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Royce Value Trust, Inc.:
We consent to the reference to our Firm under the caption 'Financial Highlights'
in Post-Effective Amendment No. 21 to the Registration Statement of Royce Value
Trust, Inc. on Form N-2 (File No. 333-8039) under the Securities Act of 1933. We
further consent to the reference to our Firm under the heading 'Experts' in the
Statement of Additional Information.
COOPERS & LYBRAND LLP
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 7, 1996
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<NAME> ROYCE VALUE TRUST, INC.
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<PERIOD-END> JUN-30-1996
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<PAGE>
