<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
SECURITIES ACT FILE NO. 33-
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
------------------------
[ ] PRE-EFFECTIVE AMENDMENT NO.
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] AMENDMENT NO. 20
(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
<S> <C> <C> <C> <C>
% Tax-Advantaged 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.
------------------------
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 , 1996)
2,400,000 SHARES
ROYCE VALUE TRUST, INC.
% TAX-ADVANTAGED CUMULATIVE PREFERRED STOCK,
LIQUIDATION PREFERENCE $25.00 PER SHARE
------------------------
The % Tax-Advantaged 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, are cumulative from the Date of
Original Issue thereof and are payable annually on December 31 in each year,
commencing on December 31, 1996.
During the Fund's last three fiscal years, distributions paid by the Fund
on its Common Stock have consisted primarily of net long-term capital gains, and
under current market conditions it is expected that dividends paid on the
Cumulative Preferred Stock similarly will consist primarily of net 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 net
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.'
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.'
------------------------
APPLICATION WILL BE MADE TO LIST THE CUMULATIVE PREFERRED STOCK ON THE NEW YORK
STOCK EXCHANGE (THE 'NYSE').
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
$ .
-----------------------------
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 , 1996, at the
offices of Morgan Stanley & Co. Incorporated, New York, New York against payment
therefor in immediately available funds.
------------------------
MORGAN STANLEY & CO.
INCORPORATED
, 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>
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 , 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 30 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 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........ 7
Financial Highlights........................... 9
The Fund....................................... 10
Use of Proceeds................................ 10
Capitalization................................. 10
Portfolio Composition.......................... 11
Investment Objectives and Policies............. 11
Investment Objectives..................... 11
Investment Policies....................... 11
Rating Agency Guidelines.................. 13
Changes in Investment Objectives and
Policies................................ 14
Investment Restrictions................... 14
Investment Advisory and Other Services......... 15
Portfolio Management...................... 15
Investment Advisory Agreement............. 15
Advisory Fee.............................. 16
Description of Cumulative Preferred Stock...... 17
General................................... 17
Dividends................................. 17
Asset Maintenance......................... 18
Redemption................................ 19
Liquidation Rights........................ 20
<CAPTION>
PAGE
----
<S> <C>
Voting Rights............................. 20
Termination of Rating Agency Guidelines... 21
Limitation on Incurrence of Additional
Indebtedness and Issuance of Additional
Preferred Stock......................... 22
Repurchase of Cumulative Preferred
Stock................................... 23
Description of Capital Stock and
Other Securities............................. 23
Capital Stock............................. 23
The Notes................................. 23
Taxation....................................... 25
Taxation of Stockholders.................. 25
Taxation of the Fund...................... 27
Other Taxation............................ 28
Custodian, Transfer Agent and Dividend-Paying
Agent........................................ 29
Underwriting................................... 29
Legal Matters.................................. 29
Experts........................................ 30
Additional Information......................... 30
Table of Contents of Statement of Additional
Information.................................. 30
Glossary....................................... 31
</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............................ 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 16.28%, 15.97% and 12.40%,
respectively. Total return figures are based on the Fund's historical
performance 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 will receive 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 % Tax-Advantaged 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, 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
December 31 in each year, commencing on December 31, 1996, to the holders
of record on the preceeding December 15. 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 net long-term capital gains, and it
is expected that under current market conditions dividends paid on the
Cumulative Preferred Stock will likewise consist primarily of net
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 net 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 paid on the Cumulative Preferred Stock will consist of net
long-term capital gains. To the extent that dividends on the shares of
Cumulative Preferred Stock are not paid from 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
terminates compliance with the Rating Agency Guidelines, the dividend
rate payable on the Cumulative Preferred Stock will be increased by .375%
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
%. 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 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 equal to
or greater than 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%. 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.'
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.'
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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............................. Application will be made to list the shares of Cumulative Preferred Stock
on the New York Stock Exchange.
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. 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 %. See 'Description of Capital Stock and Other
Securities -- The Notes.'
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 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>
6
<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/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>
7.75% 8.00%
<CAPTION>
ORDINARY IS EQUIVALENT TO AN ORDINARY
L/T CAPITAL GAINS INCOME INCOME YIELD OF
- ----------------- -------- ------------------------------------
<S> <C> <C> <C>
75.0%.. 25.0% 8.87% 9.15%
50.0%.. 50.0% 8.49% 8.77%
25.0%.. 75.0% 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 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, a larger proportion of the Fund's
distributions will consist 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) 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 could be revoked or revised.
7
<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 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>
7.75% 8.00%
<CAPTION>
1996 FEDERAL
TAX BRACKET`D' IS EQUIVALENT TO AN ORDINARY INCOME YIELD OF
- ------------------------------ -----------------------------------------------------
<S> <C> <C>
39.6%......................... 8.87% 9.15%
36.0%......................... 8.48% 8.75%
31.0%......................... 8.00% 8.26%
28.0% or lower................ 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.
8
<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 accountants, as stated in their
report accompanying such Financial Statements. The financial information for
each of the five 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, 1990 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>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
------- ----------------- ------------------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $12.34 $ 13.47 $ 12.50 $11.23 $ 8.58 $10.35 $ 9.25
------- ------- ---------- ------ ------- ------- ------
Income from Investment Operations
Net investment income............... 0.04 0.04 0.09 0.15 0.17 0.17 0.15
Net realized and unrealized gains
(losses) on investments........... 2.70 0.09 2.12 2.12 3.20 (1.49) 1.59
------- ------- ---------- ------ ------- ------- ------
Total from Investment
Operations.................... 2.74 0.13 2.21 2.27 3.37 (1.32) 1.74
------- ------- ---------- ------ ------- ------- ------
Less Distributions
Dividends from net investment
income............................ (0.03) (0.01) (0.09) (0.15) (0.17) (0.17) (0.17)
Distributions from capital gains.... (1.26) (1.04) (1.06) (0.75) (0.44) (0.15) (0.35)
------- ------- ---------- ------ ------- ------- ------
Total Distributions............. (1.29) (1.05) (1.15) (0.90) (0.61) (0.32) (0.52)
------- ------- ---------- ------ ------- ------- ------
Capital Stock Transactions
Effect of rights offering........... (0.12) (0.14) (0.08) (0.06) (0.10) (0.08) (0.09)
Effect of reinvestment of
distributions..................... (0.11) (0.07)* (0.01) (0.04) (0.01) (0.05) (0.03)
------- ------- ---------- ------ ------- ------- ------
Total Capital Stock
Transactions.................. (0.23) (0.21) (0.09) (0.10) (0.11) (0.13) (0.12)
------- ------- ---------- ------ ------- ------- ------
Net Asset Value, End of Period(a)... $13.56 $ 12.34 $ 13.47 $12.50 $11.23 $ 8.58 $10.35
------- ------- ---------- ------ ------- ------- ------
------- ------- ---------- ------ ------- ------- ------
Market Value, End of Period......... $11.875 $ 11.00 $ 12.875 $12.25 $10.375 $ 8.125 $ 9.50
------- ------- ---------- ------ ------- ------- ------
------- ------- ---------- ------ ------- ------- ------
Total Investment Return(b)
Net Asset Value(a)................ 22.6% 1.1% 17.9% 19.9% 39.5% -13.1% 19.2%
Market Value...................... 20.5% -5.6% 14.8% 26.8% 35.3% -10.8% 23.9%
Ratios/Supplemental Data
Net Assets, End of Period
(millions)........................ $339 $269 $247 $202 $167 $118 $131
Ratio of Expenses to Average Net
Assets (including management fees
and interest expense)(c).......... 2.01% 2.01% 1.33% 0.81% 0.79% 0.94% 0.95%
Ratio of Management Fees to Average
Net Assets........................ 0.97% 1.21% 1.09% 0.53% 0.43% 0.44% 0.44%
Ratio of Interest Expense to Average
Net Assets........................ 0.75% 0.46% 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of Net Investment Income to
Average Net Assets................ 0.34% 0.31% 0.74% 1.31% 1.52% 1.78% 1.48%
Portfolio Turnover Rate............. 32% 35% 33% 40% 34% 28% 36%
<CAPTION>
YEAR ENDED PERIOD
DECEMBER 31, ENDED
------------------ DEC. 31,
1988 1987 1986
------ -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $7.98 $ 9.29 $9.30
------ -------- --------
Income from Investment Operations
Net investment income............... 0.13 0.28 0.03
Net realized and unrealized gains
(losses) on investments........... 1.68 (1.04) (0.04)
------ -------- --------
Total from Investment
Operations.................... 1.81 (0.76) (0.01)
------ -------- --------
Less Distributions
Dividends from net investment
income............................ (0.06) (0.36) (0.00)
Distributions from capital gains.... (0.45) (0.16) (0.00)
------ -------- --------
Total Distributions............. (0.51) (0.52) (0.00)
------ -------- --------
Capital Stock Transactions
Effect of rights offering........... (0.00) (0.00) (0.00)
Effect of reinvestment of
distributions..................... (0.03) (0.03) (0.00)
------ -------- --------
Total Capital Stock
Transactions.................. (0.03) (0.03) (0.00)
------ -------- --------
Net Asset Value, End of Period(a)... $9.25 $ 7.98 $9.29
------ -------- --------
------ -------- --------
Market Value, End of Period......... $8.125 $ 6.75 $9.875
------ -------- --------
------ -------- --------
Total Investment Return(b)
Net Asset Value(a)................ 22.4% -9.1% 0.1%
Market Value...................... 27.4% -26.5% -1.3%
Ratios/Supplemental Data
Net Assets, End of Period
(millions)........................ $107 $90 $100
Ratio of Expenses to Average Net
Assets (including management fees
and interest expense)(c).......... 1.09% 0.40% 1.79% *`D'
Ratio of Management Fees to Average
Net Assets........................ 0.49% 0.00% 1.04% *`D'
Ratio of Interest Expense to Average
Net Assets........................ 0.00% 0.00% 0.00% *`D'
Ratio of Net Investment Income to
Average Net Assets................ 1.42% 2.92% 3.45% *`D'
Portfolio Turnover Rate............. 29% 66% 13%
</TABLE>
- ------------
* Includes distributions paid January 31, 1994 and December 30, 1994.
`D' Annualized.
(a) For periods ended after June 22, 1994, Net Asset Value per share and Net
Asset Value Total Investment Return are calculated assuming the Notes had
been fully converted unless the effect of doing so would result in a higher
Net Asset Value per share than would be calculated without such assumption.
(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.
9
<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 $364,454,152. 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 % Tax-Advantaged Cumulative Preferred
Stock issued and outstanding........................................... $ 0 $
----------- -----------
----------- -----------
Common Stock, $.001 par value:
Authorized 150,000,000 shares; issued and outstanding
24,836,018 shares...................................................... $ $
Additional paid-in capital............................................... (1)
Undistributed net investment income......................................
Accumulated net realized gains on investments............................
Unrealized appreciation on investments...................................
----------- -----------
Net assets applicable to outstanding Common Stock................... $ $
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) After deducting underwriting discounts and estimated costs of this offering
of $ .
10
<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................................................................................ $ %
Preferred stocks............................................................................
Corporate bonds.............................................................................
Repurchase agreement........................................................................
------ ----------
Total investments...................................................................... $ 100.00%
------ ----------
------ ----------
</TABLE>
SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO
<TABLE>
<CAPTION>
VALUE PERCENTAGE
------ ----------
<S> <C> <C>
Financial................................................................................... $ %
Industrial cyclicals........................................................................
Services....................................................................................
Consumer durables...........................................................................
Retail......................................................................................
Technology..................................................................................
Consumer staples............................................................................
Energy......................................................................................
Health......................................................................................
Utilities...................................................................................
------ ----------
Total common stocks.................................................................... $ 100.00%
------ ----------
------ ----------
</TABLE>
OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
<TABLE>
<S> <C>
Number of issuers........................................................................................
------
Weighted average market capitalization (total portfolio).................................................
------
</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.
11
<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, their market prices do not necessarily move parallel 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 considerations warrant such action. For the years ended
December 31, 1995 and 1994, the Fund's portfolio turnover rates were 32% and
35%, respectively.
The Fund's investment policies are subject to certain restrictions. See
' -- Investment Restrictions.'
12
<PAGE>
<PAGE>
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 auction rate 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 institutional 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 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.
13
<PAGE>
<PAGE>
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 (i) a 'majority of the Fund's outstanding voting securities' and (ii)
a majority of the outstanding shares of Cumulative Preferred Stock and any other
Preferred Stock, voting as a separate class. As used in clause (i) above and
under the 1940 Act, the Fund's 'voting securities' consists of the outstanding
shares of its Common Stock, Cumulative Preferred Stock and any other Preferred
Stock, voting as a single class and a 'majority of the Fund's outstanding voting
securities' means the lesser of (x) 67% or more of the voting securities of the
Fund present or represented at a meeting of stockholders, at which the holders
of more than 50% of the outstanding voting securities are present or
represented, or (y) more than 50% of the outstanding voting securities 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. 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 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 and the
14
<PAGE>
<PAGE>
Indenture relating to the Notes, 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
most 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 will receive 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 and 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 Fund's Notes or other
indebtedness. 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 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 Fund's outstanding Notes. 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 % per annum
and no more, payable annually on December 31 in each year (the 'Dividend Payment
Date'), commencing on December 31, 1996, to the persons in whose names the
shares of Cumulative Preferred Stock are registered at the close of business on
the preceding December 15. 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 paid on the
Cumulative Preferred Stock, all dividends on the shares of Cumulative Preferred
Stock will be 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 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
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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, (A) 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), (B) 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
(C) 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 the date of this prospectus, 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 $
---------------------------- = --------- = %
Senior securities $
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 the caption '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 Fund's portfolio and certain
definitions and methods of calculation relating thereto may be changed
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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 and the Indenture for the Notes) in the event
that:
(i) the Fund fails to maintain the 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 for Moody's equal to or greater than the
Basic Maintenance Amount on such Cure Date or, if the Asset Coverage or a
Portfolio Calculation for Moody's 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%.
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 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 shares of
Cumulative Preferred Stock are not subject to any optional redemption by the
Fund unless 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
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thereafter, the Fund may at any time 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 and the Indenture for the Notes.
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 accrued 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 class
or series of 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 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 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 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
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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 a majority of the
shares of 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 or any other Preferred Stock. To the extent permitted
under the 1940 Act, in the event shares of more than one series of Preferred
Stock are outstanding, the Fund will not approve any of the actions set forth in
the preceding sentence which materially adversely affects the contract rights
expressly set forth in the Charter of a holder of shares of a series of
Preferred Stock differently than those of a holder of shares of any other series
of Preferred Stock without the affirmative vote of at least a majority of votes
entitled to be cast by holders of the Preferred Stock of each series materially
adversely affected and outstanding at such time (each such materially adversely
affected series voting separately as a class). 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 in each
case 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 which case the Fund will no longer
be required to comply with such guidelines, provided that (i) the
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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 the Cumulative Preferred Stock is
increased by .375% per annum.
If the Fund 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, and, in the case of
either (i) or (ii) above, (iii) no such additional indebtedness will have any
preference or priority over any other indebtedness of the Fund upon the
distribution of the assets of the Fund or in respect of the payment of interest.
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 which are
stock, as defined in the 1940 Act, of at least 300% of the shares of
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Cumulative Preferred Stock and all other Preferred Stock of the Fund then
outstanding, and, 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.
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, 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
23
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<PAGE>
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 at-tributable to the annual distributions payable to
Common Stock-holders, 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 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 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.
24
<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 maximum tax rate on ordinary
income. In recent years, a number of legislative
25
<PAGE>
<PAGE>
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 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 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. 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 has never been notified by the IRS that he or she is subject to
backup withholding, has been notified by the IRS that he or she is no longer
subject to backup withholding, or is exempt from backup withholding. Corporate
stockholders and certain other stockholders are exempt from backup withholding.
Backup withholding is not an 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
26
<PAGE>
<PAGE>
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 series 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 the opinion of Brown & Wood LLP, special counsel to the Fund, under
current law the manner in which the Fund intends to allocate net capital gains
and other taxable income between shares of Common Stock and Cumulative Preferred
Stock 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.
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
27
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<PAGE>
'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 or the Articles
Supplementary, the Fund may, and in certain circumstances will be required to
partially redeem the shares of 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. 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, except as provided in regulations to be promulgated, 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.
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 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.
28
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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..........................................................
---------
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. Investors must pay for any shares of Cumulative Preferred Stock
purchased on or before , 1996.
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 a broker or dealer 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 will be made to list the Cumulative Preferred Stock
on the New York Stock Exchange.
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 or the
opinion of Venable, Baetjer and Howard LLP.
29
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EXPERTS
Ernst & Young LLP, independent accountants, 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 Commission 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 the Commission.
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.
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 , 1996 has been
filed with the SEC and is incorporated by reference in this Prospectus. 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>
30
<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 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) 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 irrevocably
segregated or deposited assets as described above with its custodian bank or the
Paying Agent for the payment of the repurchase price the Fund may deduct 100% of
the Liquidation Preference of such Cumulative Preferred Securities 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 % Tax-Advantaged Cumulative
Preferred Stock, par value $.001 per share, of the Fund.
'Date of Original Issue' has the meaning set forth on page 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 Deposit Security but only if payable on or prior to the applicable
payment date in advance of which the relevant deposit is made.
31
<PAGE>
<PAGE>
'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 of this
Prospectus.
'Fund' means Royce Value Trust, Inc., a Maryland corporation.
'Liquidation Preference' has the meaning set forth on page of this
Prospectus.
'Moody's' means Moody's Investors Service, Inc.
'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:
Transportation issuers............................................................ 4.30
Other issuers..................................................................... 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 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
</TABLE>
(table continued on next page)
32
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
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
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
</TABLE>
(table continued on next page)
33
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET: DISCOUNT FACTOR:
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
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 of 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 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
34
<PAGE>
<PAGE>
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>
35
<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.
'Notice of Redemption' has the meaning set forth on page 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 of this Prospectus.
'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
36
<PAGE>
<PAGE>
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.
'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.
37
<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 , 1996)
2,400,000 SHARES
ROYCE VALUE TRUST, INC.
% TAX-ADVANTAGED CUMULATIVE PREFERRED STOCK,
LIQUIDATION PREFERENCE $25.00 PER SHARE
The % Tax-Advantaged 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 , 1996).
Please retain this document for future reference. To obtain an additional copy
of the Prospectus or the Fund's Annual Report to Stockholders for the year ended
December 31, 1995, 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 , 1996
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
As of June 30, 1996, the following persons owned of record or were 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 % 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 predecessor.
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* (37) ............... 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 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 $47,191 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 $ million, and Quest's and QMC's equity interests in such
private investment companies totalled approximately $ 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 $129,940, $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 Investment Company Convertible Notes (the 'Notes') have been converted,
unless 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 will be
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, 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 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 Accountants*
</TABLE>
- ------------
* Incorporated by reference to the Registrant's 1995 Annual Report to
Stockholders filed with the Securities and Exchange Commission for the year
ended December 31, 1995 pursuant to Rule 30b2-1 under the Investment Company
Act of 1940, as amended ('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.
(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 % Tax-Advantaged Cumulative Preferred Stock.
(2) --Portions of the Articles of Supplementary of the Registrant defining the rights of holders of %
Tax-Advantaged 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.
</TABLE>
(exhibit list continued on next page)
C-1
<PAGE>
<PAGE>
(exhibit list continued from previous page)
<TABLE>
<S> <C> <C>
(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 2(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 2(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.
(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 (2)(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.
(h)(1) --Form of Underwriting Agreement with Morgan Stanley & Co. Incorporated.*
(2) --Form of Agreement Among Underwriters.*
(3) --Form of Selected Dealers 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 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.
(3) --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 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 Article II (Sections 1,2,3,4,7 and 8) of the Registrant's
Articles of Supplementary filed herewith as Exhibit 2(a)(4).
* To be filed by amendment.
C-2
<PAGE>
<PAGE>
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>
<S> <C>
SEC Registration fees........................................................................ $ *
New York Stock Exchange listing fee.......................................................... *
Rating Agency fee............................................................................ *
Printing and engraving expenses.............................................................. *
Accounting fees and expenses................................................................. *
Legal fees and expenses...................................................................... *
Blue Sky fees and expenses................................................................... *
Miscellaneous................................................................................ *
-------
Total................................................................................... $ *
-------
-------
</TABLE>
- ------------
* To be furnished by amendment.
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>
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 to be 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.
C-3
<PAGE>
<PAGE>
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.
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
C-4
<PAGE>
<PAGE>
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 tenth day of
July, 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 July 10, 1996
......................................... (Principal Executive, Financial and
CHARLES M. ROYCE Accounting Officer)
/S/ THOMAS R. EBRIGHT Director July 10, 1996
.........................................
THOMAS R. EBRIGHT
/S/ RICHARD M. GALKIN Director July 10, 1996
.........................................
RICHARD M. GALKIN
/S/ STEPHEN L. ISSACS Director July 10, 1996
.........................................
STEPHEN L. ISSACS
/S/ DAVID L. MEISTER Director July 10, 1996
.........................................
DAVID L. MEISTER
</TABLE>
C-6
STATEMENT OF DIFFERENCES
------------------------
The dagger symbol shall be expressed as `D'
<PAGE>
<PAGE>
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
______% TAX-ADVANTAGED 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 ______ shares of preferred
stock, par value $.001 per share, of the Corporation designated as the "____%
Tax-Advantaged Cumulative Preferred Stock" (the "Cumulative Preferred Stock")
and has provided for the issuance of shares of such class.
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 Eligible Assets
and Portfolio Calculation are numerically correct;
<PAGE>
<PAGE>
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 Accountants will inquire of the rating agencies what such
information is, and provide a listing in their 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
Accountants will provide a listing in their 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 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
2
<PAGE>
<PAGE>
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 contained 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, means 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) 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
3
<PAGE>
<PAGE>
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 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 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 irrevocably segregated or
deposited assets as described above with its custodian bank or the Paying Agent
for the payment of the repurchase price the Corporation may deduct 100% of the
Liquidation Preference of such Cumulative Preferred Securities 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 which sets forth, as of the
related Valuation Date, the assets of the Corporation, the Market Value and
Discounted Value thereof (seriatim and in the aggregate), and the Basic
Maintenance Amount.
"Board of Directors" means the Board of Directors of the Corporation.
4
<PAGE>
<PAGE>
"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 ____% Tax-Advantaged 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 Assets, 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 pursuant to the provisions of
paragraph 1(a) of Article II hereof.
"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.
5
<PAGE>
<PAGE>
"Independent Accountant"* means a nationally recognized accountant, or firm
of accountants, that is with respect to the company 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
National Market 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 National Market 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) 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
6
<PAGE>
<PAGE>
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;
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.
7
<PAGE>
<PAGE>
"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:
Transportation issuers................................................... 3.00
Other issuers............................................................ 3.00
</TABLE>
8
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<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>
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<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 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
</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 of 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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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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<PAGE>
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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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.
"Notice of Redemption" has the meaning set forth in paragraph 3(c)(i) of
Article II hereof.
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<PAGE>
"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 ________, 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 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
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<PAGE>
<PAGE>
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 States Treasury Bills and U.S. Treasury Securities Strips, provide for
the periodic payment of interest and the full payment of principal at maturity.
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"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.
The foregoing definitions which are marked with an asterisk have been
determined 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 shareholder 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 rate of ____% per
annum (computed on the basis of a 360-day year consisting of twelve 30-day
months) of the Liquidation Preference on the Cumulative Preferred Stock and no
more, payable annually on December 31 in each year (each a "Dividend Payment
Date") commencing December 31, 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 23 (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 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
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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
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
paid on the shares of Cumulative Preferred Stock, any dividends on the shares of
Cumulative Preferred Stock shall be 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 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.
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(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.
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 accrued to and including the date fixed for such distribution
or payment (whether or not earned or declared by the 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
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dividends or distributions will 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 and the
Indenture, 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, give a Notice of Redemption (which shall specify a
redemption date that is not fewer than 30 days nor more than 45 days after the
date of such notice) with respect to the redemption of Cumulative Preferred
Stock on such redemption date. 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, 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 a price equal to $25.00 per share
plus accumulated but unpaid dividends (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 is not 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 _____________, 2001, the Corporation may not redeem Cumulative
Preferred Stock at its option unless 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 Internal Revenue Code of 1986, as
amended.
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Commencing _________, 2001 and thereafter, and prior thereto to the extent
necessary to maintain the Corporation's status as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended, to the
extent permitted by the 1940 Act, Maryland law and the Indenture, the
Corporation may at any time upon Notice of Redemption redeem the Cumulative
Preferred Stock in whole or in part at the Redemption Price per share, which
notice shall specify a redemption date of not fewer than 30 days nor more than
45 days after the date of such notice.
(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; (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 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
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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 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
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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 upon Notice of
Redemption.
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
shareholders 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 shareholders 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.
(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 cash or specified securities
shall not have been
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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 a majority
of the shares of 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 or any other Preferred Stock. To the extent permitted
under the 1940 Act, in the event shares of more than one series of Preferred
Stock are outstanding, the Corporation shall not approve any of the actions set
forth in the preceding sentence which materially adversely affects the contract
rights expressly set forth in the Charter of a holder of shares of a series of
Preferred Stock differently than those of a holder of shares of any other series
of Preferred Stock without the affirmative vote of the holders of at least a
majority of the shares of Preferred Stock of each series materially adversely
affected and outstanding at such time (each such materially adversely affected
series voting separately as a class). 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 in each case
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.
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(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 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
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<PAGE>
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.
(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 share
of Cumulative Preferred Stock is outstanding, the Asset Coverage.
(ii) Basic Maintenance Amount Requirement.
(A) For so long as any share of Cumulative Preferred Stock are outstanding,
the Corporation will 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.
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<PAGE>
(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
the 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
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.
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<PAGE>
(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.
(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 deposit
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<PAGE>
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.
(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
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<PAGE>
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
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) and 6 of Article
II hereof at the time the notice required in clause (i) hereof is given or 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
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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
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 the Cumulative Preferred Stock
pursuant to paragraph 1(a) of Article II hereof shall be increased by .375% 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
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<PAGE>
the Corporation then outstanding, and, in the case of either (i) or (ii) above,
(iii) no such additional indebtedness shall have any preference or priority over
any other indebtedness of the Corporation upon the distribution of the assets of
the Corporation or in respect of the payment of interest. 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 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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<PAGE>
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
36
<PAGE>
<PAGE>
SPECIMEN
CERTIFICATE
CERTIFICATE NUMBER NUMBER OF SHARES
CUSIP #
ROYCE VALUE TRUST, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
TRANSFERABLE IN NEW YORK, NY
% TAX-ADVANTAGED CUMULATIVE PREFERRED STOCK
LIQUIDATION PREFERENCE $25.00 PER SHARE
This certifies that is the registered holder
of shares of fully paid and non-assessable % Tax-Advantaged
Cumulative Preferred Stock, par value $.001 per share, liquidation preference
$25.00 per share, of Royce Value Trust, Inc., transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. This certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of the duly authorized officers of the Corporation.
DATED:
Countersigned and Registered:
State Street Bank and Trust Company
(Boston) Transfer Agent
By: ............................
CHARLES M. ROYCE
PRESIDENT
................................. ............................
AUTHORIZED SIGNATORY JOHN E. DENNEEN
SECRETARY
[SEAL]
<PAGE>
<PAGE>
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE ISSUED AND WILL BE
SUBJECT TO ALL OF THE PROVISIONS OF THE CHARTER AND BY-LAWS OF THE CORPORATION,
EACH AS FROM TIME TO TIME AMENDED, TO ALL OF WHICH THE HOLDER BY ACCEPTANCE
HEREOF ASSENTS. THE TRANSFER OF THE SHARES OF TAX-ADVANTAGED CUMULATIVE
PREFERRED STOCK REPRESENTED HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED IN
THE CORPORATION'S CHARTER. THE CORPORATION WILL FURNISH INFORMATION ABOUT SUCH
RESTRICTIONS TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY
OF THE CORPORATION.
ROYCE VALUE TRUST, INC.
A full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of stock which the Corporation is authorized to issue and the
differences in the relative rights and preferences between the shares of each
class and series to the extent that they have been set, and the authority of the
Board of Directors to set the relative rights and preferences of subsequent
classes and series, will be furnished by the Corporation to any stockholder,
without charge, upon request to the Secretary of the Corporation at its
principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, will be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ......... Custodian .........
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with
right of survivorship under Uniform Gifts to
and not as tenants in Minors Act ......................................
common (State)
</TABLE>
Additional abbreviations also may be used though not in the above list.
For value received, ..................... hereby sell, assign and transfer unto
Please insert social security or other identifying number of assignee
................................................................................
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
................................................................................
......................................................................... shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
...............................................................................
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated: ....................
NOTICE: ......................................
The Signature to this assignment
must correspond with the name as
written upon the face of the
Certificate in every particular,
without alteration or enlargement or
any change whatsoever.
<PAGE>
<PAGE>
DISTRIBUTION REINVESTMENT AND CASH
PURCHASE PLAN OF ROYCE VALUE TRUST, INC.
Royce Value Trust, Inc., a Maryland corporation (the 'Fund'), hereby adopts
the following plan (the 'Plan') with respect to net investment income dividends
and capital gains distributions declared by its Board of Directors on shares of
its Common Stock and to voluntary cash purchases of shares of its Common Stock:
1. Unless a stockholder specifically elects to receive cash as set forth
below, all net investment income dividends and all capital gains distributions
hereafter declared by the Board of Directors shall be payable in shares of the
Common Stock of the Fund.
2. Such net investment income dividends and capital gains distributions
shall be payable on such date or dates as may be fixed from time to time by the
Board of Directors to stockholders of record at the close of business on the
record date(s) established by the Board of Directors for the net investment
income dividend and/or capital gains distribution involved.
3. Unless a stockholder specifically elects otherwise, such stockholder
will receive all net investment income dividends and/or capital gains
distributions in full and fractional shares of the Fund's Common Stock, and no
action shall be required on such stockholder's part of receive a distribution in
stock.
4. The number of shares to be issued to a stockholder shall be determined
by dividing the total dollar amount of the distribution payable to such
stockholder by the value per share of the Fund's Common Stock at the close or
regular trading on the New York Stock Exchange on the valuation date fixed by
the Board of Directors for such distribution. Value per share on that date shall
be the last reported sale price for such shares on the Exchange.
5. A stockholder may, however, elect to receive his or its net investment
income dividends and capital gains distributions in cash. To exercise this
option, such stockholder shall notify State Street Bank and Trust Company
('State Street'), the Plan Agent and the Fund's custodian, transfer agent and
registrar, in writing so that such notice is received by State Street no later
than 10 days prior to the record date fixed by the Board of Directors for the
net investment income dividend and/or capital gains distribution involved.
6. State Street will set up an account for shares acquired pursuant to the
Plan for each stockholder who has not so elected to receive dividends and
distributions in cash ('Participant'). State Street may hold each participant's
shares, together with the shares of other Participants, in non-certificated form
in State Street's name or that of its nominee. Upon request by a Participant,
received in writing no later than 10 days prior to the record date, State Street
will, instead of crediting shares to and/or carrying shares in a Participant's
account, issue, without charge to the Participant, a certificate registered in
the Participant's name for the number of whole shares payable to the Participant
and a check for any fractional share.
7. A Participant has the option of sending additional funds to State
Street, in any amount of at least $100, for the purchase in the open market of
shares of the Fund's Common Stock for his or its account. Such voluntary
payments will be so invested by State Street on or about the 15th of each month,
and in no event more than 30 days after such date, except where necessary to
comply with provisions of Federal securities law. Funds received less than 5
business days prior to an investment date will be held by State Street until the
next investment date. A Participant may withdraw his entire voluntary cash
payment by written notice received by State Street not leas than 48 hours before
such payment is to be invested.
8. Investments of voluntary cash payments may be made by State Street on
any securities exchange where shares of the Fund's Common Stock are traded, in
the over-the-counter market or in negotiated transactions and may be on such
terms as to price, delivery and otherwise as State Street shall determine.
Participant funds held by State Street uninvested will not bear interest, and
State Street shall have no liability in connection with any inability to
purchase shares within 45 days after receipt of funds or with the timing of any
purchases effected. State Street shall have no responsibility as to the value of
the shares of the Fund's Common Stock acquired for any Participant's account and
may commingle funds of Participants for the purpose of cash investments. The
average price (including brokerage commissions) per share of all shares
purchased by State Street shall be the price per share allocable to the
Participant in connection with the cash investment.
9. State Street will confirm to each Participant each acquisition made
pursuant to the Plan as soon as particable but not later than 10 business days
after the date thereof. Although each Participant may from time to time have an
undivided fractional interest (computed
<PAGE>
<PAGE>
to three decimal places) in a share of Common Stock of the Fund, no certificates
for a fractional share will be issued. However, dividends and distributions on
fractional shares will be credited to each Participant's account. In the event
of termination of a Participant's account under the Plan, State Street will
adjust for any such undivided fractional interest in cash at the market value of
the Fund's shares at the time of termination.
10. A Participant may deposit certificates for shares of Common Stock of the
Fund with State Street for safekeeping. The deposited shares will be credited to
the Participant's account and will be treated in all respects in the same manner
as shares issued to or purchased for the Participant's account. All certificates
should be sent with written instructions to deposit the certificates in the
Participant's Plan account. They meet not be endorsed and shall be sent by
registered or certified mail, return receipt requested, to:
State Street Bank and Trust Company
c/o Royce Value Trust, Inc.
P.O. Box 8200
Boston, MA 02110
11. State Street will forward to each Participant any fund-related proxy
solicitation materials and each Fund report or other communication to
stockholders, and will vote any shares held by it under the Plan in accordance
with the instructions set forth on proxies returned by Participants to the Fund.
12. In the event that the Fund makes available to its Common Stockholders rights
to purchase additional shares or other securities, the shares held by State
Street for each Participant under the Plan will be added to any other shares
held by the Participant in certificated form in calculating the number of rights
to be issued to the Participant.
13. State Street's service fee, if any, for administering the Plan, will be paid
for by the Fund. Participants will be charged a $0.75 service fee for each
voluntary cash investment and their pro rata share of brokerage commissions on
all open market purchases.
14. Each Participant may terminate his or its account under the Plan by so
notifying State Street in writing. Such termination will be effective
immediately if the Participant's notice is received by State Street not less
than 10 days prior to any dividend or distribution record date; otherwise, such
termination will be effective only with respect to any subsequent dividend or
distribution. The Plan may be terminated by the Fund or by State Street upon
notice in writing mailed to each Participant at least 30 days prior to any
record date for the payment of any dividend or distribution by the Fund. Upon
any termination, State Street will cause a certificate or certificates to be
issued for the full shares held for each Participant under the Plan and a cash
adjustment for any fractional share to be delivered to the Participant without
charge to the Participant. If a Participant elects by his or its written notice
to State Street in advance of termination to have State Street sell part or all
of his or its shares and remit the proceeds to the Participant, State Street is
authorized to deduct a $2.50 transaction fee plus brokerage commission from the
proceeds.
15. These terms and conditions may be amended or supplemented by State Street or
the Fund at any time but, except when necessary or appropriate to comply with
applicable law or the rules or policies of the Securities and Exchange
Commission or any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 30 days prior to the effect date
thereof. The amendment or supplement shall be deemed to be accepted by each
Participant unless, prior to the effective date thereof, State Street receives
written notice of the termination of his or its account under the Plan. Any such
amendment may include an appointment by State Street in its place and stead of a
successor agent under these terms and conditions, with full power and authority
to perform all or any of the acts to be performed by State Street under these
terms and conditions. Upon any such appointment of any agent for the purpose of
receiving dividends and distributions, the Fund will be authorized to pay to
such successor agent, for each Participant's account, all dividends and
distributions payable on shares of the Fund held in the Participant's name or
under the Plan for retention or applicable by such successor agent as provided
in these terms and conditions.
16. State Street will at all times act in good faith and use its best effort
within reasonable limits to ensure its full and timely performance of all
services to be performed by it under this Plan and to comply with applicable
law, but assumes no responsibility and shall not be liable for loss or damage
due to errors unless such error is caused by State Street's negligence, bad
faith or willful misconduct or that of its employees or agents.
17. These terms and conditions shall be governed by the laws of the State of New
York.
November, 1995
<PAGE>
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of December 14, 1995, is
entered into by ROYCE VALUE TRUST, INC., a Maryland corporation (the 'Company'),
a UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (the 'Trustee'), under the
Indenture dated as of June 15, 1994 (as supplemented by the First Supplemental
Indenture dated as of September 13, 1995, the 'Indenture'). Capitalized terms
not otherwise defined herein shall have the respective meanings set forth in the
Indenture.
W I T N E S S E T H:
WHEREAS, the Company and the Trustee have heretofore entered into the
Indenture to provide for the issuance of $40,000,000 aggregate principal amount
of the Company's 5 3/4% Investment Company Convertible Notes due June 30, 2004.
WHEREAS, the Company desires to enter into this Second Supplemental
Indenture to (a) change the definition of 'Closed Period' in Section 1.01 of the
Indenture, in accordance with Section 10.01 of the Indenture, and (b) amend
Section 4.06 of the Indenture so as to give the Company's Board of Directors the
option to reduce or eliminate the Escalator Rate in additional years and (c)
amend Section 10.01 of the Indenture so as to allow the Company to issue and
sell additional Securities subject to the limitations of Sections 5.12 and 11.05
of the Indenture, both in accordance with Section 10.02 of the Indenture.
WHEREAS, the Company has informed the Trustee that with respect to the
change set forth in (a) of the preceding WHEREAS clause, the Trustee is
authorized, under Sections 10.01 (c) and (d) of the Indenture, to execute this
Second Supplemental Indenture without notice to or the consent of the
Securityholders, and with respect to the changes set forth in (b) and (c) of
such WHEREAS clause, the Trustee is authorized, under Section 10.02 of the
Indenture, to execute this Second Supplemental Indenture with the written
consent of the Holders of a majority in aggregate principal amount of the
Securities presently issued and outstanding under the Indenture, and that such
Holders have given their written consent to such changes, and the Trustee has
received an opinion of counsel to such effect.
WHEREAS, all acts and proceedings required by law or by the Indenture
necessary to constitute this Second Supplemental Indenture a valid and binding
agreement for the uses and purposes herein set forth have been done and taken,
and the execution and
<PAGE>
<PAGE>
delivery of this Second Supplemental Indenture have in all respects been duly
authorized.
NOW, THEREFORE, the Company covenants and agrees with the Trustee for the equal
and proportionate benefit of the Securityholders, as follows:
ARTICLE FIRST
AMENDMENTS
Section 1.01. The definition of Closed Period, contained in Section 1.01 of
the Indenture, is hereby amended to read in its entirety as follows:
'Closed Period' means the period during each calendar year from the
second trading day immediately preceding the Annual Adjustment Date for
such year through the last day of such year or through such day prior
thereto as may have been selected by the Company as the last day of the
Closed Period for such year.'
Section 1.02. The sentence contained in Section 4.06(a) of the Indenture,
beginning 'Notwithstanding the first sentence...', is hereby amended to read in
its entirety as follows:
'Notwithstanding the first sentence of this subsection (a) to the
contrary, with respect to the Annual Adjustment Date occurring after 1996,
the Company may, at its option, reduce or eliminate the Escalator Rate for
the year involved.'
Section 1.03. Section 10.01 of the Indenture is hereby amended by adding
the following sub-section thereto at the end thereof:
'(e) to provide for the issuance and sale by the Company, at any time
or from time to time, of Securities in addition to the $40,000,000
aggregage principal amount of Securities issued and sold by the Company on
or about June 22, 1994, subject to and in compliance with the 500% asset
coverage test of Section 5.12 and, if then applicable, Section 11.05,
provided that (i) all such additional Securities shall be issued and sold
to the initial Holders thereof for a price equal to the principal amount
thereof, (ii) all such Securities shall be dated as of the date on which
they are issued and sold by the Company to the initial Holders thereof and
(iii) all of such Holders shall, concurrently with their purchase of such
Securities, pay to the Company an amount equal to interest accrued thereon
from the then most recent date on which interest on the Securities was paid
by the Company through the day immediately preceding the
2
<PAGE>
<PAGE>
day on which such Securities issued and sold to them.'
ARTICLE SECOND
MISCELLANEOUS
Section 2.01. This Second Supplemental Indenture shall take effect as to
each party hereto as of and from the date hereof, immediately upon its execution
and delivery by such party. This Second Supplemental Indenture is an indenture
supplemental to and in implementation of the Indenture and said Indenture and
this Second Supplemental Indenture shall henceforth be read together.
Section 2.02. The Trustee hereby accepts the amendments of the Indenture
effected by this Second Supplemental Indenture and agrees to execute the trusts
created by the Indenture as hereby amended, but only upon the terms and
conditions set forth in the Indenture, including the provisions defining and
limiting the liabilities and responsibilities of the Trustee, which terms,
conditions and provisions define and limit its liabilities and responsibilities
in the performance of the trusts created by the Indenture, as amended hereby;
without limiting the generality of the foregoing, the Trustee has no
responsibility for the correctness of the recitals of fact herein contained,
which shall be taken as statements of the Company, and makes no representations
as to the validity or sufficiency of this Second Supplemental Indenture.
Section 2.03. This Second Supplemental Indenture shall be governed by and
construed in accordance with the laws of the jurisdiction which govern the
Indenture and its construction.
3
<PAGE>
<PAGE>
Section 2.04. This Second Supplemental Indenture may be executed in any number
of counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed and their respective seals to be affixed hereunto
and duly attested, all as of the day and year first above written.
ROYCE VALUE TRUST, INC.
[Corporate Seal]
By: /s/ DANIEL A. O'BYRNE
.......................................
Name: Daniel A. O'Byrne
Attest: Title: Vice President
/s/ SUSAN T. GRANT
..............................
Name: Susan T. Grant
Title: Secretary
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
[Corporate Seal]
By: /s/ JOHN GUILIANO
.......................................
Name: John Guiliano
Attest: Title: Vice President
/s/ CYNTHIA CHANEY
..............................
Name: Cynthia Chaney
Title: Assistant Vice President
4
<PAGE>
<PAGE>
INVESTMENT ADVISORY AGREEMENT
BETWEEN
ROYCE VALUE TRUST, INC.
AND
QUEST ADVISORY CORP.
Agreement dated as of June 30, 1996 by and between ROYCE VALUE TRUST, INC.,
a Maryland corporation (the 'Fund'), and QUEST ADVISORY CORP., a New York
corporation (the 'Adviser').
The Fund and the Adviser hereby agree as follows:
1. Duties of the Adviser. The Adviser shall, during the term and subject to
the provisions of this Agreement, (a) determine the composition of the portfolio
of the Fund, the nature and timing of the changes therein and the manner of
implementing such changes and (b) provide the Fund with such investment
advisory, research and related services as the Fund may, from time to time,
reasonably require for the investment of its assets. The Adviser shall perform
such duties in accordance with the applicable provisions of the Fund's Articles
of Incorporation, By-laws and stated investment objectives, policies and
restrictions and any directions it may receive from the Fund's Board of
Directors.
2. Expenses Payable by the Fund. Except as otherwise provided in Paragraphs
1 and 3 hereof, the Fund shall be responsible for determining the net asset
value of its shares and for all of its other operations and shall pay all
administrative and other costs and expenses attributable to its operations and
transactions, 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, stockholders' reports and notices; supplies and postage;
Federal and state registration fees; securities 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.
3. Expenses Payable by the Adviser. The Adviser shall furnish, without
expense to the Fund, the services of those of its executive officers and
full-time employees who may be duly elected executive officers or directors of
the Fund, subject to their individual consent to serve and to any limitations
imposed by law, and shall pay all the salaries and expenses of such persons. For
purposes of this Agreement, only a president, a treasurer or a vice-president in
charge of a principal business function shall be deemed to be an executive
officer. The Adviser shall also pay all expenses which it may incur in
performing its duties under Paragraph 1 hereof and shall reimburse the Fund for
any space leased by the Fund and occupied by the Adviser.
4. Compensation of the Adviser.
(a) The Fund agrees to pay to the Adviser, and the Adviser agrees to
accept, as compensation for the services provided by the Adviser hereunder,
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 Standard & Poor's SmallCap 600 Stock Price
Index (as the same may be constituted from time to time, the 'Index'). Such
fee shall be calculated and payable as follows:
(1) Beginning with the month of July 1997 and for each succeeding
month, the Basic Fee shall 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
net assets of
<PAGE>
<PAGE>
the Fund shall be computed by subtracting the amount of any indebtedness
and other liabilities of the Fund from the value of the total assets of
the Fund, and the liquidation preference of and any potential redemption
premium for any Preferred Stock of the Fund that may hereafter be issued
and outstanding shall not be treated as an indebtedness or other
liability of the Fund for this purpose.) The performance period for each
such month shall be from July 1, 1996 to the most recent month-end,
until this Agreement has been in effect for sixty (60) full calendar
months, when it shall become a rolling sixty (60) month period ending
with the most recent calendar month.
The Basic Fee rate for each such month shall be increased at the
rate of 1/12 of .05% for each percentage point in excess of two (2),
rounded to the nearer point (the higher point if exactly one-half a
point), that the investment performance of the Fund for the performance
period then ended exceeds the percentage change in the investment record
of the Index for such performance period (subject to a maximum of twelve
(12) percentage points). If, however, the investment performance of the
Fund for such performance period shall be exceeded by the percentage
change in the investment record of the Index for such performance
period, then such Basic Fee rate shall be decreased by 1/12 of .05% for
each percentage point in excess of two (2), rounded to the nearer point
(the higher point if exactly one-half a point), that the percentage
change in the investment record of the Index exceeds the investment
performance of the Fund for such performance period (subject to a
maximum of twelve (12) percentage points).
The maximum increase or decrease in the Basic Fee for any month may
not exceed 50%, and the Fund shall pay such Basic Fee, as so adjusted,
to the Adviser at the end of each performance period.
(2) For the initial performance period of twelve (12) calendar
months ending June 30, 1997, the Basic Fee for such performance period
shall be equal to 1/12 of 1% of the net assets of the Fund at the end of
each month included in such period, and such Basic Fee shall be subject
to adjustment, as described in subparagraph (a)(1) above, with the rate
of such adjustment being applied on an annualized basis. Any portion of
the fee for such period, as adjust, in excess of .5 shall be paid at the
end of the initial performance period.
(3) Notwithstanding the preceding provisions of this subparagraph
(a) to the contrary, for each of the eighteen (18) calendar months
ending December 31, 1997, the Basic Fee, as so adjusted, shall be
reduced if and to the extent necessary so that such fee does not exceed
the fee that would have been payable to the Adviser for such month under
the Investment Advisory Agreement dated as of October 21, 1992 (the
'Prior Agreement') by and between the Fund and the Adviser.
(b) Notwithstanding the provisions of subparagraph (a) above to the
contrary, the Adviser shall not be entitled to receive any monthly fee in
respect of any performance period consisting of a rolling thirty-six (36)
month period ending with the most recent calendar month for which the
investment performance of the Fund shall be negative on an absolute basis
(i.e., the investment performance of the Fund, rounded to the nearer whole
point, is less than zero).
(c) The investment performance of the Fund for any period shall be
expressed as a percentage of the Fund's net asset value per share of Common
Stock at the beginning of such period and shall mean and be the sum of: (i)
the change in the Fund's net asset value per share of Common Stock during
such period; (ii) the value of the Fund's cash distributions per share of
Common Stock accumulated to the end of such period; and (iii) the value of
capital gains taxes per share of Common Stock paid or payable on
undistributed realized long-term capital gains accumulated to the end of
such period. For this purpose, the value of distributions per share of
Common Stock of realized capital gains, of dividends per share of
2
<PAGE>
<PAGE>
Common Stock paid from investment income and the capital gains taxes per
share of Common Stock paid or payable on undistributed realized long-term
capital gains shall be treated as reinvested in shares of Common Stock of
the Fund at the net asset value per share of Common Stock in effect at the
close of business on the record date for the payment of such distributions
and dividends and the date on which provision is made for such taxes, after
giving effect to such distributions, dividends and taxes. Notwithstanding
any provisions of this subparagraph (c) or of the other subparagraphs of
Paragraph 4 hereof to the contrary, the investment performance of the Fund
for any period shall not include, and there shall be excluded from the
change in the Fund's net asset value per share of Common Stock during such
period and the value of the Fund's cash distributions per share of Common
Stock accumulated to the end of such period shall be adjusted for, any
increase or decrease in the investment performance of the Fund for such
period computed as set forth in the preceding two sentences and resulting
from the Fund's capital stock transactions.
(d) The investment record of the Index for any period, expressed as a
percentage of the Index level at the beginning of such period, shall mean
and be the sum of (i) the change in the level of the Index during such
period; and (ii) the value, computed consistently with the Index, of cash
distributions made by companies whose securities comprise the Index
accumulated to the end of such period. For this purpose, cash distributions
on the securities which comprise the Index shall be treated as reinvested
in the Index at the end of each calendar month following the payment of the
dividend.
(e) Any calculation of the investment performance of the Fund and the
investment record of the Index shall be in accordance with any then
applicable rules of the Securities and Exchange Commission.
(f) In the event of any termination of this Agreement, the fee
provided for in this Paragraph 4 shall be calculated on the basis of a
period ending on the last day on which this Agreement is in effect, subject
to a pro rata adjustment based on the number of days elapsed in the current
period as a percentage of the total number of days in such period.
5. Excess Brokerage Commissions. The Adviser is hereby authorized, to the
fullest extent now or hereafter permitted by law, to cause the Fund to pay a
member of a national securities exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount of
commission another member of such exchange, broker or dealer would have charged
for effecting that transaction, if the Adviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage and/or research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or its over-all
responsibilities with respect to the Fund and its other accounts.
6. Limitations on the Employment of the Adviser. The services of the
Adviser to the Fund shall not be deemed exclusive, and the Adviser may engage in
any other business or render similar or different services to others so long as
its services to the Fund hereunder are not impaired thereby, and nothing in this
Agreement shall limit or restrict the right of any director, officer or employee
of the Adviser to engage in any other business or to devote his time and
attention in part to any other business, whether of a similar or dissimilar
nature. So long as this Agreement or any extension, renewal or amendment remains
in effect, the Adviser shall be the only investment adviser to the Fund, subject
to the Adviser's right to enter into sub-advisory agreements. The Adviser
assumes no responsibility under this Agreement other than to render the services
called for hereunder, and shall not be responsible for any action of or directed
by the Board of Directors of the Fund, or any committee thereof, unless such
action has been caused by the Adviser's gross negligence, willful malfeasance,
bad faith or reckless disregard of its obligations and duties under this
Agreement.
3
<PAGE>
<PAGE>
7. Responsibility of Dual Directors, Officers and/or Employees. If any
person who is a director, officer or employee of the Adviser is or becomes a
director, officer and/or employee of the Fund and acts as such in any business
of the Fund pursuant to this Agreement, then such director, officer and/or
employee of the Adviser shall be deemed to be acting in such capacity solely for
the Fund, and not as a director, officer and/or employee of the Adviser or under
the control or direction of the Adviser, although paid by the Adviser.
8. Protection of the Adviser. The Adviser shall not be liable to the Fund
for any action taken or omitted to be taken by the Adviser in connection with
the performance of any of its duties or obligations under this Agreement or
otherwise as an investment adviser of the Fund, and the Fund shall indemnify the
Adviser and hold it harmless from and against all damages, liabilities, costs
and expenses (including reasonable attorneys' fees and amounts reasonably paid
in settlement) incurred by the Adviser in or by reason of any pending,
threatened or completed action, suit, investigation or other proceeding
(including an action or suit by or in the right of the Fund or its security
holders) arising out of or otherwise based upon any action actually or allegedly
taken or omitted to be taken by the Adviser in connection with the performance
of any of its duties or obligations under this Agreement or otherwise as an
investment adviser of the Fund. Notwithstanding the preceding sentence of this
Paragraph 8 to the contrary, nothing contained herein shall protect or be deemed
to protect the Adviser against or entitle or be deemed to entitle the Adviser to
indemnification in respect of, any liability to the Fund or its security holders
to which the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its duties and obligations under this
Agreement.
Determinations of whether and the extent to which the Adviser is entitled
to indemnification hereunder shall be made by reasonable and fair means,
including (a) a final decision on the merits by a court or other body before
whom the action, suit or other proceeding was brought that the Adviser was not
liable by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties or (b) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was not liable
by reason of such misconduct by (i) the vote of a majority of a quorum of the
directors of the Fund who are neither 'interested persons' of the Fund (as
defined in Section 2(a)(19) of the Investment Company Act of 1940) nor parties
to the action, suit or other proceeding or (ii) an independent legal counsel in
a written opinion.
9. Effectiveness, Duration and Termination of Agreement. The Prior
Agreement (other than the provisions of Paragraph 8 thereof, which shall remain
in full force and effect) shall terminate at the close of business on June 30,
1996. This Agreement shall become effective on July 1, 1996, and shall remain in
effect until April 30, 1998 and thereafter shall continue automatically for
successive annual periods from May 1 to April 30, provided that such continuance
is specifically approved at least annually by (a) the vote of the Fund's
directors, including a majority of such directors who are not parties to this
Agreement or 'interested persons' (as such term is defined in Section 2(a)(19)
of the Investment Company Act of 1940) of any such party, cast in person at a
meeting called for the purpose of voting on such approval, or (b) the vote of a
majority of the outstanding voting securities of the Fund and the vote of the
Fund's directors, including a majority of such directors who are not parties to
this Agreement or 'interested persons' (as so defined) of any such party. This
Agreement may be terminated at any time, without the payment of any penalty, on
sixty (60) days' written notice by the vote of a majority of the outstanding
voting securities of the Fund or by the vote of a majority of the Fund's
directors or by the Adviser, and will automatically terminate in the event of
its 'assignment' (as such term is defined for purposes of Section 15(a)(4) of
the Investment Company Act of 1940); provided, however, that the provisions of
Paragraph 8 of this Agreement shall remain in full force and effect, and the
Adviser shall remain entitled to the benefits thereof, notwithstanding any such
termination.
4
<PAGE>
<PAGE>
10. Name. The Fund may, so long as this Agreement remains in effect, use
'Royce' as part of its name. The Adviser may, upon termination of this
Agreement, require the Fund to refrain from using the name 'Royce' in any form
or combination in its name or in its business, and the Fund shall, as soon as
practicable following its receipt of any such request from the Adviser, so
refrain from using such name.
11. Notices. Any notice under this Agreement shall be given in writing,
addressed and delivered or mailed, postage prepaid, to the other party at its
principal office.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
ROYCE VALUE TRUST, INC.
By: /s/ CHARLES M. ROYCE
..................................
Charles M. Royce, President
QUEST ADVISORY CORP.
By: /s/ CHARLES M. ROYCE
..................................
Charles M. Royce, President
5
<PAGE>
<PAGE>
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. 811-4875) of Royce Value Trust, Inc.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
July 11, 1996
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Royce Value Trust Fund:
We consent to the reference to our Firm under the caption 'Financial
Highlights' in Post-Effective Amendment No. 20 to the Registration Statement of
Royce Value Trust Fund on Form N-2 (File No. 811-4875) under the Securities
Acts of 1933 and 1940 respectively. We further consent to the reference to
our firm under the heading 'Experts' in the Statement of Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massaschusetts
July 11, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 299611946
<INVESTMENTS-AT-VALUE> 380326696
<RECEIVABLES> 3205030
<ASSETS-OTHER> 54772
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 383586498
<PAYABLE-FOR-SECURITIES> 4510920
<SENIOR-LONG-TERM-DEBT> 38602750
<OTHER-ITEMS-LIABILITIES> 1502477
<TOTAL-LIABILITIES> 44616147
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<PAGE>
