AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1998
SECURITIES ACT FILE NO. 333-
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. 22
(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)
(800) 221-4268
(Registrant's Telephone Number, including Area Code)
____________________________
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:
FRANK P. BRUNO, ESQ. HOWARD J. KASHNER, ESQ. GARY S. SCHPERO, ESQ.
BROWN & WOOD LLP ROYCE VALUE TRUST, INC. SIMPSON THACHER & BARTLETT
ONE WORLD TRADE CENTER 1414 AVENUE OF THE AMERICAS 425 LEXINGTON AVENUE
NEW YORK, NEW YORK NEW YORK, NEW YORK NEW YORK, NEW YORK
10048-0557 10019 10017
____________________________
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 (the "Securities Act"), other than securities offered in
connection with a dividend reinvestment plan, check the following box. /__/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. /__/
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. /__/
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. /__/
____________________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- ----------------------------------------- ------------------ --------------------- ------------------- -----------------
TITLE OF SECURITIES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED(1) PER SHARE(1) PRICE(1) FEE
- ----------------------------------------- ------------------ --------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
% Tax-Advantaged Cumulative 3,600,000 Shares $25.00 $90,000,000 $26,550
Preferred Stock
- ----------------------------------------- ------------------ --------------------- ------------------- -----------------
</TABLE>
(1) Estimated solely for the purpose of calculating the filing 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.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number in Form N-2 Caption in Prospectus
PART A - INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
1. Outside Front Cover........................... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Page.................................... Inside Front and Outside Back Cover Page; Underwriting
3. Fee Table and Synopsis........................ Not Applicable
4. Financial Highlights.......................... Financial Highlights
5. Plan of Distribution.......................... Outside Front Cover Page; Prospectus Summary; Underwriting
6. Selling Shareholders Not Applicable
7. Use of Proceeds............................... Use of Proceeds; Investment Objectives and
Methods/Policies
8. General Description of the Registrant......... Front Cover Page; Prospectus Summary; The Fund;
Investment Objectives and Methods/Policies
9. Management.................................... Prospectus Summary; Investment Advisory and Other
Services; Custodian, Dividend-Paying Agent, Transfer
Agent and Registrar
10. Capital Stock, Long-Term Debt, and Other
Securities.................................... Front Cover Page; Prospectus Summary; Tax Attributes
of Preferred Stock Dividends; Capitalization;
Investment Objectives and Methods/Policies;
Description of Cumulative Preferred Stock; Description
of Capital Stock; Taxation
11. Defaults and Arrears on Senior Securities..... Not Applicable
12. Legal Proceedings............................. Not Applicable
13. Table of Contents of the Statement of Additional Table of Contents of Statement of Additional
Information................................... 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
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.
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.
SUBJECT TO COMPLETION PRELIMINARY
PROSPECTUS DATED APRIL 29, 1998
3,600,000 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
capitalization companies. Royce & Associates, Inc. is the Fund's investment
adviser.
Dividends on the Cumulative Preferred Stock offered hereby, at the
annual rate of _____ % of the liquidation preference of $25.00 per share, are
cumulative from the Date of Original Issue thereof and are payable quarterly on
March 23, June 23, September 23 and December 23, commencing on June 23, 1998.
Dividends paid on the Cumulative Preferred Stock may consist of
varying proportions of long-term capital gains, ordinary income (including
short-term capital gains) and/or returns of capital. Long-term capital gains,
consisting of "20% Rate Gain" derived from the sale of assets held longer than
18 months and "28% Rate Gain" derived from the sale of assets held longer than
one year but not longer than 18 months, are taxable to individual investors at
lower rates than ordinary income. During the Fund's last three fiscal years,
approximately two-thirds of the distributions paid by the Fund on its
outstanding Common Stock and 7.80% Cumulative Preferred Stock have consisted
primarily of the less highly taxed long-term capital gains, and it is currently
expected that dividends paid on the Cumulative Preferred Stock offered hereby
similarly will consist primarily of such capital gains. See "Tax Attributes of
Preferred Stock Dividends" and "Taxation". No assurance can be given, however,
as to what percentage, if any, of such dividends will consist of such 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 its outstanding
Cumulative Preferred Stock and 7.80% Preferred. See "Investment Objectives and
Methods/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 $25.00 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 200% or to maintain the discounted asset coverage required by Moody's.
Commencing June 23, 2003 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 June 23, 2003, 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".
(Continued on next page)
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.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS AND FUND(3)
COMMISSIONS(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................................. $25.00 $ $
- ----------------------------------------------------------------------------------------------------------------------------
Total.................................................. $90,000,000 $ $
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) See "Underwriting".
(3) Before deducting expenses estimated at $ __________ , which are
payable by the Fund.
---------------------
The shares of Cumulative Preferred Stock are offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to certain conditions. It is expected that
delivery of the Cumulative Preferred Stock will be made in book-entry form
through the facilities of The Depository Trust Company ("DTC") on or about
___________ , 1998.
---------------------
PAINEWEBBER INCORPORATED SALOMON SMITH BARNEY
---------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
(Continued from cover page)
If the Fund voluntarily terminates compliance with the Moody's
guidelines, the dividend rate payable on the Cumulative Preferred Stock will be
increased and, among other things, the Fund will no longer be required to
maintain the discounted asset coverage required by Moody's. See "Investment
Objectives and Methods/Policies-Rating Agency Guidelines" and "Description of
Cumulative Preferred Stock-Termination of Rating Agency Guidelines".
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 ____ , 1998 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 of this Prospectus. A copy of the Statement of
Additional Information may be obtained without charge by writing to the Fund at
its address at 1414 Avenue of the Americas, New York, New York 10019, or calling
the Fund toll-free at (800) 221-4268.
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CUMULATIVE
PREFERRED STOCK OF THE FUND AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
PROSPECTUS SUMMARY
The following 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 otherwise defined in this Summary
are defined in the Glossary that appears at the end of this Prospectus.
THE FUND
Investment Objectives
and Methods/Policies...... Royce Value Trust, Inc. (the "Fund") has been
engaged in business as a closed-end diversified
management investment company since its initial
offering in November 1986. The primary investment
objective of the Fund is long-term capital
appreciation, which it seeks by normally investing
more than 75% of its assets in common stocks,
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 non-convertible
fixed income securities. The Fund seeks to achieve
its objectives by investing principally in equity
securities of small companies, generally with
stock market capitalizations ranging from $100
million to $1 billion, selected using a value
method. The Fund's average annual total returns on
the net asset values of its Common Stock for the
one year, five year and ten year periods ended
December 31, 1997, were 27.5%, 16.6% and 16.4%,
respectively. Total return figures are based on
the Fund's historical performance, assume
reinvestment of distributions and full primary
participation in rights offerings, and are not
intended to indicate future performance. See
"Investment Objectives and Methods/Policies".
Investment Adviser.......... Royce & Associates, Inc. ("Royce") has served as
the investment adviser to the Fund since its
inception. It also serves as investment adviser to
other management investment companies and
institutional accounts. As of March 31, 1998,
assets under Royce's management aggregated
approximately $2.8 billion.
Charles M. Royce, Royce's President, Chief
Investment Officer and sole voting shareholder, is
primarily responsible for managing the Fund's
portfolio. He is assisted by Royce's investment
staff, including W. Whitney George, Senior
Portfolio Manager and Managing Director, Boniface
A. Zaino, Senior Portfolio Manager and Managing
Director, and Charles R. Dreifus, Senior Portfolio
Manager and Principal, and by Jack E. Fockler,
Jr., Managing Director. See "Investment Advisory
and Other Services--Portfolio Management" herein
and "Directors and Officers" in the Statement of
Additional Information.
As compensation for its services under the
Investment Advisory Agreement, Royce receives a
fee at a rate ranging from 0.5% 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, Royce 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. For a more
detailed description of the methods by which the
advisory fee is determined, see "Investment
Advisory and Other Services--Advisory Fee".
Royce has committed to voluntarily waive the
portion of its investment advisory fee
attributable to 7.80% Cumulative Preferred Stock
(the "7.80% Preferred") and to the Cumulative
Preferred Stock for any month when the Fund's
average annual net asset value total return since
issuance of the 7.80% Preferred fails to exceed
the dollar weighted average Preferred Stock
dividend rate during that period.
THE OFFERING
The Issue.................. The Fund is offering 3,600,000 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 $25.00 per share.
Dividends................. Dividends on the Cumulative Preferred Stock, at
the annual rate of % of the liquidation preference
of $25.00 per share, are cumulative from the Date
of Original Issue and are payable, when, as and if
declared by the Board of Directors of the Fund,
out of funds legally available therefor, quarterly
on March 23, June 23, September 23, and December
23, commencing on June 23, 1998, to the holders of
record on the preceding March 6, June 6, September
6 and December 6. See "Description of Cumulative
Preferred Stock--Dividends".
Long-Term Capital Gains
Rates.................... Under legislation enacted in 1997, gains from the
sale of capital assets held for more than one year
became taxable at different rates for individual
taxpayers. Net capital gains on assets held for
more than 18 months are now taxed to individual
taxpayers at a maximum rate of 20% ("20% Rate
Gains"). Net capital gains on assets held for more
than one year but not more than 18 months are now
taxed at an individual taxpayer's marginal Federal
income tax rate, but not higher than 28% ("28%
Rate Gains") and, together with 20% Rate Gains,
"Net Capital Gains"). For individual taxpayers in
the 15% marginal Federal income tax bracket, the
tax rate on 20% Rate Gain is 10% and on 28% Rate
Gains is 15%. The different categories of
long-term capital gains included in the capital
gains distributions of a regulated investment
company (such as the Fund) to its stockholders are
generally passed through to such stockholders,
including preferred stockholders, and taxed at the
related rates. See "Tax Attributes of Preferred
Stock Dividends" and "Taxation".
Tax Attributes of Preferred
Stock Dividends.......... The Fund is required to allocate Net Capital Gains
distributions and other types of income
proportionately among holders of shares of its
Common Stock, 7.80% Preferred and the Cumulative
Preferred Stock offered hereby. Accordingly, the
cash dividends paid on the Cumulative Preferred
Stock may, for Federal income tax purposes,
consist of varying proportions of 20% Rate Gains,
28% Rate Gains, ordinary income (including
short-term capital gains) and/or returns of
capital. For the Fund's last three fiscal years,
distributions paid by the Fund on its outstanding
Common Stock and 7.80% Preferred have consisted
primarily of the less highly taxed Net Capital
Gains, and it is currently expected that the cash
dividends paid on the Cumulative Preferred Stock
offered hereby similarly will consist primarily of
such Net Capital Gains. Thus, certain investors in
the Cumulative Preferred Stock may realize a tax
benefit to the extent that such dividends are, for
Federal income tax purposes, composed of the less
highly taxed Net Capital Gains. See "Tax
Attributes of Preferred Stock Dividends". Subject
to statutory limitations, investors may also be
entitled to offset the Net Capital Gain portion of
a Cumulative Preferred Stock dividend with capital
losses incurred by such investors. See "Taxation".
No assurance can be given, however, as to what
percentage, if any, of the dividends to be paid on
the Cumulative Preferred Stock will consist of Net
Capital Gains. To the extent that such dividends
are not paid from Net Capital Gains, they will be
paid from net investment income (which includes
both ordinary income and short-term capital gains)
and taxed as ordinary income or will represent a
return of capital.
Rating.................... It is a condition to its issuance that the
Cumulative Preferred Stock be issued with a rating
of "aaa" from Moody's Investors Services, Inc.
("Moody's). The Articles Supplementary creating
and fixing the rights and preferences of the
Cumulative Preferred Stock (the "Articles
Supplementary") contain certain provisions which
reflect guidelines established by Moody's (the
"Rating Agency Guidelines") in order to obtain
such rating on the Cumulative Preferred Stock on
the Date of Original Issue. Although it is the
Fund's present intention to continue to comply
with the Rating Agency Guidelines, the Board of
Directors of the Fund may determine that it is not
in the best interests of the Fund to continue to
comply with the Rating Agency Guidelines. If the
Fund voluntarily terminates compliance with the
Rating Agency Guidelines, the dividend rate
payable on the Cumulative Preferred Stock will be
increased by ____% per annum and, among other
things, the Fund will no longer be required to
maintain a Portfolio Calculation at least equal to
the Basic Maintenance Amount. See "Description of
Cumulative Preferred Stock--Termination of Rating
Agency Guidelines".
Asset Maintenance......... 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
200% with respect to the Cumulative Preferred
Stock. If the Fund had issued and sold the
Cumulative Preferred Stock offered hereby as of
March 31, 1998, the Asset Coverage would have been
%. See "Description of Cumulative Preferred
Stock--Asset Maintenance--Asset Coverage".
Also, pursuant to the Rating Agency Guidelines,
the Fund will be required to maintain, as of each
Valuation Date, 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 the Date of Original Issue of
"aaa" from Moody's. See "Description of Cumulative
Preferred Stock--Asset Maintenance--Basic
Maintenance Amount" and "Investment Objectives and
Methods/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
and/or any other 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 Investment
Company Act of 1940, as amended (the "1940 Act"),
and Maryland law.
Except as otherwise indicated in this Prospectus
and as otherwise required by applicable law,
holders of Cumulative Preferred Stock will be
entitled to one vote per share on each matter
submitted to a vote of stockholders and will vote
together with holders of shares of Common Stock
and any other Preferred Stock as a single class.
See "Description of Cumulative Preferred
Stock--Voting Rights".
Mandatory Redemption...... The Cumulative Preferred Stock is subject to
mandatory redemption, in whole or in part, by the
Fund in the event that the Fund fails to maintain
the quarterly Asset Coverage or to maintain a
Portfolio Calculation at least equal to the Basic
Maintenance Amount required by Moody's and does
not cure such failure by the applicable cure date.
Any such redemption will be made for cash at a
price equal to $25.00 per share plus accumulated
and unpaid dividends (whether or not earned or
declared) to the redemption date (the "Redemption
Price"). In the event that shares are redeemed due
to a failure to maintain the quarterly Asset
Coverage, the Fund may redeem a sufficient number
of shares of Cumulative Preferred Stock in order
that the asset coverage, as defined in the 1940
Act, of the remaining outstanding shares of
Cumulative Preferred Stock and any other Preferred
Stock after redemption is up to 275%. In the event
that shares are redeemed due to a failure to
maintain a Portfolio Calculation at least equal to
the Basic Maintenance Amount, the Fund may redeem
a sufficient number of shares of Cumulative
Preferred Stock in order that the Portfolio
Calculation exceeds the Basic Maintenance Amount
of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred
Stock by up to 10%. See "Description of
Cumulative Preferred Stock--Redemption--Mandatory
Redemption".
Optional Redemption....... Commencing June 23, 2003 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 June 23,
2003, 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 "Descrip-
tion of Cumulative Preferred Stock--Redemption--
Optional Redemption".
Liquidation Preference.... The liquidation preference of each share of
Cumulative Preferred Stock is $25.00 plus an
amount equal to accumulated and unpaid dividends
(whether or not earned or declared) to the date of
distribution. See "Description of Cumulative
Preferred Stock--Liquidation Rights".
Use of Proceeds........... The Fund will use the net proceeds from the
offering of the Cumulative Preferred Stock to
purchase additional portfolio securities in
accordance with its investment objectives and
policies. See "Use of Proceeds".
Listing................... Prior to this offering, there has been no public
market for the Cumulative Preferred Stock.
Application will be made to list the shares of
Cumulative Preferred Stock on the New York Stock
Exchange (the "NYSE"). However, during an initial
period, which is not expected to exceed 30 days
from the date of this Prospectus, the Cumulative
Preferred Stock will not be listed on any
securities exchange. During such period, the
Underwriters intend to make a market in the
Cumulative Preferred Stock; however, they have no
obligation to do so. Consequently, an investment
in the Cumulative Preferred Stock may be illiquid
during such period.
Special Considerations and
Risk Factors.............. The market price for the Cumulative Preferred
Stock will be influenced by changes in interest
rates, the perceived credit quality of the
Cumulative Preferred Stock and other factors.
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 maintenance
requirements. See "Description of Cumulative Pre-
ferred Stock--Redemption--Mandatory Redemption".
The credit rating on the Cumulative Preferred
Stock could be reduced or withdrawn while an
investor holds shares of Cumulative Preferred
Stock, either as a result of the Fund's
termination of compliance with the Rating Agency
Guidelines or otherwise. 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. See "Description of
Cumulative Preferred Stock--Termination of Rating
Agency Guidelines".
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
any outstanding indebtedness of the Fund and the
contemporary payment to holders of outstanding
Preferred Stock of dividends or upon redemption or
in liquidation. As of March 31, 1998, the Fund had
no outstanding indebtedness and had 2,400,000
shares of 7.80% Preferred outstanding, with an
aggregate liquidation preference of $60,000,000,
and ranking on a parity with the Cumulative
Preferred Stock offered hereby as to dividends and
payment upon liquidation. See "Investment Objec-
tives and Methods/Policies--Senior Securities".
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 or Portfolio
Calculation 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 any other
Preferred Stock if necessary in order to maintain
compliance with such requirements. See "Taxation"
for a more complete discussion of these and other
Federal income tax considerations.
Custodian, Dividend-Paying
Agent, Transfer 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,
Dividend-Paying Agent, Transfer Agent and
Registrar".
TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS
The Fund intends to distribute to its stockholders substantially all
of its Net Capital Gains and net investment income, including net
short-term capital gains. The Fund is a regulated investment company ("RIC"),
and a RIC's distributions generally retain their character as capital gain or
ordinary income when received by its preferred and common stockholders. Thus,
the stated dividend paid by the Fund to holders of the Cumulative Preferred
Stock may, for Federal income tax purposes, consist of varying proportions of
the different categories of long-term capital gains described below, ordinary
income and/or returns of capital. In contrast, preferred stockholders of
corporations that are not RICs receive stated dividends that are comprised, for
Federal income tax purposes, only of ordinary income.
Net capital gains on assets held by the Fund for more than 18 months
("20% Rate Gains") are currently taxable to individual stockholders of the Fund
at a maximum rate of 20%. Net capital gains on capital assets held by the Fund
for longer than one year but not longer than 18 months ("28% Rate Gains") are
currently taxable to individual stockholders of the Fund at a maximum rate of
28%. Net short-term capital gains on assets and the Fund's other net investment
income ("Ordinary Income") are currently taxable to stockholders of the Fund at
a maximum rate of 39.6%. Returns of capital would not be taxable to stockholders
of the Fund in the year of receipt, but instead would reduce the stockholders'
tax basis in the Fund's stock and thereby increase capital gain or reduce
capital loss by the amount of such basis reductions upon the sale of such stock.
The Fund's distributions to its stockholders have consisted primarily
of the less highly taxed Net Capital Gains. For the Fund's last three fiscal
years, Net Capital Gains and Ordinary Income comprised an average of 66.5% and
33.5%, respectively, of the distributions paid by the Fund on its outstanding
Common Stock and 7.80% Preferred. For the fiscal year ended December 31, 1997,
such Net Capital Gains and Ordinary Income comprised 64.3% and 35.7%,
respectively, of such distributions.1
Although the Fund is not managed utilizing a tax-focused investment
strategy and does not seek to achieve any particular distribution composition,
its primary investment objective is long-term capital appreciation. Accordingly,
individual investors in the Cumulative Preferred Stock would, under current
Federal income tax law, also realize a tax advantage on their investment to the
extent that distributions by the Fund to its stockholders continue to consist
primarily of the less highly taxed 20% Net Capital Rate Gains.
The Federal income tax characteristics of the Fund and the taxation of
its stockholders are described more fully under "Taxation".
ASSUMPTIONS
The following table shows examples of the pure Ordinary Income
equivalent yield that would be generated by the indicated dividend rate on the
Cumulative Preferred Stock, assuming distributions consisting of three different
proportions of 20% Rate Gains, 28% Rate Gains and Ordinary Income for an
individual investor in the 31.0% Federal marginal income tax bracket. Both this
table and the table that follows it assume the indicated proportions of 20% Rate
Gains and 28% Rate Gains. In reading these tables, prospective investors should
understand that a number of factors could affect the actual composition for
Federal income tax purposes of the Fund's distributions each year. Such factors
include (i) the Fund's investment performance for any particular year, which may
result in varying proportions of 20% Rate Gains, 28% Rate Gains, Ordinary Income
and/or return of capital in the year's distribution, (ii) the timing of the
realization of gains and losses during the Fund's taxable year and (iii)
revocation or revision of the Internal Revenue Service ("IRS") revenue ruling
requiring the proportionate allocation of 20% Rate Gains and 28% Rate Gains
among holders of various classes of a closed-end RIC's capital stock.
______________________
1 These distribution percentages have been retroactively adjusted to
reflect issuances of additional shares of the Fund's Common Stock upon
conversions of the Fund's $40,000 aggregate principal amount of 5 3/4%
Investment Company convertible Notes due June 30, 2004 (the "Notes"),
as if all of the Notes had been converted before January 1, 1995. (The
Notes were called for redemption in February 1998 and are no longer
outstanding, and substantially all of the Notes were converted prior
to the redemption date.) For the Fund's last three fiscal years, Net
Capital Gains and Ordinary Income comprised an average of 71.5% and
28.5%, respectively, of actual distributions paid by the Fund on its
then outstanding capital stock. For the fiscal year ended December 31,
1997, Net Capital Gains and Ordinary Income comprised 67.9% and 32.1%,
respectively, of such distributions.
In 1997, the maximum long-term capital gains tax rate for individuals
was 28% or 20%, depending on the length of the holding period and the
date of sale, with the lower 20% maximum rate applying only to assets
held for more than one year that were sold between May 7 and July 28
and to assets held for more than 18 months that were sold after July
28.
THESE TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY AND CANNOT BE TAKEN AS
AN INDICATION OF THE ACTUAL COMPOSITION FOR FEDERAL INCOME TAX PURPOSES OF THE
FUND'S FUTURE DISTRIBUTIONS OR OF THE STATED DIVIDEND RATE TO BE FIXED FOR THE
CUMULATIVE PREFERRED STOCK.
<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE PREFERRED STOCK A CUMULATIVE PREFERRED STOCK STATED ANNUAL
STATED ANNUAL DIVIDEND COMPOSED OF DIVIDEND RATE OF
---------------------------------- ----------------
7.0% 7.125% 7.25%
ORDINARY IS EQUIVALENT TO AN ORDINARY
20% RATE GAINS 28% RATE GAINS INCOME INCOME YIELD OF
-------------- -------------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
45% 20% 35% 7.56% 7.70% 7.83%
35% 15% 50% 7.44% 7.57% 7.70%
20% 15% 65% 7.27% 7.40% 7.53%
</TABLE>
Assuming that 20% Rate Gains, 28% Rate Gains and Ordinary Income
comprise 45%, 20% and 35%, respectively, of a stated Cumulative Preferred Stock
dividend, the following table shows the pure Ordinary Income equivalent yields
that would be generated at the indicated dividend rate for taxpayers in the
indicated tax brackets.
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED STOCK STATED
ANNUAL DIVIDEND RATE OF
-----------------------
<S> <C> <C> <C>
7.0% 7.125% 7.25%
</TABLE>
<TABLE>
<CAPTION>
IS EQUIVALENT TO AN
1998 FEDERAL MARGINAL INCOME TAX BRACKET+ ORDINARY INCOME YIELD OF
----------------------------------------- ------------------------
<S> <C> <C> <C> <C>
39.6%............................................ 8.29% 8.44% 8.59%
36.0%............................................ 7.96% 8.10% 8.25%
31.0%............................................ 7.56% 7.70% 7.83%
28.0%............................................ 7.35% 7.48% 7.61%
15.0%++.......................................... 7.19% 7.31% 7.44%
</TABLE>
- -------------
+ Annual taxable income levels corresponding to the 1998 Federal marginal tax
brackets are as follows: 39.6%--over $278,450 for both single and joint
returns; 36.0%--$128,100--$278,450 for single returns, $155,950--$278,450
for joint returns; 31.0%--$61,400--$128,100 for single returns,
$102,300--$155,950 for joint returns; and 28.0%--$25,350--$61,400 for
single returns, $42,350--$102,300 for joint returns; and 15.0%--up to and
including $25,350 for single returns and $42,350 for joint returns. An
investor's Federal marginal income 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.
++ Assumes that such individuals are taxed at a 10% rate on gain attributable
to assets held by the Fund more than 18 months and at a 15% rate on gain
attributable to assets held by the Fund for longer than one year but not
longer than 18 months.
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 each of the three years in the period
ended December 31, 1997 has been audited by Ernst & Young LLP, independent
auditors, as stated in their unqualified reports accompanying such financial
statements. Such financial information and the financial information for each of
the seven years in the period ended December 31, 1994 are part of the Fund's
financial statements, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants, who issued unqualified reports thereon.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $14.32 $13.56 $12.34 $13.47 $12.50 $11.23 $8.58 $10.35 $9.25 $7.98
------ ------ ------ ------ ------ ------ ----- ------ ----- -----
Investment Operations (a):
Net investment income........ 0.21 0.26 0.04 0.04 0.09 0.15 0.17 0.17 0.15 0.13
Net realized and unrealized
gain (loss) on investments.. 3.85 1.92 2.70 0.09 2.12 2.12 3.20 (1.49) 1.59 1.68
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Total from investment
operations................... 4.06 2.18 2.74 0.13 2.21 2.27 3.37 (1.32) 1.74 1.81
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Dividends and Distributions
to Preferred Stockholders:
Net investment income........ (0.03) (0.01) -- -- -- -- -- -- -- --
Net realized gain on
investments.................. (0.15) (0.06) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Total dividends and
distributions to Preferred
Stockholders............... (0.18) (0.07) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Dividends and Distributions
to Common Stockholders:
Net investment income........ (0.19) (0.15) (0.03) (0.01) (0.09) (0.15) (0.17) (0.17) (0.17) (0.06)
Net realized gain on
investments.................. (1.02) (1.00) (1.26) (1.04) (1.06) (0.75) (0.44) (0.15) (0.35) (0.45)
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Total dividends and
distributions to Common
Stockholders................. (1.21) (1.15) (1.29) (1.05) (1.15) (0.90) (0.61) (0.32) (0.52) (0.51)
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Capital Stock Transactions:
Effect of rights offerings or
Preferred stock offering... -- (0.09) (0.12) (0.14) (0.08) (0.06) (0.10) (0.08) (0.09) (0.00)
Effect of reinvestment of
distributions by
Common Stockholders........ (0.08) (0.11) (0.11) (0.07)* (0.01) (0.04) (0.01) (0.05) (0.03) (0.03)
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Total from capital stock
transactions................. (0.08) (0.20) (0.23) (0.21) (0.09) (0.10) (0.11) (0.13) (0.12) (0.03)
------ ------ ------ ------ ------ ------ ----- ----- ----- -----
Net Asset Value, End of
Period(a).................... $16.91 $14.32 $13.56 $12.34 $13.47 $12.50 $11.23 $8.58 $10.35 $9.25
====== ======= ======= ====== ======= ====== ====== ====== ====== ======
Market Value, End of Period.. $15.063 $12.625 $11.875 $11.00 $12.875 $12.25 $10.375 $8.125 $9.50 $8.125
====== ======= ======= ====== ======= ====== ====== ====== ====== ======
Total Return(b):
Net Asset Value(a)........... 27.5% 15.5% 22.6% 1.1% 17.9% 19.9% 39.5% (13.1)% 19.2% 22.4%
Market Value................. 28.8% 16.3% 20.5% (5.6)% 14.8% 26.8% 35.3% (10.8)% 23.9% 27.4%
Ratios Based on Average Net
Assets:
Total expenses 0.99% 1.20% 2.01% 2.01% 1.33% 0.81% 0.79% 0.94% 0.95% 1.09%
Net investment income 1.35% 1.19% 0.34% 0.31% 0.74% 1.31% 1.52% 1.78% 1.48% 1.42%
Ratios Based on Average Net
Assets Applicable to
Common Stockholders:
Total expenses(c)............ 1.12% 1.28% 2.01% 2.01% 1.33% 0.81% 0.79% 0.94% 0.95% 1.09%
Management fee expense....... 0.39% 0.39% 0.97% 1.21% 1.09% 0.53% 0.43% 0.44% 0.44% 0.49%
Interest expense............. 0.45% 0.64% 0.75% 0.46% -- -- -- -- -- --
Other operating expenses..... 0.28% 0.25% 0.29% 0.34% 0.24% 0.28% 0.36% 0.50% 0.51% 0.60%
Net investment income........ 1.53% 1.27% 0.34% 0.31% 0.74% 1.31% 1.52% 1.78% 1.48% 1.42%
Supplemental Data:
Net Assets, End of Year (in
thousands)................... $554,231 $441,837 $338,970 $269,032 $246,558 $202,483 $166,550 $118,308 $130,502 $107,315
Portfolio Turnover Rate...... 29% 34% 32% 35% 33% 40% 34% 28% 36% 29%
Average Commission Rate Paid+ $0.0605 $0.0574
Notes(d):
Total amount outstanding (in
thousands)................... $27,801 $40,000 $40,000 $40,000
Asset coverage per Note...... 2,091% 1,202% 944% 769%
Average market value per
Note(e)...................... $107.69 $100.68 $96.92 $95.62
Preferred Stock:
Total shares outstanding..... 2,400,000 2,400,000
Asset coverage per share..... 662% 481%
Liquidation preference per
share........................ $25.00 $25.00
Average market value per
share(e)..................... $25.70 $25.20
</TABLE>
- --------------------
(a) Commencing June 21, 1995, Net Asset Value per share, Net Asset Value
Total Returns and Income from Investment Operations are calculated
assuming the Notes were fully converted except when the effect of doing
so resulted in a higher Net Asset Value per share than would have been
calculated without such assumption. If it were not assumed the Notes had
been converted, Net Asset Value per share would have been increased by
$0.31, $0.17 and $0.09 at December 31, 1997, 1996 and 1995,
respectively.
(b) The Net Asset Value and Market Value Total Returns assume a continuous
common stockholder who reinvested all net investment income dividends
and capital gain distributions and fully participated in primary rights
offerings.
(c) Expense ratios based on average net assets applicable to Common
Stockholders before waiver of fees by the investment adviser would have
been 1.14%, 1.31%, 2.04% and 2.02% for the years ended December 31,
1997, 1996, 1995 and 1994, respectively.
(d) On December 15, 1997, the Fund called the Notes for redemption on
February 5, 1998 (the "Redemption Date") at a redemption price equal to
100% of the principal amount of each Note plus accrued and unpaid
interest to the Redemption Date.
(e) The average of all month-end market values during the period.
* Includes distributions paid January 31, 1994 and distributions paid
December 30, 1994.
** Includes $.01 per share over distribution of net investment income.
+ Beginning in 1996, the Fund is required to disclose its average
commission rate paid per share for purchases and sales of investments.
THE FUND
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 1940 Act. The Fund commenced operations in November 1986.
As of March 31, 1998, the Fund had 31,228,098 shares of Common Stock issued and
outstanding, with an aggregate net asset value of $576,453,477, and 2,400,000
shares of 7.80% Preferred issued and outstanding, with an aggregate liquidation
preference of $60,000,000. 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 small companies,
generally with stock market capitalizations ranging from $100 million to $1
billion. See "Investment Objectives and Methods/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. Royce 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
March 31, 1998, and as adjusted to give effect to this offering.
<TABLE>
<CAPTION>
Outstanding As Adjusted
Stockholders' equity:
<S> <C> <C>
Preferred Stock, $.001 par value, authorized 50,000,000 shares: $ 60,000000 $ 60,000,000
7.80% Cumulative Preferred Stock, authorized 10,000,000 shares,
issued and outstanding 2,400,000 shares....................................
% Tax-Advantaged Cumulative Preferred Stock, as adjusted,
authorized 10,000,000 shares, issued and outstanding 3,600,000 shares...... -- 90,000,000
--------------
$ 60,000,000 $ 150,000,000
============ ==============
Common Stock, $.001 par value:
Authorized 150,000,000 shares, issued and outstanding 31,228,098 shares..........$ 31,228 $ 31,228
Additional paid-in capital....................................................... 340,114,273 (1)
Undistributed net investment income.............................................. (9,502,998) (9,502,998)
Accumulated net realized gains on investments.................................... 17,138,295 17,138,295
Net unrealized appreciation on investments....................................... 228,672,679 228,672,679
Net assets applicable to outstanding Common Stock................................$576,453,477 $
============= ==============
</TABLE>
___________________
(1) After deducting underwriting discounts and estimated costs of this
offering of $_________________.
PORTFOLIO COMPOSITION
The following tables set forth certain information with respect to the
Fund's investment portfolio as of December 31, 1997.
<TABLE>
VALUE PERCENTAGE
----- ----------
<S> <C> <C>
Common stock...................................................... $549,967,538 99.2%
Preferred stock................................................... 368,125 0.1
Corporate bonds................................................... 9,668,070 1.7
U.S. Treasury obligations......................................... 20,409,400 3.7
Repurchase agreements............................................. 2,200,000 0.4
Liabilities less cash and other assets............................ (28,382,209) (5.1)
Total investments.............................................. $554,230,924 100.00%
================ ======================
SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO
VALUE PERCENTAGE
----- ----------
Industrial Products................................................ $122,707,612 22.1%
Financial Intermediaries........................................... 97,173,240 17.5
Industrial Services................................................ 76,883,326 13.9
Consumer Products.................................................. 72,778,300 13.1
Technology......................................................... 46,394,311 8.4
Financial Services................................................. 44,370,431 8.0
Miscellaneous...................................................... 27,167,414 4.9
Natural Resources................................................. 24,132,237 4.4
Retail............................................................. 16,401,091 3.0
Consumer Services.................................................. 11,789,980 2.1
Health............................................................. 8,581,550 1.5
Utilities.......................................................... 1,588,046 0.3
Total common stock.............................................. $549,967,538 99.2%
================ ======================
OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
Number of issuers.................................................................. 371
Median market capitalization....................................................... $376 million
</TABLE>
INVESTMENT OBJECTIVES AND METHODS/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 Methods/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 METHODS/POLICIES
Royce uses a "value" method in managing the Fund's assets. Royce's
value method is based on its belief that the securities of certain small-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.
Royce attempts to identify and invest in these securities for the Fund, with the
expectation that this "value discount" will narrow over time and thus provide
capital appreciation for the Fund's portfolio.
The securities of the small-sized companies in which Royce invests for
the Fund generally have stock market capitializations ranging from $100 million
to $1 billion. (Stock market capitalization is calculated by multiplying the
total number of common shares issued 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. In addition, the securities of such companies
may be more volatile in price, have wider spreads between their bid and ask
prices and have significantly lower trading volumes than those of larger
capitalization stocks. Royce's investment approach therefore requires unusual
investor patience and a long-term investment horizon. The Fund may involve more
risk than investment companies which invest in the common stocks of larger, more
well-known companies.
Because the Fund invests primarily in small capitalization securities,
it may not be able to purchase or sell more than a limited number of shares of a
portfolio security at the then quoted market prices, and may require a
considerable time to acquire or dispose of a position in the security. This risk
will increase to the extent other Royce-managed accounts or other investors are
also seeking to purchase or sell a security held by the Fund.
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 Royce's
criteria. Royce 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 Royce 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 Royce, investment considerations warrant such action. For the
years ended December 31, 1997, 1996 and 1995, the Fund's portfolio turnover
rates were 29%, 34% and 32%, respectively.
The Fund's investment policies are subject to certain restrictions.
See "--Investment Restrictions".
Foreign Investments. 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.
Fixed Income Securities. The Fund may invest up to 25% of its assets
in direct obligations of the Government of the United States or its agencies
and/or in non-convertible preferred stocks and non-convertible debt securities
of various issuers, including up to 5% of its net assets in below
investment-grade debt securities, also known as high-yield fixed income
securities. Such below investment-grade debt securities may be in the
lowest-grade categories of recognized ratings agencies (C in the case of Moody's
or D in the case of Standard & Poor's ("S&P")) or may be unrated.
High-yield/high-risk investments are primarily speculative and may entail
substantial risk of loss of principal and non-payment of interest, but may also
produce above-average returns for the Fund. Debt securities rated C or D may be
in default as to the payment of interest or repayment of principal.
Warrants, Rights or Options. 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 in the underlying
security. A put option gives the holder the right to sell a particular security
at a specified price during the term of the option. These securities have no
voting rights, pay no dividends and have no liquidation rights. In addition,
market prices of warrants, rights or call options do not necessarily move
parallel to the market prices of the underlying securities; market prices of put
options tend to move inversely to the market prices of the underlying
securities. The securities underlying warrants, rights and options could include
shares of common stock of a single company or securities market indices
representing shares of the common stocks of a group of companies, such as the
S&P 600.
Temporary Investments. The assets of the Fund are normally invested in
the common stocks, convertible preferred stocks and convertible debentures of
small-sized companies. However, for temporary defensive purposes (i.e., when
Royce determines that market conditions warrant) or when it has uncommitted cash
balances, the Fund may also invest in U.S. 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,
high-quality commercial paper and money market funds registered under the 1940
Act, or retain all or part of its assets in cash. Accordingly, the composition
of the Fund's portfolio may vary from time to time.
Repurchase transactions with its custodian bank 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.
Senior Securities. The 1940 Act and the Fund's fundamental investment
policies and restrictions (see "--Investment Restrictions") permit the Fund to
issue and sell senior securities representing indebtedness or consisting of
Preferred Stock if various requirements are met. Such requirements include
initial asset coverage tests of 300% for indebtedness and 200% for Preferred
Stock and restrictive provisions concerning Common Stock dividend payments, and
other distributions, Preferred Stock dividend payments and other distributions
(if indebtedness is incurred), stock repurchases and maintenance of asset
coverage and giving senior securityholders the right to elect directors in the
event specified asset coverage tests are not met or dividends are not paid.
While the issuance and sale of senior securities allows the Fund to raise
additional cash for investments, it is a speculative investment technique,
involving the risk considerations of leverage, potential dilution and increased
share price volatility for the Fund's Common Stock. In addition, the Fund may be
required to sell investments in order to make required payments to senior
securityholders when it may be disadvantageous to do so.
The Cumulative Preferred Stock offered hereby is a senior security of
the Fund. See "Description 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 payment of interest and repayment of
principal then due on any outstanding indebtedness of the Fund.
As of March 31, 1998, the Fund had shares of Common Stock issued and
outstanding, with an aggregate net asset value of $576,453,477, 2,400,000 shares
of 7.80% Preferred issued and outstanding, with an aggregate liquidation
preference of $60,000,000, and no outstanding indebtedness. Accordingly, as of
such date, the Fund could have, under such policies and restrictions, issued and
sold senior securities representing indebtedness of up to $ or Preferred Stock
having an aggregate involuntary liquidation preference of up to $ or various
combinations of lesser amounts of both securities representing indebtedness and
such Preferred Stock.
The terms of the Cumulative Preferred Stock and 7.80% Preferred also
require that the Fund maintain asset coverage tests as described under
"Description of Cumulative Preferred Stock" and "Description of Capital
Stock--Preferred Stock."
The Fund's investment policies are subject to certain restrictions.
See "--Investment Restrictions".
RATINGS 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. 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 Rating Agency Guidelines are substantially the
same as the Moody's guidelines applicable to the outstanding 7.80% Preferred.
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 certain types of securities in which the Fund may invest from Moody's
Eligible Assets and, therefore, from the Portfolio Calculation, and 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. Royce 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.
Moreover, the Rating Agency Guidelines do not 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
Royce 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.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective of long-term capital
appreciation is a fundamental policy of the Fund and may not be changed without
approvals of the holders of a majority of the Fund's outstanding shares of
Common Stock and outstanding shares of Cumulative Preferred Stock and any other
Preferred Stock, voting together as a single class, and a majority of the
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock,
voting as a separate class (which for this purpose and under the 1940 Act means
the lesser of (i) 67% or more of the relevant shares of capital stock of the
Fund present or represented at a meeting of stockholders, at which the holders
of more than 50% of the outstanding relevant shares of capital stock are present
or represented, or (ii) more than 50% of the outstanding relevant shares of
capital stock of the Fund). Except as indicated under "--Investment
Restrictions" below, the Fund does not consider its other policies, such as its
secondary investment objective of current income, to be fundamental, and such
policies may be changed by the Board of Directors without stockholder approval
or prior notice to stockholders.
INVESTMENT RESTRICTIONS
The policies set forth below are fundamental policies of the Fund and
may not be changed without the affirmative vote of the holders of a majority of
the Fund's outstanding voting securities, as indicated above under "--Changes in
Investment Objectives and Policies". The Fund may not:
1. Issue any class of senior security, or sell any such security of
which it is the issuer, except as permitted by the 1940 Act.
2. Purchase 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 unless such securities are redeemable shares issued by
money market funds registered under the 1940 Act.
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 on the original issuance of such
securities, (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 and (c) except that the
Fund may loan up to 25% of its assets to qualified brokers, dealers or
institutions for their use relating to short sales or other security
transactions (provided that such loans are secured by collateral equal
at all times to at least 100% of the value of the securities loaned).
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 values of
portfolio securities or amount of total assets is not 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 Articles Supplementary, such temporary bank borrowings would be
treated as indebtedness in determining whether or not asset coverage was at
least 300% for senior securities of the Fund representing indebtedness.
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
Royce & Associates, Inc. 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. Royce also serves as investment adviser to other
management investment companies and institutional accounts. As of March 31,
1998, net assets under Royce's management aggregated approximately $2.8 billion.
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 Royce, subject to any direction it may receive from the Fund's Board of
Directors, which periodically reviews the Fund's investment performance.
PORTFOLIO MANAGEMENT
Charles M. Royce, Royce's President, Chief Investment Officer and sole
voting shareholder since 1972, is primarily responsible for managing the Fund's
portfolio. He is assisted by Royce's investment staff, including W. Whitney
George, Senior Portfolio Manager and Managing Director, Boniface A. Zaino,
Senior Portfolio Manager and Managing Director, and Charles R. Dreifus, Senior
Portfolio Manager and Principal, and by Jack E. Fockler, Jr., Managing Director.
Mr. George is a Managing Director and Senior Portfolio Manager (since April
1997), Vice President (since August 1993) and Senior Analyst (since 1991) of
Royce. Mr. Zaino has been a Managing Director and Senior Portfolio Manager since
he joined Royce in April 1998. Prior thereto, he was Group Managing Director of
Trust Company of the West. Mr. Dreifus has been a Senior Portfolio Manager and
Principal since he joined Royce in February 1998. Prior thereto, he was a
Managing Director (since June 1995) and a General Partner (until June 1995) of
Lazard Freres & Co. LLC. Mr. Fockler is a Managing Director (since April 1997),
Vice President (since August 1993) and Senior Associate (since 1989) of Royce.
See "Directors and Officers" in the Statement of Additional Information. In the
event of any significant change in Royce'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 Royce,
Royce determines the composition of the Fund's portfolio, the nature and timing
of the changes in it and the manner of implementing such changes; provides the
Fund with investment advisory, research and related services for the investment
of its assets; furnishes, without expense to the Fund, the services of those of
its executive officers and full-time employees who may be duly elected directors
or executive officers of the Fund and pays their compensation and expenses; and
pays all expenses incurred in performing its investment advisory duties under
the Agreement.
The Fund pays all of its own administrative and other costs and
expenses attributable to its operations and transactions (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; 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. Thus, unlike most other investment
companies, the Fund is required to pay substantially all of its expenses, and
Royce does not incur substantial fixed expenses.
ADVISORY FEE
As compensation for its services under the Investment Advisory
Agreement, Royce is entitled to receive a fee comprised of a Basic Fee (the
"Basic Fee") at the rate of 1% per annum of the Fund's average net assets and an
adjustment to the Basic Fee based on the investment performance of the Fund in
relation to the investment record of the S&P 600. A rolling period of 60 months
is utilized for measuring performance and average net assets, as described
below.
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 is 1/12
of 0.5%. Accordingly, for each month 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 0.5%
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.
Notwithstanding the foregoing, Royce 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, Royce 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, Royce will not receive any fee in respect of those assets
of the Fund equal to the aggregate unpaid principal amount of any indebtedness
of the Fund. Royce will receive a fee in respect of any assets of the Fund equal
to the liquidation preference of and any potential redemption premium for the
outstanding 7.80% Preferred and for any other Preferred Stock that may be issued
and sold by the Fund, including the Cumulative Preferred Stock offered hereby.
Royce has committed to voluntarily waive the portion of its investment
advisory fee attributable to the 7.80% Preferred and to the Cumulative Preferred
Stock for any month when the Fund's average annual net asset value total return
since issuance of the 7.80% Preferred fails to exceed the dollar weighted
average Preferred Stock dividend rate during that period.
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 Article 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 is authorized to issue up
to 10,000,000 shares of Cumulative Preferred Stock. No fractional shares of
Cumulative Preferred Stock will be issued. As of the date of this Prospectus,
there were 2,400,000 shares of 7.80% Preferred issued and outstanding,
constituting the only other authorized series of Preferred Stock. The 7.80%
Preferred will rank on a parity with the Cumulative Preferred Stock as to
dividends and payment upon liquidation. The Board of Directors reserves the
right to issue additional shares of Cumulative Preferred Stock or other
Preferred Stock from time to time, subject to the restrictions in the Articles
Supplementary and the 1940 Act. 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 by 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.
DIVIDENDS
Holders of shares of Cumulative Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Fund out of
funds legally available therefor, cumulative cash dividends at the annual rate
of ______ % per share of the liquidation preference of $25.00 per share, payable
quarterly on March 23, June 23, September 23 and December 23 (each, a "Dividend
Payment Date"), commencing on June 23, 1998, to the persons in whose names the
shares Cumulative Preferred Stock are registered at the close of business on the
preceding March 6, June 6, September 6 and December 6, respectively.
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 Date 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 shares of Cumulative
Preferred Stock. 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 payment upon liquidation) in respect of the
Common Stock, the 7.80% Preferred or any other stock of the Fund ranking junior
to or on parity with the Cumulative Preferred Stock as to dividends or payment
upon liquidation, or call for redemption, redeem, purchase or otherwise acquire
for consideration any shares of its Common Stock or any other Junior Stock
(except by conversion into or exchange for stock of the Fund ranking junior to
or on a parity with the Cumulative Preferred Stock as to dividends or payment
upon liquidation), unless, in each case, (i) immediately after such transaction,
the Fund will have a Portfolio Calculation for Moody's at least equal to the
Basic Maintenance Amount and the Fund will maintain the Asset Coverage (see
"--Asset Maintenance" and "--Redemption" below), (ii) full cumulative dividends
on shares of Cumulative PreferreD Stock due on or prior to the date of the
transaction have been declared and paid (or sufficient Deposit Securities to
cover such payment have been deposited with the Paying Agent) and (iii) the Fund
has redeemed the full number of shares of Cumulative Preferred Stock required to
be redeemed by any provision for mandatory redemption contained in the Articles
Supplementary.
If the Fund fails to pay dividends for two years or more, holders of
the Cumulative Preferred Stock will acquire certain additional voting rights.
See"--Voting Rights". Such rights will be their exclusive remedy for any such
failure.
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" (as defined by the 1940
Act) of at least 200% (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--Mandatory Redemption" below.
If the shares of Cumulative Preferred Stock offered hereby had been
issued and sold as of March 31, 1998, 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:
Value of Fund assets less liabilities $
not constituting senior securities
- ---------------------------------------------- --------------------------
Senior securities representing indebtedness
plus aggregate liquidation preference of = =
the
Cumulative Preferred Stock and
the 7.80% Preferred $
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
Methods/Policies -- Rating Agency Guidelines", having an aggregate discounted
value (a "Portfolio Calculation") at least equal to the Basic Maintenance
Amount, which is in general the sum of the aggregate liquidation preferences of
the Cumulative Preferred Stock and the 7.80% Preferred, any indebtedness for
borrowed money and current liabilities and dividends. 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-Mandatory
Redemption" below.
Any security not in compliance with the 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 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 a letter 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 $25.00 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 and Maryland law) in the event that:
(i) the Fund fails to maintain the quarterly Asset Coverage and such
failure is not cured on or before 60 days following such failure
(a "Cure Date"); or
(ii) for so long as the Fund is complying with the Rating Agency
Guidelines, 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", as defined
in the 1940 Act, of the remaining outstanding shares of Cumulative Preferred
Stock and any other Preferred Stock after redemption up to 275%. In the event
that shares of Cumulative Preferred Stock are redeemed due to the occurrence of
(ii) above, the Fund may, but is not required to, redeem a sufficient number of
shares of Cumulative Preferred Stock so that the Portfolio Calculation exceeds
the Basic Maintenance Amount of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock remaining after redemption by up
to 10%.
If the Fund does not have funds legally available for the redemption
of, or is otherwise unable to redeem, all the shares of Cumulative Preferred
Stock to be redeemed on any redemption date, the Fund is required to redeem on
such redemption date that number of shares for which it has legally available
funds and is otherwise able to redeem, pro rata 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 June 23, 2003, 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 RIC under the Code. Commencing June 23, 2003 and 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 and Maryland law.
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 accumulate 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 $25.00 per share plus an amount equal to all
unpaid dividends accumulated 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, 7.80%
Preferred 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 and
any other 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. Also, except as otherwise required by
the 1940 Act, (i) holders of outstanding shares of the Cumulative Preferred
Stock will be entitled as a series, to the exclusion of the holders of all other
securities, including other Preferred Stock, Common Stock and other classes of
capital stock of the Fund, to vote on matters affecting the Cumulative Preferred
Stock that do not materially adversely affect any of the contract rights of
holders of such other securities, including other Preferred Stock, Common Stock
and other classes of capital stock, as expressly set forth in the Fund's
Charter, and (ii) holders of outstanding shares of Cumulative Preferred Stock
will not be entitled to vote on matters affecting any other Preferred Stock that
do not materially adversely affect any of the contract rights of holders of the
Cumulative Preferred Stock, as expressly set forth in the Charter. 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.
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 single class. In addition, if at any time
dividends on outstanding shares of Cumulative Preferred Stock and/or any other
Preferred Stock are unpaid in an amount equal to at least two full years'
dividends thereon and sufficient Deposit Securities shall not have been
deposited with the Paying Agent for the payment of such accumulated dividends;
or if at any time holders of any shares of Preferred Stock are entitled,
together with the holders of shares of Cumulative Preferred Stock, to elect a
majority of the directors of the Fund under the 1940 Act, then the number of
directors constituting the Board of Directors automatically will be increased by
the smallest number that, when added to the two directors elected exclusively by
the holders of shares of Cumulative Preferred Stock and any other Preferred
Stock as described above, would constitute a majority of the Board of Directors
as so increased by such smallest number. Such additional directors will be
elected at a special meeting of stockholders which will be called and held as
soon as practicable, and at all subsequent meetings at which directors are to be
elected, the holders of shares of Cumulative Preferred Stock and any other
Preferred Stock, voting as a separate class, will be entitled to elect the
smallest number of additional directors that, together with the two directors
which such holders in any event will be entitled to elect, constitutes a
majority of the total number of directors of the Fund as so increased. The terms
of office of the persons who are directors at the time of that election will
continue. If the Fund thereafter pays, or declares and sets apart for payment in
full, all dividends payable on all outstanding shares of Cumulative Preferred
Stock and any other Preferred Stock for all past dividend periods, the
additional voting rights of the holders of shares of Cumulative Preferred Stock
and any other Preferred Stock as described above will cease, and the terms of
office of all of the additional directors elected by the holders of shares of
Cumulative Preferred Stock and any other Preferred Stock (but not of the
directors with respect to whose election the holders of shares of Common Stock
were entitled to vote or the two directors the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock have the right to elect in any
event) will terminate automatically.
So long as shares of the Cumulative Preferred Stock are outstanding,
the Fund will not, without the affirmative vote of the holders of two-thirds of
the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the Charter of holders
of shares of the Cumulative Preferred Stock. The Board of Directors, however,
without stockholder approval, may amend, alter or repeal the Rating Agency
Guidelines in the event the Fund receives confirmation from Moody's that any
such amendment, alteration or repeal would not impair the rating then assigned
to the Cumulative Preferred Stock. Furthermore, under certain circumstances,
without the vote of stockholders, the Board of Directors of the Fund may
determine that it is not in the best interests of the Fund to continue to comply
with the Rating Agency Guidelines. See "--Termination of Rating Agency
Guidelines" below. The affirmative vote of a majority of the votes entitled to
be cast by holders of outstanding shares of the Cumulative Preferred Stock and
any other Preferred Stock, voting as a separate class, will be required to
approve any plan of reorganization adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the 1940 Act,
including, among other things, changes in the Fund's primary investment
objective or changes in the investment restrictions described as fundamental
policies under "Investment Objectives and Methods/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. See "Description of Capital Stock -- Certain
Voting Requirements".
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 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 NYSE or on another exchange registered with the Commission as a
national securities exchange and (iv) at the time of termination of compliance
with the Rating Agency Guidelines, the cumulative cash dividend rate payable on
a share of the Cumulative Preferred Stock is increased by ____% per annum.
If the Fund voluntarily terminates compliance with the Rating Agency
Guidelines, Moody's may change its rating on the Cumulative Preferred Stock or
withdraw its rating altogether, which may have an adverse effect on the market
value of the Cumulative Preferred Stock. It is the Fund's present intention to
continue to comply with the Rating Agency Guidelines.
LIMITATION ON ISSUANCE OF ADDITIONAL PREFERRED STOCK
So long as any shares of Cumulative Preferred Stock are outstanding,
the Articles Supplementary provide that the Fund may issue and sell up to
6,400,000 additional shares of the Cumulative Preferred Stock and/or shares of
one or more other series of Preferred Stock, provided that (i) immediately after
giving effect to the issuance and sale of such additional Preferred Stock and to
the Fund's receipt and application of the proceeds thereof, the Fund will
maintain the Asset Coverage of the shares of Cumulative Preferred Stock and all
other Preferred Stock of the Fund then outstanding, and (ii) 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.
BOARD'S ABILITY TO MODIFY ARTICLES SUPPLEMENTARY
The Articles Supplementary provide that, to the extent permitted by
law, the Board of Directors may, without the vote of the holders of the
Cumulative Preferred Stock or any other capital stock of the Fund, amend the
provisions of the Articles Supplementary to resolve any inconsistency or
ambiguity or remedy any formal defect, so long as the amendment does not
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
capital stock of the Fund or, if the Fund has not previously terminated
compliance with the Rating Agency Guidelines, adversely affect the then current
rating on the Cumulative Preferred Stock by Moody's.
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 may, however, repurchase shares of the Cumulative
Preferred Stock and/or any other 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.
BOOK-ENTRY
Shares of Cumulative Preferred Stock will initially be held in the
name of Cede & Co. ("Cede"), as nominee for The Depositary Trust Company
("DTC"). The Fund will treat Cede as the holder of record of the Cumulative
Preferred Stock for all purposes. In accordance with the procedures of DTC,
however, purchasers of Cumulative Preferred Stock will be deemed the beneficial
owners of shares purchased for purposes of dividends, voting and liquidation
rights. Purchasers of Cumulative Preferred Stock may obtain registered
certificates by contacting the Transfer Agent (as defined below).
DESCRIPTION OF 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, exchange, conversion or cumulative voting
rights. As a NYSE-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,
including shares 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 10,000,000 shares of
Preferred Stock as the Cumulative Preferred Stock, 3,600,000 of which are being
offered hereby. See "Description of Cumulative Preferred Stock".
The Board of Directors has designated 10,000,000 shares of Preferred
Stock as the 7.80% Preferred, 2,400,000 shares of which are issued and
outstanding. The terms of the 7.80% Preferred are similar to the terms of the
Cumulative Preferred Stock offered hereby. The terms of the 7.80% Preferred
primarily differ from those of the Cumulative Preferred Stock in that they
require a Preferred Stock asset coverage of 250%, the 7.80% Preferred generally
cannot be redeemed at the option of the Fund until August 31, 2003 and the
annual dividend rate is 7.80% and increases by .50% if the Fund voluntarily
terminates compliance with the Rating Agency guidelines applicable to the 7.80%
Preferred. The terms of the 7.80% Preferred also differ in that they provide
that if the Fund incurs indebtedness to redeem Preferred Stock or refinance
other indebtedness, the Fund must have an indebtedness asset coverage of at
least 300% after the incurrence of such indebtedness, and if the Fund incurs
indebtedness for any other reason, it must have an indebtedness asset coverage
of at least 500% after the incurrence of such indebtedness. The terms of the
7.80% Preferred also differ in that they provide that if the Fund issues
additional Preferred Stock to redeem outstanding Preferred Stock or refinance
indebtedness, it must have a Preferred Stock asset coverage of at least 250%
after the issuance of such additional Preferred Stock, and if the Fund issues
additional Preferred Stock for any other reason, it must have a Preferred Stock
asset coverage of at least 300% after the issuance of such additional Preferred
Stock. 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 the date of this Prospectus.
<TABLE>
<CAPTION>
Amount
Amount Outstanding
Held By (Exclusive of
Fund For Amount Held By
Its Own Fund For Its
Title of Class Amount Authorized Account Own Account)
-------------- ----------------- -------- --------------
<S> <C> <C>
Common Stock................................................ 150,000,000 0
Preferred Stock............................................. 50,000,000 0 2,400,000
7.80% Preferred.................................... 10,000,000 0 2,400,000
Cumulative Preferred Stock......................... 10,000,000 0 0
</TABLE>
TAXATION
The following Federal income tax discussion is based on the advice of
Brown & Wood LLP, special counsel to the Fund. 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 RICs under Subchapter M of the Code. If it so qualifies, the Fund (but
not its stock holders) will not be subject to Federal income tax on the part of
its net investment income (i.e., its investment company taxable income, as that
term is defined in the Code, determined without regard to the deduction for
dividends paid) and net capital gains (i.e., the excess of the Fund's net
realized long-term capital gains over its net realized short-term capital
losses), if any, that it distributes to its stockholders in each taxable year,
provided that it distributes at least 90% of its net investment income for such
taxable year to them. The Fund intends to distribute substantially all of such
income.
TAXATION OF STOCKHOLDERS
Dividends paid by the Fund from its net investment income and net
short-term capital gains (such dividends referred to hereafter as "ordinary
income dividends") are taxable to stockholders as ordinary income. Distributions
made from net capital gains (including gains or losses from certain transactions
in warrants, rights and options) and properly designated by the Fund ("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 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).
Capital gain dividends may be taxed at a lower rate than ordinary
income dividends for certain non-corporate taxpayers. Under recent legislation,
"long-term capital gain" has been broken down into additional categories of
gain, taxable at different rates for non-corporate taxpayers. Net capital gains
on securities held longer than 18 months are taxed to individual taxpayers at a
maximum rate of 20% ("20% Rate Gains"). Net capital gains on securities held
longer than one year but not longer than 18 months are taxed at an individual
taxpayer's marginal Federal income tax rate, but not higher than 28% ("28% Rate
Gains"). 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 as well as the portions
of its capital gain dividends that constitute 20% Rate Gains and 28% Rate Gains.
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.
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.
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 capital gain dividends) paid to
stockholders who are non-resident 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.
Non-resident stockholders are urged to consult their own tax advisers concerning
the applicability of the United States withholding tax.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes.
Under certain provisions of the Code, some stockholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where the
stockholder maintains his or her account), certifying under penalties of perjury
that such stockholder's taxpayer identification number is correct and that such
stockholder (i) has never been notified by the IRS that he or she is subject to
backup withholding, (ii) has been notified by the IRS that he or she is no
longer subject to backup withholding, or (iii) is exempt from backup
withholding. Corporate stockholders and certain other stockholders are exempt
from backup withholding. Backup withholding is not an 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 net capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the stockholder even though the
distribution economically is a return of part of the stockholder's investment.
Investors should carefully consider the tax implications of acquiring shares
just prior to a distribution, as they will receive a distribution that would
nevertheless be taxable to them.
Gain or loss, if any, recognized on the sale or other disposition of
shares of the Fund will be taxed as a capital gain or loss if the shares are
capital assets in the stockholder's hands. 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 more
than one class 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 gains. 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 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 and to
holders of Cumulative Preferred Stock and other Preferred Stock. The amount of
net capital gains (including the new categories of capital gain) and other types
of income allocable among the Cumulative Preferred Stock, other Preferred Stock
and the Common Stock will depend upon the amount of such net capital gains and
other income realized by the Fund and the total dividends paid by the Fund on
shares of Common Stock, Cumulative Preferred Stock and other Preferred Stock
during a taxable year.
In the opinion of Brown & Wood LLP, under current law, the manner in
which the Fund intends to allocate net capital gains and other taxable income
among shares of Common Stock, Cumulative Preferred Stock and other 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 judgement and is not binding on the IRS
or courts.
TAXATION OF THE FUND
Qualifications as a RIC requires, among other things, that at least
90% of the Fund's gross income in each taxable year consist of certain types of
income, including dividends, interest, gains from the disposition of stocks and
securities, and other investment-type income. In addition, the Fund's
investments must meet certain diversification standards.
The Code requires a RIC to pay a non-deductible 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 100% of
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 ordinary 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.
If the Fund does not meet the asset coverage requirements of the 1940
Act or the Articles Supplementary, the Fund will be required to suspend
distributions to the holders of the Common Stock until the asset coverage is
restored. See "Description of Cumulative Preferred Stock - Dividends". Such a
suspension of distributions might prevent the Fund from distributing 90% of its
net investment income, as is required in order to avoid Fund-level taxation of
such income, or might prevent it from distributing enough ordinary income and
capital gains 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 of its income.
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.
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 (and
to be required to distribute such 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 rather than capital gains for
Federal income tax purposes.
Foreign currency gains or losses from certain debt instruments or
arising from delays between accrual and receipt of investment income will
generally be treated as ordinary income or loss, and will therefore generally
increase or decrease the amount of the Fund's net investment income available
for distribution as ordinary income dividends. If substantial in relation to net
investment income, such foreign currency losses could affect the ability of the
Fund to distribute ordinary income dividends in a taxable year, and could
require all or a portion of distributions made before the losses were realized,
but in the same taxable year, to be recharacterized as a return of capital.
If the Fund invests in stock of a passive foreign investment company
("PFIC"), it may be subject to Federal income tax at ordinary rates, and to an
additional charge in the nature of interest, on a portion of its distributions
from the PFIC and on gain from the disposition of the shares of the PFIC, even
if such distributions and gain are paid by the Fund as a dividend to its
stockholders. In some cases, the Fund may be able to elect to include annually
in income its pro rata share of the ordinary earnings and capital gains (whether
or not distributed) of the PFIC. Alternatively, under recent legislation, the
Fund could elect to mark to market at the end of each taxable year its shares in
PFICs; in this case, the Fund would recognize as ordinary income any increase in
the value of such shares, and as ordinary loss any decrease in such value to the
extent it did not exceed prior increases included in income. Under either
election, the Fund might be required to recognize in a year income in excess of
its distributions from PFICs and its proceeds from dispositions of PFIC stock
during that year.
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.
CUSTODIAN, DIVIDEND-PAYING AGENT, TRANSFER AGENT AND REGISTRAR
State Street Bank, 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 8100, Boston, Massachusetts 02266-8100 (Tel. No. (800) 426-5523).
UNDERWRITING
Upon the terms and subject to the conditions contained in an
underwriting agreement dated the date hereof, among the Fund, Royce and the
Underwriters (the "Underwriting Agreement"), the Underwriters named below have
agreed to purchase from the Fund, and the Fund has agreed to sell to each such
Underwriter, the number of shares of Cumulative Preferred Stock set forth
opposite the name of each such Underwriter:
NUMBER OF
NAME SHARES
PaineWebber Incorporated.........................
Salomon Smith Barney Inc.........................
--------
Total................ 3,600,000
=========
The Underwriting Agreement provides that the obligation of the
Underwriters to purchase and accept delivery of the shares of Cumulative
Preferred Stock offered hereby is subject to the approval of certain legal
matters by counsel and to certain other conditions, including that the
Cumulative Preferred Stock be rated "aaa" by Moody's as of the Date of Original
Issue. The Underwriters are obligated to purchase all shares of Cumulative
Preferred Stock offered hereby if any are purchased.
The Underwriters propose to offer part of the shares of Cumulative
Preferred Stock offered hereby to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ _________ per share. The Underwriters 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 shares of
Cumulative Preferred Stock, the public offering price and such concessions may
be changed by the Underwriters. The underwriting discount of $ per share is
equal to ______ % of the initial offering price. Investors must pay for any
shares of Cumulative Preferred Stock purchased on or before _____ , 1998.
The Fund and Royce have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments which the Underwriters may be required to
make in respect thereof.
The Underwriters have advised the Fund that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended, certain persons
participating in the offering may engage in transactions, including stabilizing
bids, covering transactions or the imposition of penalty bids, which may have
the effect of stabilizing or maintaining the market price of the Cumulative
Preferred Stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of the Cumulative
Preferred Stock on behalf of the Underwriters for the purpose of fixing or
maintaining the price of the Cumulative Preferred Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the
Cumulative Preferred stock. A "covering transaction" is a bid for or purchase of
the Cumulative Preferred Stock on behalf of the Underwriter to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the Underwriters to reclaim the
selling concession otherwise accruing to an Underwriter in connection with the
offering if any of the Cumulative Preferred Stock originally sold by the
Underwriter is purchased in a covering transaction and has therefore not been
effectively placed by the Underwriter. The Underwriters have advised the Fund
that such transactions may be effected on the NYSE or otherwise and, if
commenced, may be discontinued at any time.
The Underwriters have acted in the past and may continue to act from
time to time, during and subsequent to the completion of the offering of
Cumulative Preferred Stock hereunder, as brokers or dealers in connection with
the execution of portfolio transactions for the Fund. The Underwriters may also,
during the pendency of the offering of Cumulative Preferred Stock hereunder, act
as brokers with respect to such transactions. See "Brokerage Allocation and
Other Practices" in the Statement of Additional Information.
Prior to this offering, there has been no public market for the
Cumulative Preferred Stock. Application will be made to list the shares of
Cumulative Preferred Stock on the NYSE. However, during an initial period which
is not expected to exceed 30 days from the date of this Prospectus, the
Cumulative Preferred Stock will not be listed on any securities exchange. During
such period, the Underwriters intend to make a market in the Cumulative
Preferred Stock; however, they have no obligation to do so. Consequently, an
investment in the Cumulative Preferred Stock may be illiquid during such period.
The Underwriters have undertaken to sell shares to a minimum of 100 beneficial
owners.
The Fund has agreed that it will not sell or otherwise dispose of any
senior securities of the Fund, or grant any options or warrants to purchase
senior securities of the Fund, for a period of 60 days after the date of this
Prospectus, without the prior written consent of the Underwriters.
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 Simpson Thacher &
Bartlett, counsel to the Underwriters. Brown & Wood LLP and Simpson Thacher &
Barlett will each rely as to matters of Maryland law on the opinion of Venable,
Baetjer and Howard, LLP.
EXPERTS
Tait, Weller & Baker, independent auditors, are the independent
auditors of the Fund. The audited financial statements of the Fund and certain
of the information appearing under the caption "Financial Highlights" included
in this Prospectus have been audited by Ernst & Young LLP and Coopers & Lybrand
L.L.P. for the periods indicated in their reports with respect thereto, and are
included in reliance upon such reports and upon the authority of such firms as
experts in accounting and auditing. Tait, Weller & Baker has an office at 8 Penn
Center Plaza, Suite 800, Philadelphia, Pennsylvania 19103, and also performs tax
and other professional services for the Fund. Ernst & Young LLP has an office at
787 Seventh Avenue, New York, New York 10019. 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, as amended, and the 1940 Act and, in accordance
therewith, files reports and other information with the Commission. Reports,
proxy statements and other information filed by the Fund with the Commission
pursuant to the informational requirements of such Acts may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 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 Commission, 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 and 7.80% Preferred are listed on the NYSE,
and reports, proxy statements and other information concerning the Fund and
filed with the Commission by the Fund can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement filed by
the Fund with the Commission under the Securities Act of 1933, as amended, 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 Commission.
Each such statement is qualified in its entirety by such reference. The complete
Registration Statement may be obtained from the Commission upon payment of the
fee prescribed by its rules and regulations.
YEAR 2000
Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Fund or any of its major service providers fail
to process this type of information properly, that could have a negative impact
on the Fund's operations and the services provided to the Fund's stockholders.
The Fund and Royce are reviewing all of their own computer systems with the goal
of modifying or replacing such systems to the extent necessary to prepare for
the Year 2000. In addition, Royce has been advised by the Fund's major service
providers that they are also in the process of reviewing their systems with the
same goal. As of the date of this Prospectus, the Fund and Royce have no reason
to believe that these goals will not be achieved.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information dated _______ , 1998 has been
filed with the Commission and is incorporated by reference in this Prospectus.
The Table of Contents of the Statement of Additional is as follows:
<TABLE>
<CAPTION>
Page
<S> <C>
Principal Stockholders................................................. 2
Directors and Officers................................................. 2
Code of Ethics and Related Matters..................................... 5
Investment Advisory and Other Services................................. 5
Brokerage Allocation and Other Practices............................... 6
Net Asset Value........................................................ 7
Financial Statements................................................... 8
</TABLE>
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) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the initial Dividend Payment Date with respect to the Cumulative
Preferred Stock, then from the Date of Original Issue) through the Valuation
Date plus all dividends to accumulate on the Cumulative Preferred Stock then
outstanding during the 70 days following such Valuation Date; (C) the amount
referred to in clauses (i)(A) plus (i)(B) of the definition "Basic Maintenance
Amount" in Article I of the 7.80% Preferred Articles; (D) 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 shall
not be included as a liability) and such liabilities projected to become due and
payable by 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); (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 and/or 7.80%
Preferred 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 and/or 7.80% Preferred
or repurchase or any of (i)(B) through (i)(E) and provided that in the event the
Fund has repurchased Cumulative Preferred Stock at a price of less than the
Liquidation Preference thereof and/or 7.80% Preferred at a price of less than
the Liquidation Preference thereof as defined in the 7.80% Preferred Articles
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
Stock to be repurchased and/or 100% of the Liquidation Preference of such 7.80%
Preferred 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 the Articles Supplementary and the 7.80% Preferred
Articles), 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 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.
"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., or its successor.
"Moody's Discount Factor" means, with respect to a Moody's Eligible
Asset specified below, the following applicable number:
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ---------------
<S> <C>
Moody's Short-term Money Market Instruments (other than U.S. Government 1.00
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...................................................................
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 1.15
in 270 days or less...........................................................
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 1.00
Market Instruments if term is less than 30 days and counterparty
is rated at least A2..........................................................
Discount Factor
Applicable
to underlying
Other repurchase obligations............................................................ assets
Common stocks:..................................................................... 3.00
Preferred stocks
Auction rate preferred stocks.................................................. 3.50
Other preferred stocks issued by issuers in the financial and industrial....... 2.35
Other preferred stocks issued by issuers in the utilities industry............. 1.60
U.S. Government Obligations (other than the U.S. Treasury Securities Strips
set forth below) with remaining terms to maturity of.............................
1 year or less................................................................. 1.08
2 years or less................................................................ 1.15
3 years or less................................................................ 1.20
4 years or less................................................................ 1.26
5 years or less................................................................ 1.31
7 years or less................................................................ 1.40
10 years or less............................................................... 1.48
15 years or less............................................................... 1.54
20 years or less............................................................... 1.61
30 years or less............................................................... 1.63
U.S. Treasury Securities strips with remaining terms to maturity of:
1 year or less................................................................. 1.08
2 years or less................................................................ 1.16
3 years or less................................................................ 1.23
4 years or less................................................................ 1.30
5 years or less................................................................ 1.37
7 years or less................................................................ 1.51
10 years or less............................................................... 1.69
15 years or less............................................................... 1.99
20 years or less............................................................... 2.28
30 years or less............................................................... 2.56
Corporate Bonds
Corporate bonds rated Aaa with remaining terms to maturity of:
1 year or less................................................................. 1.14
2 years or less................................................................ 1.21
3 years or less................................................................ 1.26
4 years or less................................................................ 1.32
5 years or less................................................................ 1.38
7 years or less................................................................ 1.47
10 years or less............................................................... 1.55
15 years or less............................................................... 1.62
20 years or less............................................................... 1.69
30 years or less............................................................... 1.71
Corporate bonds rated Aa with remaining terms to maturity of:
1 year or less................................................................. 1.19
2 years or less................................................................ 1.26
3 years or less................................................................ 1.32
4 years or less................................................................ 1.38
5 years or less................................................................ 1.44
7 years or less................................................................ 1.54
10 years or less............................................................... 1.63
15 years or less............................................................... 1.69
20 years or less............................................................... 1.77
30 years or less............................................................... 1.79
Corporate bonds rated A with remaining terms to maturity of:
1 year or less................................................................. 1.24
2 years or less................................................................ 1.32
3 years or less................................................................ 1.38
4 years or less................................................................ 1.45
5 years or less................................................................ 1.51
7 years or less................................................................ 1.61
10 years or less............................................................... 1.70
15 years or less............................................................... 1.77
20 years or less............................................................... 1.85
30 years or less............................................................... 1.87
Convertible corporate bonds with senior debt securities rated Aa issued by the
following types 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 types 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 types 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 types 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 types of issuers
Utility........................................................................ 2.12
Industrial..................................................................... 3.90
Financial...................................................................... 3.24
Transportation................................................................. 4.59
"Moody's Eligible Asset" means:
</TABLE>
(i) cash (including, for this purpose, receivables for investments
sold to a counterparty whose senior debt securities are rated at lease 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 a least
P-1 and maturing within 270 days;
(iv) preferred stocks (A) which either (1) are issued by issuers whose
senior debt securities are rated at least Baa1 by Moody's or (2) are rated at
least "baa3" by Moody's (or in the event an issuer's senior debt securities or
preferred stock is not rated by Moody's, which either (1) are issued by an
issuer whose senior debt securities are rated at least A by S&P or (2) are rated
at least A by S&P and for this purpose have been assigned a Moody's equivalent
rating of at least "baa3"), (B) of issuers which have (or, in the case of
issuers which are special purpose corporations, whose parent companies have)
common stock listed on the New York Stock Exchange or the American Stock
Exchange, (C) which have a minimum issue size (when taken together with other of
the issuer's issues of similar tenor) of $50,000,000, (D) which have paid cash
dividends consistently during the preceding three-year period (or, in the case
of new issues without a dividend history, are rated at least "a1" by Moody's or,
if not rated by Moody's, are rated at least AA by S&P), (E) which pay
cumulative cash dividends in U.S. dollars, (F) which are not convertible into
any other class of stock and do not have warrants attached, (G) which are not
issued by issuers in the transportation industry and (H) in the case of auction
rate preferred stocks, which are rated at least "aa" by Moody's, or if not rated
by Moody's, AAA by S&P or are otherwise approved in writing by Moody's and have
never had a failed auction; provided, however, that for this purpose the
aggregate market value of the Company's holdings of any issue of preferred stock
will not be less than $500,000 nor more than $5,000,000;
(v) common stocks (A) (i) which are traded in the United States on a
national securities exchange or in the over-the-counter market, (ii) which, if
cash dividend paying, pay cash dividends in U.S. dollars, and (iii) which may be
sold without restriction by the Fund; provided, however, that (1) common stock
which, while a Moody's eligible Asset owned by the Fund, ceases paying any
regular cash dividend will not 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 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 stocks [, and (B) which are securities
denominated in any currency other than the U.S. dollar or securities of issuers
formed under the laws of jurisdictions other than the United States, its states,
commonwealths, territories and possessions, including the District of Columbia,
for which there are dollar denominated American Depository Receipts ("ADRs")
which are traded in the United States on a national securities exchange or in
the over-the-counter market and are issued by banks formed under the laws of the
United States, its states, commonwealths, territories and possessions, including
the District of Columbia; provided, however, that the aggregate market value of
the Fund's holdings of securities denominated in currencies other than the U.S.
dollar and ADRs in excess of (i) 6% of the aggregate market value of the
outstanding shares of common stock of the issuer thereof or (ii) 10% of the
market value of Moody's Eligible Assets with respect to issuers formed under the
laws of any single such non-U.S. jurisdiction, other than Australia, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United
Kingdom, shall not be a Moody's Eligible Asset;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which [may be sold without restriction by
the Fund and are] 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 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
Fund's holdings does 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 Utility
Maximum Single Maximum Single
Moody's Rating (1)(2) Issuer (3)(4) Issuer (3)(4)
--------------------- -------------- --------------
<S> <C> <C>
"aaa", Aaa....................... 100% 100%
"aa", Aa......................... 20% 20%
"aaa", Aaa....................... 100% 100%
"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 Maximum Maximum Single
Moody's Rating(1) Single Industry(3) Sub-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
(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 from $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
stock 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 provision; 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.
"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 and 7.80%
Preferred.
"Redemption Price" has the meaning set forth on page of this
Prospectus
"7.80% Preferred" means, so long as any shares of such series are
issued and outstanding, the 7.80% Cumulative Preferred Stock, par value $.001
per share, of the Fund.
"7.80% Preferred Articles" means, so long as any shares of the 7.80%
Preferred are issued and outstanding, the Articles Supplementary, dated August
19, 1996, as amended and supplemented from time to time, creating and fixing the
rights of the 7.80% Preferred.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the Fund
(or, in the case of an instrument specified by clauses (i) and (ii) below, on
the Valuation Date), the remaining terms to maturity thereof are not in excess
of 90 days:
(i) U.S. Government Obligations;
(ii) Commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is
issued by an issuer (or guaranteed by 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, the time of purchase or acquisition and
the Valuation Date, have (1) credit ratings form 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
provision in the case of investments that mature in no more that 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 1 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, a division of The McGraw-Hill
Companies, Inc., or its successor.
"U.S. Government Obligations" means direct non-callable obligations of
the United States, provided that such direct obligations are entitled to the
full faith and credit of the United states and that any such obligations, other
than United States Treasury Bills and U.S. Treasury Securities Strips, provide
for the periodic payment of interest and the full payment of principal at
maturity.
"Valuation Date" means every Friday or, if such day is not a Business
Day, the immediately preceding Business Day.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------- -----------------------------------------------
- ------------------------------------------------------------------------------- -----------------------------------------------
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN 3,600,000 SHARES
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 ROYCE VALUE
ADVISER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT TRUST, INC.
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH
IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
% TAX-ADVANTAGED CUMULATIVE
PREFERRED STOCK
---------------
TABLE OF CONTENTS ---------------
PAGE
Prospectus Summary...................................3
Tax Attributes of Preferred Stock Dividends..........4
Financial Highlights.................................11 PROSPECTUS
The Fund.............................................13
Use of Proceeds......................................13
Capitalization.......................................13 , 1998
Portfolio Composition................................14
Investment Objectives and Methods/Policies...........14
Investment Advisory and Other Services...............18
Description of Cumulative Preferred Stock............19
Description of Capital Stock.........................25 ----------------
Taxation.............................................25
Custodian, Transfer Agent and Dividend-Paying Agent..28 PAINEWEBBER INCORPORATED
Underwriting.........................................29 SALOMON SMITH BARNEY
Legal Matters........................................30
Experts..............................................30
Additional Information...............................30
Table of Contents of Statement of Additional
Information ........................................31
Glossary.............................................32
- ------------------------------------------------------------------------------- ----------------------------------------------
- ------------------------------------------------------------------------------- ----------------------------------------------
</TABLE>
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 does not constitute a
prospectus.
SUBJECT TO COMPLETION, DATED , 1998
STATEMENT OF ADDITIONAL INFORMATION
3,600,000 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 methods/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 capitalization companies. The
Fund's address is 1414 Avenue of the Americas, New York, New York 10019, and its
telephone number is (212) 355-7311. Royce & Associates, Inc. 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 ______ , 1998).
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, 1997, please call Investor Information at 1-800-221-4268. Defined
terms used herein have the meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
PAGE
Principal Stockholders.......................................2
Directors and Officers.......................................2
Code of Ethics and Related Matters...........................5
Investment Advisory and Other Services.......................5
Brokerage Allocation and Other Practices.....................6
Net Asset Value..............................................7
Financial Statements.........................................8
Date , 1998
PRINCIPAL STOCKHOLDERS
As of March 31, 1998, the following persons owned of record or were
known by the Fund to have owned beneficially 5% or more of the 31,228,098 shares
of its Common Stock and 2,400,000 shares of its 7.80% Preferred then
outstanding:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF OWNER CLASS OF STOCK AMOUNT AND NATURE OF PERCENTAGE OF CLASS
OWNERSHIP
<S> <C> <C> <C>
Yale University Common 2,758,709 shares - 10.5%
451 College Street Beneficial (sole voting and
P.O. Box 1074 Yale Station investment power)
New Haven, CT 06520
Cede & Co. FAST Common 29,098,964 shares - Record 93.2%
P.O. Box 20 Bowling
0Green Station Preferred 2,368,565 shares - Record 91.1%
New York, NY 10274
</TABLE>
All directors and officers of the Fund as a group owned approximately
0.9% of the Fund's outstanding shares of Common Stock as of such date.
DIRECTORS AND OFFICERS
The following tables sets forth certain information as to each
director and officer of the Fund.
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION HELD WITH PRINCIPAL OCCUPATION AND OTHER AFFILIATIONS
THE FUND DURING THE PAST FIVE YEARS
<S> <C> <C>
Charles M. Royce* (58).............. Director, President, Managing Director (since April 1997),
1414 Avenue of the Americas President Secretary, Treasurer, sole director and
New York, NY 10019 and Treasurer sole voting shareholder of Royce &
Associates, Inc. ("Royce"), formerly named
Quest Advisory Corp., the Fund's investment
adviser; Trustee, President and Treasurer
of the Royce Fund ("TRF"), an open-end
diversified management investment company
of which Royce is the principal investment
adviser, and its predecessors; Director,
President and Treasurer of the Fund, Royce
Micro-Cap Trust, Inc. ("RMCT") (since
September 1993) and Royce Global Trust,
Inc. ("RGT") (since October 1996),
closed-end diversified management
investment companies of which Royce is the
investment adviser; Trustee, President and
Treasurer of Royce Capital Fund ("RCF")
(since December 1996), an open-end
diversified management investment company
of which Royce is the investment adviser
(the Fund, TRF, RCF, RGT and RMCT,
collectively, "The Royce Funds"); Secretary
and sole director and shareholder of Royce
Fund Services, Inc. ("RFS"), formerly named
Quest Distributors, Inc., the distributor of
TRF's shares; and managing general partner
of Royce Management Company ("RMC"),
formerly named Quest Management Company, a
registered investment adviser, and its
predecessor.
Richard M. Galkin (59).............. Director Private investor and President of Richard
5284 Boca Marina M. Galkin Associates, Inc., telecommunica-
Boca Raton, FL 33487 tions consultants
Stephen L. Isaacs (58).............. Director President of the Center for Health and
60 Harmon Avenue Social Policy since September 1996;
Pelham, NY 10803 President of Stephen L. Isaacs & Associates,
Consultants; Director of Columbia
University Development Law and Policy
Program and Professor at Columbia
University until August 1996.
David L. Meister (58)............... Director Consultant to the communications industry.
111 Marquez Place
Pacific Palisades, CA 90272
John D. Diederich* (46)............. Vice President Director of Administration of The Royce Funds
1414 Avenue of the Americas since April 1993; Vice President of RGT
New York, NY 10019 (since October 1996), of RCF (since
December 1996) and of the Fund and RMCT
(since April 1997); Director of the Fund
and RMCT (since July 1997); Trustee of RCF
(since April 1998); and President of RFS
(since November 1995).
Jack E. Fockler, Jr.* (39).......... Vice President Managing Director (since April 1997) and Vice
1414 Avenue of the Americas President (since August 1993) of Royce,
New York, NY 10019 having been employed by Royce since October
1989; Vice President of RGT (since
October 1996) and of the other Royce
Funds (since April 1995); and General
Partner of RMC and its predecessor.
W. Whitney George* (39)............. Vice President Managing Director (since April 1997) and Vice
1414 Avenue of the Americas President (since August 1993) of Royce,
New York, NY 10019 having been employed by Royce since October
1991; Vice President of RGT (since October
1996) and of the other Royce Funds (since
April 1995); and General Partner of RMC and
its predecessor.
Daniel A. O'Byrne (36).............. Vice President Vice President of Royce (since May 1994),
1414 Avenue of the Americas having been employed by Royce (since October
New York, NY 10019 1986); and Vice President of RGT (since
October 1996) and of the other Royce Funds
(since July 1994).
John E. Denneen* (31)............... Secretary Associate General Counsel and Chief Compliance
1414 Avenue of the Americas Officer of Royce (since May 1996);
New York, NY 10019 Secretary of RGT (since October 1996) and
of the other Royce Funds (since June 1996);
and Associate of Seward & Kissel since prior
to June 1996.
</TABLE>
- -------------
* An "interested person" of the Fund and/or Royce under Section 2(a)(19) of the
1940 Act.
Normally, holders of shares of the Preferred Stock of the Fund,
including the Cumulative Preferred Stock, voting as a separate class, will elect
two of the Fund's directors, and holders of the Preferred Stock, including the
Cumulative Preferred Stock, and the Common Stock, voting as a single class, will
elect the remaining directors. See "Description of Cumulative Preferred
Stock--Voting Rights" in the Prospectus. Messrs. Diederich and Meister have been
elected as directors by holders of the Preferred Stock.
All of the Fund's directors are also trustees of TRF and RCF and
directors of RMCT and RGT, except for John D. Diederich who is not a trustee of
TRF or a director of RGT.
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 for the Fund and for conducting post-audit reviews of its financial
condition with such auditors.
Remuneration of Directors
Set forth below is the compensation paid by the Fund and the four
other registered investment companies comprising The Royce Funds to each
director of the Fund (in his capacity as a director) for the year ended December
31, 1997.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
COMPENSATION FROM THE FUND AND
DIRECTOR FROM THE FUND OTHER ROYCE FUNDS
-------- ------------- ------------------
<S> <C> <C>
Charles M. Royce............................ $-- $--
John D. Diederich(1)........................ -- --
Richard M. Galkin........................... 16,000 65,000
Stephen L. Isaacs........................... 16,000 65,000
David L. Meister............................ 16,000 65,000
</TABLE>
- -------------------
(1) Mr. Diederich received compensation aggregating less than $60,000
from the Fund in his capacity as the Fund's Director of Administration.
Each of the Fund's non-affiliated directors receives a base fee of
$10,000 per year plus $1,000 for each meeting of the Board of Directors
attended. No director of the Fund received remuneration for services as a
director for the year ended December 31, 1997 in addition to or in lieu of this
standard arrangement.
CODE OF ETHICS AND RELATED MATTERS
Royce, RFS, RMC and The Royce Funds have adopted a Code of Ethics
under which directors, officers, employees and partners of Royce, RFS, RMC
("Royce-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 Royce or RMC account. Such persons are
permitted to engage in other personal securities transactions if (i) the
securities involved are U.S. 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 Royce's Compliance Officer and an
executive officer of Royce. 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.
Royce's and RMC's clients include several private investment companies
in which Royce or RMC 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 Royce or RMC for such private
investment company accounts. Transactions for such private investment company
accounts are subject to Royce's and RMC's allocation guidelines and procedures.
See "Brokerage Allocation and Other Practices".
As of March 31, 1998, Royce-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 over $37 million, and their equity interests in Royce-related
private investment companies totaled approximately $3.1 million.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY FEE
For the years ended December 31, 1997, 1996 and 1995, Royce received
investment advisory fees from the Fund of $1,714,688, $1,384,644 and $2,951,325
(net of $76,186, $86,240 and $104,206 voluntarily waived by Royce),
respectively.
OTHER
The Investment Advisory Agreement provides that the Fund may use
"Royce" as part of its name only for as long as the Investment Advisory
Agreement remains in effect. The name "Royce" is a property right of Royce, and
it may at any time permit others, including other investment entities, to use
such name.
The Investment Advisory Agreement protects and indemnifies Royce
against liability to the Fund, its stockholders or others for any action taken
or omitted to be taken by Royce in connection with the performance of any of its
duties or obligations under Investment Advisory Agreement or otherwise as an
investment adviser to the Fund. However, Royce is not protected or indemnified
against liabilities to which it would otherwise be subject by reason of willful
malfeasance, 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.
Royce's services to the Fund are not deemed to be exclusive, and Royce
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, 1999 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, 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
Commission and others, and in the auditing of accounts and in other ministerial
matters of like nature, as agreed to between the Fund and the Bank. For the
fiscal years ended December 31, 1997, 1996 and 1995, the Fund paid $158,726,
$126,751 and $129,940, respectively, in fees to the Fund's custodian and
transfer agent.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Royce 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 securities transaction for the Fund unless such broker is believed by
Royce to be capable of obtaining the best price for the security involved in the
transaction. Best price and execution is comprised of several factors, including
the liquidity of the security, the commission charged, the promptness and
reliability of execution, priority accorded the order and other factors
affecting the overall benefit obtained. In addition to considering a broker's
execution capability, Royce 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
performance measurement, and may be written or oral. Brokers that provide both
research and execution services are generally paid higher commissions than those
paid to brokers who do not provide such research and execution services. Royce
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 Royce upon the brokerage and/or research
services provided by such broker, viewed in terms of either that particular
transaction or Royce's overall responsibilities with respect to its accounts.
Royce 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 Royce in servicing all of
its accounts and those of RMC, and not all of such services may be used by Royce
in connection with the Fund.
Even though investment decisions for the Fund are made independently
from those for the other accounts managed by Royce and RMC, securities of the
same issuer are frequently purchased, held or sold by more than one Royce/RMC
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 Royce/RMC account on the
same trading day, Royce seeks to average the transactions as to price and
allocate them as to amount in a manner believed to be equitable to each. Such
purchases and sales of the same security are generally effected pursuant to
Royce/RMC'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 Royce's and RMC'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 Royce and
RMC believe should result in fair and equitable treatment to those of its
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, 1997, the Fund did not acquire any
securities of any of its regular brokers (as defined in Rule 10b-1 under the
1940 Act) or of any of their parents.
During each of the three years ended December 31, 1997, 1996 and 1995,
the Fund paid brokerage commissions of approximately $463,000, $414,000 and
$364,000, respectively.
One or more of the Underwriters has effected purchases and/or sales of
the portfolio securities of the Fund and of other accounts managed by Royce and
RMC 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 preferences 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 Nasdaq National Market 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.
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, 1997, together with
the report of Ernst & Young LLP thereon, are incorporated herein by reference.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
Included in Part A:
- Selected Per Share Data and Ratios for the ten years ended
December 31, 1997.
Incorporated by reference in Part B:
- Schedule of Investments at December 31, 1997*
Statement of Assets and Liabilities at December 31, 1997*
- Statement of Operations for the year ended
December 31, 1997*
- Statement of Changes in Net Assets for the years ended
December 31, 1997 and 1996*
- Statement of Cash Flows for the year ended
December 31, 1997*
- Selected Per Share Data and Ratios for the ten years ended
December 31, 1997.*
- Notes to Financial Statements*
- Report of Independent Accountants*
- ---------------
* Incorporated by reference to the Registrant's Annual Report to
Stockholders for the year ended December 31, 1997, filed with the
Securities and Exchange Commission (the "SEC") pursuant to Rule 30b2-1
under the 1940 Act.
2. Exhibits
(a)(1) Articles of Incorporation.(1)
(2) Articles of Amendment.(2)
(3) Articles of Amendment.(3)
(4) Form of Articles Supplementary creating the Fund's
8% Cumulative Preferred Stock.(4)
(5) Articles of Amendment
dated March 2, 1998 to Articles Supplementary
creating the Fund's 8% Cumulative Preferred Stock.
(6) Articles of Amendment dated March 19, 1998 to
Articles Supplementary creating the Fund's 8%
Cumulative Preferred Stock.
(7) Form of Articles Supplementary creating the Fund's
___% Tax-Advantaged Cumulative Preferred Stock.
(b) Amended and Restated By-laws of the Fund.(5)
(c) Not applicable.
(d) (1) Form of specimen certificate for ____ %
Tax-Advantaged Cumulative Preferred Stock.
(2) Portions of the Articles Supplementary of the Fund
defining the rights of _____ holders of ____% Tax-
Advantaged Cumulative Preferred Stock.(6)
(e) Amended and Restated Distribution Reinvestment and Cash
Purchase Plan.(7)
(f) Not applicable.
(g) (1) Form of Investment Advisory Agreement between the
Fund and Royce & Associates, Inc. ("Royce").(7)
(2) Form of Letter Agreement dated ____________, 1998
by and between the Fund and Royce.*
(h) Form of Underwriting Agreement.*
(i) Not applicable.
(j) (1) Custodian Contract with State Street Bank and
Trust Company ("State Street").(8)
(2) Amendment dated December 11, 1987 to Custodian
Contract. (9)
(3) Amendment dated May 13, 1988 to Custodian
Contract.(9)
(4) Amendment dated April 2, 1992 to Custodian
Contract.(10)
(k) (1) Registrar, Transfer Agency and Service Agreement
between Fund and State Street.(11)
(2) Form of Registrar, Transfer Agent and Paying Agency
Agreement between the Fund and State Street.*
(l) Opinion and Consent of Venable, Baetjer and Howard, LLP,
special Maryland counsel to the Fund.*
(m) Not applicable.
(n) (1) Consent of Tait, Weller & Baker, independent auditors
for the Fund.
(2) Consent of Ernst & Young LLP, independent auditors.
(3) Consent of Coopers & Lybrand L.L.P., independent
auditors.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Financial Data Schedule.*
- ---------------
(1) Incorporated by reference to the Fund's Registration Statement on
Form N-2 filed with the SEC on October 15, 1986 (File
No. 811-4875).
(2) Incorporated by reference to the Fund's Semi-Annual Report on Form
N-SAR for the six months ended June 30, 1988 (File No. 811-4875) filed
with the SEC.
(3) Incorporated by reference to Amendment No. 4 to the Fund's Registration
Statement on Form N-2 filed with the SEC on August 14, 1989
(File No. 811-4875).
(4) Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's
Registration Statement on Form N-2 filed with the SEC on August 9, 1996
(File N. 333-8039).
(5) Incorporated by reference to Amendment No. 19 to the Fund's Registration
Statement on Form N-2 filed with the SEC on August 11, 1995
(File No. 811-4875).
(6) Reference is made to Article II of the Registrant's Articles
Supplementary to be filed as Exhibit (a)(7) to this Registration Statement.
(7) Incorporated by reference to Amendment No. 20 to the Fund's Registration
Statement on Form N-2 filed with the SEC on
July 12, 1996 (File No. 811-4875).
(8) Incorporated by reference to Amendment No. 1 to the Fund's Registration
Statement on Form N-2 filed with the SEC on November 19, 1986
(File No. 811-4875).
(9) Incorporated by reference to Amendment No. 9 to the Fund's Registration
Statement on Form N-2 filed with the SEC on March 27, 1991
(File No. 811-4875).
(10) Incorporated by reference to the Fund's Registration Statement on Form
N-2 filed with the SEC on July 22, 1992 (File No. 811-4875).
(11) Incorporated by reference to the Fund's Registration Statement on
Form N-2 filed with the SEC on August 9, 1996 (File No. 333-8039).
* To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit (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:
Registration fees.......................................... *
Listing fees............................................... *
Printing expenses (other than stock certificates).......... *
Accounting fees and expenses............................... *
Legal fees and expenses.................................... *
Rating Agency fees......................................... *
Miscellaneous ............................................. *
Total............................................. *
* To be provided 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 March 31, 1998:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
Common Stock ($.01 par value).............................. *
7.80% Cumulative Preferred Stock ($.001 par value)......... *
* To be provided by amendment.
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VII of the Registrant's Articles of Incorporation, Article V of the
Registrant's Amended and Restated By-laws, the Investment Advisory Agreement,
and the form of Underwriting Agreement, to be filed as an Exhibit to this
Registration Statement, each provide for indemnification.
The Investment Advisory Agreement between the Fund and Royce obligates
the Fund to indemnify Royce and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys' fees) incurred
by Royce 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 Royce in connection with the performance of any of its
duties or obligations under the Agreement or otherwise as an investment adviser
of the Fund. Royce is not entitled to indemnification in respect of any
liability to the Fund or its security holders to which it would otherwise be
subject by reason of its willful misfeasance, bad faith or gross negligence.
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 Fund pursuant to the foregoing
provisions or otherwise, the Fund has been advised that, in the opinion of the
SEC, 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 Fund of
expenses incurred or paid by a director, officer or controlling person of the
Fund 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 Fund 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 Fund, its officers and directors, Royce 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 Fund'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 Royce'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
Royce 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
Not applicable.
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 29th day of
April, 1998.
ROYCE VALUE TRUST, INC.
(Registrant)
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
<S> <C> <C>
/s/ Charles M. Royce Director, President and Treasurer April 29, 1998
Charles M. Royce (Principal Executive, Financial and
Accounting Officer)
/s/ John Diederich Director April 29, 1998
- ---------------------------
John Diederich
/s/ Richard M. Galkin Director April 29, 1998
- ---------------------------
Richard M. Galkin
/s/ Stephen L. Isaacs Director April 29, 1998
- ---------------------------
Stephen L. Isaacs
/s/ David L. Meister Director April 29, 1998
- ---------------------------
David L. Meister
</TABLE>
EXHIBIT INDEX
Exhibit
Number
(a)(5) Articles of Amendment dated March 2, 1998.
(a)(6) Articles of Amendment dated March 19, 1998.
(a)(7) Form of Articles Supplementary creating the Fund's ___%
Tax-Advantaged Cumulative Preferred Stock.
(d)(1) Form of specimen certificate for ___% Tax-Advantaged
Cumulative Preferred Stock.
(n)(1) Consent of Tait, Weller & Baker, independent auditors for the Fund.
(n)(2) Consent of Ernst & Young LLP, independent auditors.
(n)(3) Consent of Coopers & Lybrand L.L.P., independent auditors.
Exhibit (a)(5)
ROYCE VALUE TRUST, INC.
ARTICLES OF AMENDMENT
Royce Value Trust, Inc., a Maryland corporation (the "Corporation"),
hereby certifies to the Maryland State Department of Assessments and Taxation
that the Articles Supplementary to the Corporation's Articles of Incorporation
relating to the Corporation's 8% Cumulative Preferred Stock (the "Cumulative
Preferred Stock") (the "Articles Supplementary") are hereby amended in the
manner set forth below.
FIRST: Article FIRST of the Articles Supplementary is hereby
amended by deleting it in its entirety and inserting the following in lieu
thereof:
FIRST: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by Articles
FIFTH of the Charter of the Corporation, the Board of
Directors has authorized the issuance of a series of
10,000,000 shares of preferred stock, par value $.001
per share, of the Corporation designated as the 7.80%
Cumulative Preferred Stock (the "Cumulative Preferred
Stock") and has provided for the issuance of shares
of such series.
SECOND: Article I of the Articles Supplementary is hereby further
amended by deleting the definition of "Cumulative Preferred Stock" in its
entirety and inserting the following in lieu thereof:
"Cumulative Preferred Stock" means the 7.80%
------------------------------
Cumulative Preferred Stock, par value $.001 per
share, of the Corporation.
THIRD: Article II of the Articles Supplementary is hereby further
amended by deleting paragraph 1 thereof and inserting the following in lieu
thereof:
1. Dividends.
---------
(a) ______ Holders of shares of the Cumulative
Preferred Stock shall be entitled to receive, when,
as and if declared by the Board of Directors, out of
funds legally available therefor, cumulative cash
dividends at the annual rate of 7.80% per share
(computed on the basis of a 360-day year consisting
of twelve 30-day months) of the initial Liquidation
Preference of $25.00 per share on the Cumulative
Preferred Stock and no more, payable quarterly on
March 23, June 23, September 23 and December 23 in
each year (each a "Dividend Payment Date"),
commencing March 23, 1998 (or, if any such day is not
a Business Day, then on the next succeeding Business
Day) to holders of record of the Cumulative Preferred
Stock as they appear on the stock register of the
Corporation at the close of business on the preceding
March 6, June 6, September 6 and December 6 (or, if
any such day is not a Business Day, then on the next
succeeding Business Day), as the case by 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 the Cumulative
Preferred Stock shall accumulate from the date on
which the first such shares of the Cumulative
Preferred Stock are originally issued ("Date of
Original Issue"). Each period beginning on and
including a Dividend Payment Date (or the Date of
Original Issue, in the case of the first dividend
period after issuance of such shares) and ending on
but excluding the next succeeding Dividend Payment
date is referred to herein as a "Dividend Period."
Dividends on account of arrears for any past Dividend
Period may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of
record on such date, not exceeding 30 days preceding
the payment date thereof, as shall be fixed by the
Board of Directors.
FOURTH: Article II of the Articles Supplementary is hereby further
amended by deleting Paragraph 3(b) thereof in its entirety and inserting the
following in lieu thereof:
3. Redemption
-----------
(b) Optional Redemptions.
---------------------
Prior to August 15, 2003, the Corporation may, at its
option, redeem shares of the Cumulative Preferred
Stock at the Redemption Price per share only if and
to the extent that any such redemption is necessary,
in the judgment of the Corporation, to maintain the
Corporation's status as a regulated investment
company under Subchapter M of the Code. Commencing
August 15, 2003 and at any time and from time to time
thereafter, the Corporation may, at its option, to
the extent permitted by the 1940 Act, Maryland law,
the Indenture and any other agreements in respect of
indebtedness of the Corporation to which it may be a
party or by which it may be bound, redeem the
Cumulative Preferred Stock in whole or in part at the
Redemption Price per share.
FIFTH: Article II is hereby further amended by deleting Paragraph 8(b)
thereof in its entirety and inserting the following in lieu thereof:
8. Limitation on Incurrence of Additional
--------------------------------------
Indebtedness and Issuance of Additional
---------------------------------------
Preferred Stock.
---------------
(b) So long as any shares of the Cumulative
Preferred Stock are outstanding, the Corporation may
issue and sell additional shares of the Cumulative
Preferred Stock authorized hereby and/or 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 the
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 the Cumulative Preferred
Stock or to redeem or otherwise refinance all or a
portion of the shares of the 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, or at least 250% of
the shares of the 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 the 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.
SIXTH: The foregoing amendment to the Articles Supplementary was
advised by the Board of Directors and approved by the stockholders of the
Corporation.
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
witnessed by its Secretary or Assistant Secretary as of this ________________
day of ____, 1998.
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
authorization and approval hereof are true in all material respects and that
this statement is made under the penalties of perjury.
ROYCE VALUE TRUST, INC.
/s/ John D. Diederich
Name: John D. Diederich
Title: President
Witness:
/s/ John E. Denneen
Name: John E. Denneen
Title: Secretary
Exhibit (a)(6)
ROYCE VALUE TRUST, INC.
ARTICLES OF AMENDMENT
Royce Value Trust, Inc., a Maryland corporation (the "Corporation"),
hereby certifies to the Maryland State Department of Assessments and Taxation
that the Articles Supplementary to the Corporation's Articles of Incorporation
relating to the Corporation's 8% Cumulative Preferred Stock (the "Cumulative
Preferred Stock") (the "Articles Supplementary") are hereby amended in the
manner set forth below.
FIRST: Article II is hereby further amended by deleting Paragraph 4(c)
thereof in its entirety and inserting the following in lieu thereof:
4. Voting Rights.
--------------
(c) Right to Vote with Respect to Certain Other Matters.
---------------------------------------------------
(1) So long as any shares of the Cumulative Preferred
Stock are outstanding, the Corporation shall not, without
the affirmative vote of the holders of two-thirds of the
shares of the Cumulative Preferred Stock outstanding at the
time, voting separately as one class, amend, alter or repeal
the provisions of the Charter, whether by merger,
consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the
Charter of holders of shares of the Cumulative Preferred
Stock. The 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 the
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 the Cumulative Preferred Stock,
described above, will be in addition to a separate vote of
the requisite percentage of shares of Common Stock and
shares of Preferred Stock, voting together as a single
class, necessary to authorize the action in question. An
increase in the number of authorized shares of Preferred
Stock pursuant to the Charter or the issuance of additional
shares of any series of Preferred Stock (including the
Cumulative Preferred Stock) pursuant to the Charter shall
not in and of itself be considered to adversely affect the
contract rights of the holders of the Cumulative Preferred
Stock.
(2) Notwithstanding the foregoing, and except as
otherwise required by the 1940 Act, (i) the holders of
outstanding shares of the Cumulative Preferred Stock shall
be entitled as a class, to the exclusion of the holders of
all other securities, including other Preferred Stock,
Common Stock and other classes of capital stock of the
Corporation, to vote on matters affecting the Cumulative
Preferred Stock that do not materially adversely affect any
of the contract rights of holders of such other securities,
including other Preferred Stock, Common Stock and other
classes of capital stock of the Corporation, as expressly
set forth in the Charter, and (ii) the holders of
outstanding shares of the Cumulative Preferred Stock shall
not be entitled to vote on matters affecting any other
Preferred Stock that do not materially adversely affect the
contract rights of the holders of the Cumulative Preferred
Stock, as expressly set forth in the Charter.
SECOND: The Articles Supplementary are hereby further amended by
adding new Article III as follows:
ARTICLE III
ABILITY OF THE BOARD OF DIRECTORS TO MODIFY THE ARTICLES SUPPLEMENTARY
----------------------------------------------------------------------
To the extent permitted by law, the Board of Directors,
without the vote of the holders of the Cumulative Preferred
Stock or any other capital stock of the Corporation, may
amend the provisions of these Articles Supplementary to
resolve any inconsistency or ambiguity or to remedy any
formal defect so long as the amendment does not materially
adversely affect any of the contract rights of holders of
the Cumulative Preferred Stock or any other capital stock of
the Corporation, as expressly set forth in the Charter, or,
if the Corporation has not previously terminated compliance
with the provisions hereof with respect to Moody's pursuant
to paragraph 7 of Article II hereof, adversely affect the
then current rating on the Cumulative Preferred Stock by
Moody's.
THIRD: The foregoing amendment to the Articles Supplementary was
advised by the Board of Directors and approved by the stockholders of the
Corporation.
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
witnessed by its Secretary or Assistant Secretary as of this __th day of March,
1998.
The undersigned acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
authorization and approval hereof are true in all material respects and that
this statement is made under the penalties of perjury.
ROYCE VALUE TRUST, INC.
/s/ John D. Diederich
Name: John D. Diederich
Title: President
Witness:
/s/ John E. Denneen
Name: John E. Denneen
Title: Secretary
Exhibit (a)(7)
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 10,000,000
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 series.
SECOND: The preferences, voting powers, rights, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of shares of the Cumulative Preferred Stock of the Corporation, as
set by the Board of Directors, are as follows:
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;
(iii) with respect to the calculation of the Basic
Maintenance Amount, such calculation has been compared with
the definition of Basic Maintenance Amount in these Articles
Supplementary and is calculated in accordance with such
definition and the results of such calculation have been
recalculated and are numerically correct;
(iv) with respect to the excess or deficiency of the
Portfolio Calculation when compared to the Basic Maintenance
Amount calculated for Moody's, the results of the
calculation set forth in the Reports have been recalculated
and are numerically correct;
(v) with respect to the Moody's and S&P ratings on
corporate bonds, convertible corporate bonds and preferred
stock, issuer name, issue size and coupon or dividend rate
listed in the Reports, that information has been traced and
agrees with the information listed in the applicable guides
of the respective rating agencies (in the event such
information does not agree or such information is not listed
in the applicable guides of the respective rating agencies,
the Independent Accountant will inquire of the rating
agencies what such information is, and provide a listing in
its letter of such differences, if any);
(vi) with respect to the lower of two bid prices (or
alternative permissible factors used in calculating the
Market Value as provided by these Articles Supplementary)
provided by the custodian of the Corporation's assets for
purposes of valuing securities in the portfolio, the
Independent Accountant has traced the price used in the
Reports to the lower of the two bid prices listed in the
report provided by such custodian and verified that such
information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in
its letter of such differences); and
(vii) with respect to the description of each security
included in the Reports, the description of Moody's Eligible
Assets has been compared to the definition of Moody's
Eligible Assets contained in these Articles Supplementary,
and the description as appearing in the Reports agrees with
the definition of Moody's Eligible Assets as described in
these Articles Supplementary.
Each such letter may state: such Independent Accountant has made no
independent verification of the accuracy of the description of the investment
securities listed in the Reports or the Market Value of those securities nor
have they performed any procedures other than those specifically outlined above
for the purposes of issuing such letter; unless otherwise stated in the letter,
the procedures specified therein were limited to a comparison of numbers or a
verification of specified computations applicable to numbers appearing in the
Reports and the schedule(s) thereto; the foregoing procedures do not constitute
an examination in accordance with generally accepted auditing standards and the
Reports discussed in the letter do not extend to any of the Corporation's
financial statements taken as a whole; such Independent Accountant does not
express an opinion as to whether such procedures would enable such Independent
Accountant to determine that the methods followed in the preparation of the
Reports would correctly determine the Market Value or Discounted Value of the
investment portfolio; accordingly, such Independent Accountant expresses no
opinion as to the information set forth in the Reports or in the schedule(s)
thereto and make no representation as to the sufficiency of the procedures
performed for the purposes of these Articles Supplementary.
Such letter shall also state that the Independent Accountant is a
"independent accountant" with respect to the Corporation within the meaning of
the Securities Act of 1933, as amended, and the related published rules and
regulations thereunder.
"Adviser" means Royce & Associates, Inc., a New York corporation.
-------
"Asset Coverage" means asset coverage, as defined in Section 18(h) of
--------------
the 1940 Act, of at least 200%, or such higher percentage as may be required
under the 1940 Act, with respect to all outstanding senior securities of the
Corporation which are stock, including all outstanding shares of Cumulative
Preferred Stock.
"Asset Coverage Cure Date" means, with respect to the failure by the
-------------------------
Corporation to maintain the Asset Coverage (as required by paragraph 5(a)(i) of
Article II hereof) as of the last Business Day of each March, June, September
and December of each year, 60 calendar days following such Business Day.
"Basic Maintenance Amount"* means, as of any Valuation Date, the
--------------------------
dollar amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by the
Liquidation Preference; (B) to the extent not included in (A), the aggregate
amount of cash dividends (whether or not earned or declared) that will have
accumulated for each outstanding share of Cumulative Preferred Stock from the
most recent Dividend Payment Date to which dividends have been paid or duly
provided for (or, in the event the Basic Maintenance Amount is calculated on a
date prior to the initial Dividend Payment Date with respect to the Cumulative
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 amount
referred to in clauses (i)(A) plus (i)(B) of the definition "Basic Maintenance
Amount" in Article I of the 7.80% Preferred Articles; (D) the Corporation's
other liabilities due and payable as of such Valuation Date (except that
dividends and other distributions payable by the Corporation by the issuance of
Common Stock shall not be included as a liability) and such liabilities
projected to become due and payable by the Corporation during the 90 days
following such Valuation Date (excluding liabilities for investments to be
purchased and for dividends and other distributions not declared as of such
Valuation Date); (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 and/or 7.80% Preferred
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 and/or 7.80% Preferred subject
to redemption or repurchase or any of (i)(B) through (i)(E) and provided that in
the event the Corporation has repurchased Cumulative Preferred Stock at a price
of less than the Liquidation Preference thereof and/or 7.80% Preferred at a
price of less than the Liquidation Preference thereof as defined in the 7.80%
Preferred Articles 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 Stock to be repurchased and/or 100% of the
Liquidation Preference of such 7.80% Preferred to be repurchased from (i) above.
"Basic Maintenance Amount 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.
------------------
"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 and the 7.80% Preferred
Articles), 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 thereon 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.
"Independent Accountant"* means a nationally recognized accountant, or
----------------------
firm of accountants, that is with respect to the Corporation an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Liquidation Preference" shall have the meaning set forth in paragraph
----------------------
2(a) of Article II hereof with respect to the Cumulative Preferred Stock and
paragraph 2(a) of Article II of the 7.80% Preferred Articles with respect to the
7.80% Preferred.
"Market Value"* means the amount determined by State Street Bank and
------------
Trust Company (so long as prices are provided to it by Telekurs N.A., Inc. or
another pricing service approved by Moody's in writing), or, if Moody's agrees
in writing, the then bank custodian of the Corporation's assets or such other
party approved by Moody's in writing, with respect to specific Moody's Eligible
Assets of the Corporation, as follows: Securities listed on an exchange or on
the Nasdaq System shall be valued on the basis of the last reported sale on the
Valuation Date or, if no sale is reported for such Valuation Date, then at their
electronically-reported bid price for such day for exchange-listed securities
and at the average of their electronically-reported bid and asked prices for
such Valuation Date for Nasdaq System securities. Quotations shall be taken from
the market where the security is primarily traded. Bonds and other fixed income
securities may be valued by reference to other securities with comparable
ratings, interest rates and maturities, using established independent pricing
services.
Notwithstanding the foregoing, "Market Value" may, at the option of the
Corporation, mean the amount determined with respect to specific Moody's
Eligible Assets of the Corporation in the manner set forth below:
as to any corporate bond or convertible corporate bond which is a
Moody's Eligible Asset, (1) 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 obtained, such Moody's Eligible Asset
shall have a Market Value of zero;
as to any common or preferred stock which is a Moody's Eligible Asset,
(1) 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;
the product of (1) 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;
as to cash, demand deposits, federal funds, bankers' acceptances and
next Business Day's repurchase agreements included in Short Term Money
Market Instruments, the face value thereof.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Moody's Discount Factor"* means, with respect to a Moody's Eligible
Asset specified below, the following applicable number:
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ---------------
<S> <C>
Moody's Short-Term Money Market Instruments
(other than U.S. Government Obligations set forth below) and other
commercial paper:
Demand or time deposits,
certificates of deposit and bankers' acceptances includible in Moody's
Short-Term Money Market Instruments.................................... 1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less............................................ 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270 days or less.................. 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less........................................... 1.25
Repurchase obligations includible in Moody's
Short-Term Money Market Instruments if term is less than 30 days and
counterparty is rated at least A2......................................
1.00
Other repurchase obligations................................................... Discount Factor applicable to
underlying assets
Common stocks.................................................................. 3.00
Preferred stocks:
Auction rate preferred stocks.......................................... 3.50
Other preferred stocks issued by issuers
in the financial and industrial industries....................
Other preferred stocks issued by issuers 2.35
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.........................................................
2 years or less........................................................ 1.08
3 years or less........................................................ 1.15
4 years or less........................................................ 1.20
5 years or less........................................................ 1.26
7 years of less........................................................ 1.31
10 years or less....................................................... 1.40
15 years or less....................................................... 1.48
20 years or less....................................................... 1.54
30 years or less....................................................... 1.61
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
Corporate bonds:
Corporate bonds rated Aaa with remaining terms to maturity of:
1 year or less......................................................... 1.14
2 years or less........................................................ 1.21
3 years or less........................................................ 1.26
4 years or less........................................................ 1.32
5 years or less........................................................ 1.38
7 years or less........................................................ 1.47
10 years or less....................................................... 1.55
15 years or less....................................................... 1.62
20 years or less....................................................... 1.69
30 years or less....................................................... 1.71
Corporate bonds rated Aa with remaining terms to maturity of:
1 year or less......................................................... 1.19
2 years or less........................................................ 1.26
3 years or less........................................................ 1.32
4 years or less........................................................ 1.38
5 years or less........................................................ 1.44
7 years or less........................................................ 1.54
10 years or less....................................................... 1.63
15 years or less....................................................... 1.69
20 years or less....................................................... 1.77
30 years or less....................................................... 1.79
Corporate bonds rated A with remaining terms to maturity of:
1 year or less......................................................... 1.24
2 years or less........................................................ 1.32
3 years or less........................................................ 1.38
4 years or less........................................................ 1.45
5 years or less........................................................ 1.51
7 years or less........................................................ 1.61
10 years or less....................................................... 1.70
15 years or less....................................................... 1.77
20 years or less....................................................... 1.85
30 years or less....................................................... 1.87
Convertible corporate bonds with senior debt
securities rated Aa issued by the following types of issuers:
Utility................................................................
Industrial............................................................. 1.80
Financial.............................................................. 2.97
Transportation......................................................... 2.92
4.27
Convertible corporate bonds with senior debt
securities rated A issued by the following types of issuers:
Utility................................................................
Industrial............................................................. 1.85
Financial.............................................................. 3.02
Transportation......................................................... 2.97
4.32
Convertible corporate bonds with senior debt
securities rated Baa issued by the following types of issuers:
Utility................................................................
Industrial............................................................. 2.01
Financial.............................................................. 3.18
Transportation......................................................... 3.13
4.48
Convertible corporate bonds with senior debt
securities rated Ba issued by the following types of issuers:
Utility................................................................
Industrial............................................................. 2.02
Financial.............................................................. 3.19
Transportation......................................................... 3.14
4.49
Convertible corporate bonds with senior debt
securities rated B1 or B2 issued by the following types of issuers:
Utility................................................................
Industrial............................................................. 2.12
Financial.............................................................. 3.29
Transportation......................................................... 3.24
4.59
"Moody's Eligible Assets"* means:
-----------------------
(i) cash (including, for this purpose, receivables for
investments sold to a counterparty whose senior debt
securities are rated at least Baa3 by Moody's or a
counterparty approved by Moody's and payable within five
Business Days following such Valuation Date and dividends
and interest receivable within 70 days on investments);
(ii) Short-Term Money Market Instruments;
(iii) commercial paper that is not includible as a
Short-Term Money Market Instrument having on the Valuation
Date a rating from Moody's of at least P-1 and maturing
within 270 days;
(iv) preferred stocks (A) which either (1) are issued
by issuers whose senior debt securities are rated at least
Baa1 by Moody's or (2) are rated at least "baa3" by Moody's
(or in the event an issuer's senior debt securities or
preferred stock is not rated by Moody's, which either (1)
are issued by an issuer whose senior debt securities are
rated at least A by S&P or (2) are rated at least A by S&P
and for this purpose have been assigned a Moody's equivalent
rating of at least "baa3"), (B) of issuers which have (or,
in the case of issuers which are special purpose
corporations, whose parent companies have) common stock
listed on the New York Stock Exchange or the American Stock
Exchange, (C) which have a minimum issue size (when taken
together with other of the issuer's issues of similar tenor)
of $50,000,000, (D) which have paid cash dividends
consistently during the preceding three-year period (or, in
the case of new issues without a dividend history, are rated
at least "a1" by Moody's or, if not rated by Moody's, are
rated at least AA by S&P), (E) which pay cumulative cash
dividends in U.S. dollars, (F) which are not convertible
into any other class of stock and do not have warrants
attached, (G) which are not issued by issuers in the
transportation industry and (H) in the case of auction rate
preferred stocks, which are rated at least "aa" by Moody's,
or if not rated by Moody's, AAA by S&P or are otherwise
approved in writing by Moody's and have never had a failed
auction; provided, however, that for this purpose the
aggregate 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) (i) which are traded in the
United States on a national securities exchange or in the
over-the-counter market, (ii) which, if cash dividend
paying, pay cash dividends in U.S. dollars, and (iii) which
may be sold without restriction by the Corporation;
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 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
stocks, and (B) which are securities denominated in any
currency other than the U.S. dollar or securities of issuers
formed under the laws of jurisdictions other than the United
States, its states, commonwealths, territories and
possessions, including the District of Columbia, for which
there are dollar-denominated American Depository Receipts
("ADRs") which are traded in the United States on a national
securities exchange or in the over-the-counter market and
are issued by banks formed under the laws of the United
States, its states, commonwealths, territories and
possessions, including the District of Columbia; provided,
however, that the aggregate Market Value of the
Corporation's holdings of securities denominated in
currencies other than the U.S. dollar and ADRs in excess of
(i) 6% of the aggregate market value of the outstanding
shares of common stock and ADRs of the issuer thereof or
(ii) 10% of the Market Value of Moody's Eligible Assets with
respect to issuers formed under the laws of any single such
non-U.S. jurisdiction, other than Australia, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
Switzerland and the United Kingdom, shall not be a Moody's
Eligible Asset;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which may be sold without
restriction by the Corporation and are 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 Corporation'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-industry Categories) in order to be included in Moody's Eligible Assets:
Issuer:
- ------
</TABLE>
<TABLE>
<CAPTION>
Non-Utility Maximum Utility Maximum
Moody's Rating (1)(2) Single Issuer (3)(4) Single Issuer (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>
Non-Utility Maximum Utility Maximum Single Utility Maximum
Moody's Rating(1) Single Industry(3) Sub-Industry(3)(6) 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 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
Chemicals, Plastics and Rubber: Chemicals (non-agriculture),
------------------------------------
Industrial Gases, Sulfur, 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, Mining and Sales
Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste
----------
Disposal
Electronics: Computer Hardware, Electric Equipment, Components,
-----------
Controllers, Motors, Household Appliances, Information Service Communication
Systems, Radios, Televisions, 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,
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, TV, 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.
--------
"Notice of Redemption" has the meaning set forth in paragraph 3(c)(i)
--------------------
of Article II hereof.
"Officers' Certificate" means a certificate signed by any two of the
----------------------
President, a Vice President, the Treasurer or the Secretary of the Corporation
or by any one of the foregoing and an Assistant Treasurer or Assistant Secretary
of the Corporation.
"Paying Agent" means State Street Bank and Trust Company and its
-------------
successors or any other paying agent appointed by the Corporation with respect
to the Cumulative Preferred Stock and/or 7.80% Preferred.
"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 and the
7.80% Preferred.
"Quarterly Valuation Date"* means the last Valuation Date in March,
--------------------------
June, September and December of each year, commencing June 26, 1998.
"Redemption Price" has the meaning set forth in paragraph 3(a) of
-----------------
Article II hereof.
"7.80% Preferred" means, so long as any shares of such series are
----------------
issued and outstanding, the 7.80% Cumulative Preferred Stock, par value $.001
per share, of the Corporation.
"7.80% Preferred Articles" means, so long as any shares of the 7.80%
--------------------------
Preferred are issued and outstanding, the Articles Supplementary, dated August
19, 1996, as amended and supplemented from time to time, creating and fixing the
rights of the 7.80% Preferred.
"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 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, a division of The McGraw-Hill
---
Companies, Inc., 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.
"Valuation Date"* means every Friday or, if such day is not a Business
--------------
Day, the immediately preceding Business Day.
"Voting Period" shall have the meaning set forth in paragraph 4(b) of
--------------
Article II hereof.
Those of the foregoing definitions which are marked with an asterisk
have been adopted by the Board of Directors of the Corporation in order to
obtain a "aaa" rating from Moody's on the shares of Cumulative Preferred Stock
on their Date of Original Issue; and the Board of Directors of the Corporation
shall have the authority, without stockholder approval, to amend, alter or
repeal from time to time the foregoing definitions and the restrictions and
guidelines set forth thereunder if Moody's advises the Corporation in writing
that such amendment, alteration or repeal will not adversely affect their then
current rating on the Cumulative Preferred Stock. Furthermore, if the Board of
Directors determines not to continue to comply with the provisions of paragraphs
5(a)(ii), 5(c) and 6 of Article II hereof as provided in paragraph 7 of Article
II hereof, then such definitions marked with an asterisk, unless the context
otherwise requires, shall have no meaning for these Articles Supplementary.
ARTICLE II.
CUMULATIVE PREFERRED STOCK
--------------------------
1. Dividends.
---------
(a) Holders of shares of Cumulative Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends at the annual rate of
_____% per share (computed on the basis of a 360-day year consisting of twelve
30-day months) of the initial Liquidation Preference of $25.00 per share on the
Cumulative Preferred Stock and no more, payable quarterly on March 23, June 23,
September 23 and December 23 in each year (each, a "Dividend Payment Date"),
commencing June 23, 1998 (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 March 6, June 6, September 6 and December 6 (or, if
any such day is not a Business Day, then on the next succeeding Business Day),
as the case may be, in preference to dividends on shares of Common Stock and any
other capital stock of the Corporation ranking junior to the Cumulative
Preferred Stock in payment of dividends. Dividends on shares of Cumulative
Preferred Stock shall accumulate from the date on which the first such shares of
Cumulative Preferred Stock are originally issued ("Date of Original Issue").
Each period beginning on and including a Dividend Payment Date (or the Date of
Original Issue, in the case of the first dividend period after issuance of such
shares) and ending on but excluding the next succeeding Dividend Payment Date is
referred to herein as a "Dividend Period." Dividends on account of arrears for
any past Dividend Period may be declared and paid at any time, without reference
to any Dividend Payment Date, to holders of record on such date, not exceeding
30 days preceding the payment date thereof, as shall be fixed by the Board of
Directors.
No dividends shall be declared or paid or set apart for payment on any shares of
Cumulative Preferred Stock for any Dividend Period or part thereof unless full
cumulative dividends have been or contemporaneously are declared and paid on all
outstanding shares of Cumulative Preferred Stock through the most recent
Dividend Payment Date therefor. If full cumulative dividends are not declared
and paid on the shares of Cumulative Preferred Stock, any dividends on the
shares of Cumulative Preferred Stock shall be declared and paid pro rata on all
outstanding shares of Cumulative Preferred Stock. No holders of shares of
Cumulative Preferred Stock shall be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends as provided
in this paragraph 1(b)(i) on shares of Cumulative Preferred Stock. No interest
or sum of money in lieu of interest shall be payable in respect of any dividend
payments on any shares of Cumulative Preferred Stock that may be in arrears.
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 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 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 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.
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.
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.
The Board of Directors may declare an additional dividend on the Cumulative
Preferred Stock each year in order to permit the Corporation to distribute its
income in accordance with Section 855 (or any successor provision) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the other rules and
regulations under Subchapter M of the Code. Any such additional dividend shall
be payable to holders of the Cumulative Preferred Stock on the next Dividend
Payment Date, shall be part of a regular quarterly dividend for the year of
declaration payable to holders of record pursuant to paragraph 1(a) hereof and
shall not result in any increase in the amount of cash dividends payable for
such year pursuant to paragraph 1(a) hereof.
2. Liquidation Rights.
------------------
(b) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of Cumulative Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, after
claims of creditors but before any distribution or payment shall be made in
respect of the Common Stock or any other stock of the Corporation ranking junior
to the Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25.00 per share plus an amount equal to all
unpaid dividends thereon accumulated to and including the date fixed for such
distribution or payment (whether or not earned or declared by the 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.
If, upon any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the assets of the Corporation
available for distribution among the holders of all outstanding shares of
Cumulative Preferred Stock and any other outstanding class or series of
Preferred Stock of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to payment upon liquidation, shall be insufficient to permit
the payment in full to such holders of Cumulative Preferred Stock of the
Liquidation Preference and the amounts due upon liquidation with respect to such
other Preferred Stock, then such available assets shall be distributed among the
holders of shares of Cumulative Preferred Stock and such other Preferred Stock
ratably in proportion to the respective preferential amounts to which they are
entitled. Unless and until the Liquidation Preference has been paid in full to
the holders of shares of Cumulative Preferred Stock, no dividends or
distributions shall be made to holders of the Common Stock or any other stock of
the Corporation ranking junior to the Cumulative Preferred Stock as to
liquidation.
3. Redemption.
----------
Shares of the Cumulative Preferred Stock shall be redeemed or
redeemable by the Corporation as provided below:
(c) 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
any agreement in respect of indebtedness of the Corporation to which it may be a
party or by which it may be bound, by the close of business on such Asset
Coverage Cure Date or Basic Maintenance Amount Cure Date (herein collectively
referred to as a "Cure Date"), as the case may be, fix a redemption date and
proceed to redeem shares as set forth in paragraph 3(c) hereof. On such
redemption date, the Corporation shall redeem, out of funds legally available
therefor, the number of shares of Cumulative Preferred Stock equal to the
minimum number of shares the redemption of which, if such redemption had
occurred immediately prior to the opening of business on such Cure Date, would
have resulted in the Asset Coverage having been satisfied or the Corporation
having a Portfolio Calculation equal to or greater than the Basic Maintenance
Amount, as the case may be, immediately prior to the opening of business on such
Cure Date or, if the Asset Coverage or a Portfolio Calculation equal to or
greater than the Basic Maintenance Amount, as the case may be, cannot be so
restored, all of the shares of Cumulative Preferred Stock, at a price equal to
$25.00 per share plus accumulated but unpaid dividends thereon (whether or not
earned or declared by the Corporation) through the date of redemption (the
"Redemption Price"). In the event that shares of Cumulative Preferred Stock are
redeemed pursuant to paragraph 5(b) of Article II hereof, the Corporation may,
but shall not be required to, redeem a sufficient number of shares of Cumulative
Preferred Stock pursuant to this paragraph 3(a) in order that the "asset
coverage" of a class of senior security which is stock, as defined in Section
18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock after redemption is up to 275%.
Optional Redemptions.
- --------------------
Prior to June 23, 2003, the Corporation may, at its option, redeem
shares of Cumulative Preferred Stock at the Redemption Price per share only if
and to the extent that any such redemption is necessary, in the judgment of the
Corporation, to maintain the Corporation's status as a regulated investment
company under Subchapter M of the Code. Commencing June 23, 2003, and at any
time and from time to time thereafter, the Corporation may, at its option, to
the extent permitted by the 1940 Act, Maryland law and any agreement in respect
of indebtedness of the Corporation to which it may be a party or by which it may
be bound, redeem the Cumulative Preferred Stock in whole or in part at the
Redemption Price per share.
Procedures for Redemption.
- -------------------------
(i) If the Corporation shall determine or be required to redeem shares
of Cumulative Preferred Stock pursuant to this paragraph 3, it shall mail a
written notice of redemption ("Notice of Redemption") with respect to such
redemption by first class mail, postage prepaid, to each holder of the shares to
be redeemed at such holder's address as the same appears on the stock books of
the Corporation on the record date in respect of such redemption established by
the Board of Directors. Each such Notice of Redemption shall state: (A) the
redemption date, which shall be not fewer than 30 days nor more than 45 days
after the date of such notice; (B) the number of shares of Cumulative Preferred
Stock to be redeemed; (C) the CUSIP number(s) of such shares; (D) the Redemption
Price; (E) the place or places where the certificate(s) for such shares
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require and the Notice of Redemption shall so state) are to be surrendered for
payment in respect of such redemption; (F) that dividends on the shares to be
redeemed will cease to accumulate 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 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 Preferred Stock
required to be redeemed shall be redeemed on the earliest practicable date on
which the Corporation shall have funds legally available for the redemption of,
or is otherwise able to redeem, such shares.
4. Voting Rights.
-------------
(d) General.
-------
Except as otherwise provided by law or as specified in the Charter or
By-Laws, each holder of shares of Cumulative Preferred Stock shall be entitled
to one vote for each share held on each matter submitted to a vote of
stockholders of the Corporation, and the holders of outstanding shares of
Preferred Stock, including Cumulative Preferred Stock, and of shares of Common
Stock shall vote together as a single class; provided that, at any meeting of
the stockholders of the Corporation held for the election of directors, the
holders of outstanding shares of Preferred Stock, including Cumulative Preferred
Stock, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation, to elect two
directors of the Corporation. Subject to paragraph 4(b) of Article II hereof,
the holders of outstanding shares of capital stock of the Corporation, including
the holders of outstanding shares of Preferred Stock (including the Cumulative
Preferred Stock), voting as a single class, shall elect the balance of the
directors.
Right to Elect Majority of Board of Directors.
- ---------------------------------------------
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting Period"),
the number of directors constituting the Board of Directors shall be
automatically increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock, would
constitute a majority of the Board of Directors as so increased by such smallest
number; and the holders of shares of Preferred Stock shall be entitled, voting
separately as one class (to the exclusion of the holders of all other securities
and classes of capital stock of the Corporation), to elect such smallest number
of additional directors, together with the two directors that such holders are
in any event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned
or declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding shares of Cumulative
Preferred Stock equal to at least two full years' dividends shall be
due and unpaid and sufficient Deposit Securities shall not have been
deposited with the Paying Agent for the payment of such accumulated
dividends; or
(ii) if at any time holders of any other shares of Preferred
Stock are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described
in this paragraph 4(b) shall cease, subject always, however, to the reverting of
such voting rights in the holders of Preferred Stock upon the further occurrence
of any of the events described in this paragraph 4(b).
Right to Vote with Respect to Certain Other Matters.
- ---------------------------------------------------
So long as any shares of Cumulative Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the holders of two-thirds
of the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the Charter of holders
of shares of Cumulative Preferred Stock. The Corporation shall notify Moody's
ten Business Days prior to any such vote described above. Unless a higher
percentage is provided for under the Charter, the affirmative vote of the
holders of a majority of the outstanding shares of Preferred Stock, including
Cumulative Preferred Stock, voting together as a single class, will be required
to approve any plan of reorganization adversely affecting such shares or any
action requiring a vote of security holders under Section 13(a) of the 1940 Act.
For purposes of the preceding sentence, the phrase "vote of the holders of a
majority of the outstanding shares of Preferred Stock" shall have the meaning
set forth in the 1940 Act. The class vote of holders of shares of Preferred
Stock, including Cumulative Preferred Stock, described above will be in addition
to a separate vote of the requisite percentage of shares of Common Stock and
shares of Preferred Stock, including Cumulative Preferred Stock, voting together
as a single class, necessary to authorize the action in question. An increase in
the number of authorized shares of Preferred Stock pursuant to the Charter or
the issuance of additional shares of any series of Preferred Stock (including
Cumulative Preferred Stock) pursuant to the Charter shall not in and of itself
be considered to adversely affect the contract rights of the holders of
Cumulative Preferred Stock.
Notwithstanding the foregoing, and except as otherwise required by the 1940 Act,
(i) holders of outstanding shares of the Cumulative Preferred Stock will be
entitled as a series, to the exclusion of the holders of all other securities,
including other Preferred Stock, Common Stock and other classes of capital stock
of the Corporation, to vote on matters affecting the Cumulative Preferred Stock
that do not materially adversely affect any of the contract rights of holders of
such other securities, including other Preferred Stock, Common Stock and other
classes of capital stock, as expressly set forth in the Charter, and (ii)
holders of outstanding shares of Cumulative Preferred Stock will not be entitled
to vote on matters affecting any other Preferred Stock that do not materially
adversely affect any of the contract rights of holders of the Cumulative
Preferred Stock, as expressly set forth in the Charter.
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.
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.
(ii) 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.
Office of the additional directors elected by the holders of Preferred
Stock, including Cumulative Preferred Stock, pursuant to paragraph 4(b) above
shall terminate, the remaining directors shall constitute the directors of the
Corporation and the voting rights of such holders of Preferred Stock, including
Cumulative Preferred Stock, to elect additional directors pursuant to paragraph
4(b) above shall cease, subject to the provisions of the last sentence of
paragraph 4(b).
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.
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.
--------------
(e) Determination of Compliance.
---------------------------
For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall make the following determinations:
Asset Coverage. The Corporation shall maintain, as of the last
---------------
Business Day of each March, June, September and December of each year in which
any shares of Cumulative Preferred Stock are outstanding, the Asset Coverage.
Basic Maintenance Amount Requirement.
------------------------------------
(A) For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall maintain, on each Valuation Date, a Portfolio
Calculation at least equal to the Basic Maintenance Amount, each as of such
Valuation Date. Upon any failure to maintain the required Portfolio Calculation,
the Corporation shall use its best efforts to reattain a Portfolio Calculation
at least equal to the Basic Maintenance Amount on or prior to the Basic
Maintenance Amount Cure Date, by altering the composition of its portfolio or
otherwise.
(B) The Corporation shall prepare a Basic Maintenance Report relating
to each Valuation Date. On or before 5:00 P.M., New York City time, on the third
Business Day after the first Valuation Date following the Date of Original Issue
of the Cumulative Preferred Stock and after each (A) Quarterly Valuation Date,
(B) Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) above, (C) Basic Maintenance Amount Cure Date following a
Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) above and (D) Valuation Date and any immediately
succeeding Business Day on which the Portfolio Calculation exceeds the Basic
Maintenance Amount by 5% or less, the Corporation shall complete and deliver to
Moody's a Basic Maintenance Report, which will be deemed to have been delivered
to Moody's if Moody's receives a copy or telecopy, telex or other 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 paragraph 5(a)(ii)(A) and any Basic Maintenance
Amount Cure Date, the Corporation shall deliver to Moody's an Accountant's
Confirmation relating to such Basic Maintenance Report. If any Accountant's
Confirmation delivered pursuant to this paragraph 5(a)(ii)(C) shows that an
error was made in the Basic Maintenance Report for such Quarterly Valuation
Date, or shows that a lower Portfolio Calculation was determined by the
Independent Accountants, the calculation or determination made by such
Independent Accountants shall be final and conclusive and shall be binding on
the Corporation, and the Corporation shall accordingly amend the Basic
Maintenance Report and deliver the amended Basic Maintenance Report to Moody's
promptly following Moody's receipt of such Accountant's Confirmation.
(D) In the event the Portfolio Calculation shown in any Basic
Maintenance Report prepared pursuant to paragraph 5(a)(ii)(B) above is less than
the applicable Basic Maintenance Amount, the Corporation shall have until the
Basic Maintenance Amount Cure Date to achieve a Portfolio Calculation at least
equal to the Basic Maintenance Amount, and upon such achievement (and not later
than such Basic Maintenance Amount Cure Date) the Corporation shall inform
Moody's of such achievement in writing by delivery of a revised Basic
Maintenance Report showing a Portfolio Calculation at least equal to the Basic
Maintenance Amount as of the date of such revised Basic Maintenance Report,
together with an Officers' Certificate to such effect.
(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).
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.
Failure to Maintain a Portfolio Calculation At Least Equal to the
----------------------------------------------------------------------
Basic Maintenance Amount.
------------------------
If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A) above
and such failure is not cured by the related Basic Maintenance Amount Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock to enable it to meet the requirements of
paragraph 5(a)(ii)(A) above, and, at the Corporation's discretion, such
additional number of shares of Cumulative Preferred Stock in order that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
by up to 10%, and deposit with the Paying Agent Deposit Securities having an
initial combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, as contemplated by paragraph 3(a) of
Article II hereof.
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
--------------------------
(f) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation will not, and will cause the Adviser not to, 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.
For so long as the Cumulative Preferred Stock is rated by Moody's, the
Corporation shall not (a) acquire or otherwise invest in 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, 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.
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.
---------------------------------------
(g) 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 the Corporation has given the Paying Agent, Moody's
and holders of the Cumulative Preferred Stock at least 20 calendar days written
notice of such termination of compliance, (ii) the Corporation is in compliance
with the provisions of paragraphs 5(a)(i), 5(a)(ii), 5(c) and 6 of Article II
hereof at the time the notice required in clause hereof is given and at the time
of the termination of compliance with the provisions of paragraphs 5(a)(ii),
5(c) and 6 of Article II hereof with respect to Moody's, (iii) at the time the
notice required in clause hereof is given and at the time of termination of
compliance with the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II
hereof with respect to Moody's the Cumulative Preferred Stock is listed on the
New York Stock Exchange or on another exchange registered with the Securities
and Exchange Commission as a national securities exchange and (iv) at the time
of termination of compliance with the provisions of paragraphs 5(a)(ii), 5(c)
and 6 of Article II hereof with respect to Moody's, the cumulative cash dividend
rate payable on a share of the Cumulative Preferred Stock pursuant to paragraph
1(a) of Article II hereof shall be increased by ____% per annum.
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 Issuance of Additional Preferred Stock.
----------------------------------------------------
So long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation may issue and sell additional shares of Cumulative Preferred
Stock authorized hereby and/or 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) immediately after giving effect to
the issuance and sale of such additional Preferred Stock and to the
Corporation's receipt and application of the proceeds thereof, the Corporation
will maintain the Asset Coverage of the shares of Cumulative Preferred Stock and
all other Preferred Stock of the Corporation then outstanding, and (ii) 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.
ARTICLE III
ABILITY OF BOARD OF DIRECTORS TO MODIFY THE ARTICLES SUPPLEMENTARY
To the extent permitted by law, the Board of Directors, without the
vote of the holders of the Cumulative Preferred Stock or any other capital stock
of the Corporation, may amend the provisions of these Articles Supplementary to
resolve any inconsistency or ambiguity or to remedy any formal defect so long as
the amendment does not materially adversely affect any of the contract rights of
holders of the Cumulative Preferred Stock or any other capital stock of the
Corporation, as expressly set forth in the Charter, or, if the Corporation has
not previously terminated compliance with the provisions hereof with respect to
Moody's pursuant to paragraph 7 of Article II hereof, adversely affect the then
current rating on the Cumulative Preferred Stock by Moody's.
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 _____________________, 1998.
ROYCE VALUE TRUST, INC.
By _____________________________
Name:
Title:
Attest:
____________________________
John E. Denneen
Secretary
Exhibit (d)(1)
SPECIMEN
CERTIFICATE
Certificate Number ___ Number of Shares ___
CUSIP # _______
ROYCE VALUE TRUST, INC.
Incorporated under the laws of the State of Maryland
This Certificate is Transferable in Boston, MA or in New York, NY
_____% Tax-Advantaged Cumulative Preferred Stock
Liquidation Preference $25.00 Per Share
This Certifies that __________ is the registered holder of __________
fully paid and non-assessable shares of _____% 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.
Dated:
Countersigned and Registered:
State Street Bank and Trust Company (Boston)
--------------------------------------------
Charles M. Royce
President
Transfer Agent
and Registrar --------------------------------------------
John E. Denneen
By: Secretary
- -----------------------------
Authorized Signatory
[SEAL]
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.
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:
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 under Uniform Gifts to
right of survivorship Minors Act _________
and not as tenants in (State)
common
Additional abbreviations also may be used though not in the above
list.
For value received, _________________________ hereby sell, assign and
transfer unto _____ (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.
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------
| |
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- ---------------------------------------------------------
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.
1
Exhibit (n)(1)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our Firm in the Registration Statement
on Form N-2 of Royce Value Trust, Inc.
/s/ TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 27, 1998
Exhibit (n)(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the captions "Financial
Highlights", "Experts" and "Financial Statements" and to the incorporation by
reference of our report dated February 10, 1998, in this Registration Statement
(Form N-2 No. 811-4875) of Royce Value Trust, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
April 24, 1998
Exhibit (n)(3)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Royce Value Trust, Inc.
We consent to the reference of our Firm under the headings "Financial
Highlights" and "Experts" in the Prospectus of the Royce Value Trust, Inc. on
Form N-2 Amendment No. 22 under the Investment Company Act of 1940 (File No.
811-4875). We further consent to the use of our opinion dated February 13, 1995
relating to the audited financial statements of Royce Value Trust, Inc. for the
year ended December 31, 1994 which have been incorporated by reference in this
Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 24, 1998
