<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
SECURITIES ACT FILE NO. 333-51295
INVESTMENT COMPANY ACT FILE NO. 811-4875
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
[x]
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[x] PRE-EFFECTIVE AMENDMENT NO. 1
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[x] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[x] AMENDMENT NO. 23
(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:
<TABLE>
<S> <C> <C>
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 10048-0557 NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this Registration
Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended (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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE(1) OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
% Tax-Advantaged Cumulative Preferred Stock......... 4,000,000 Shares $25.00 $ 100,000,000 $ 29,500
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.
$26,550 was previously paid. $2,950 was transmitted in connection with this
filing.
________________________________________________________________________________
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CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM N-2 CAPTION IN PROSPECTUS
- --------------------------------------------------------------------------- ------------------------------------
<C> <S> <C>
Part A -- Information Required in a Prospectus
1. Outside Front Cover............................................. 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 Information.... Table of Contents of Statement of
Additional Information
Part B -- Information Required in a Statement of Additional Information
14. Cover Page...................................................... Front Cover Page
15. Table of Contents............................................... Front Cover Page
16. General Information and History................................. Not Applicable
17. Investment Objective and Policies............................... Not Applicable
18. Management...................................................... Directors and Officers; Investment
Advisory and Other Services
19. Control Persons and Principal Holders of Securities............. Principal Stockholders
20. Investment Advisory and Other Services.......................... Investment Advisory and Other
Services
21. Brokerage Allocation and Other Practices........................ Brokerage Allocation and Other
Practices
22. Tax Status...................................................... Not Applicable
23. Financial Statements............................................ Financial Statements
Part C -- Other Information
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
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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 MAY 14, 1998
4,000,000 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.
(continued on next page)
------------------------
Application has been 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.
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<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Fund(3)
<S> <C> <C> <C>
Per Share.......................................... $25.00 $ $
Total.............................................. $100,000,000 $ $
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) See 'Underwriting'.
(3) Before deducting expenses estimated at $366,000, 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
PRUDENTIAL SECURITIES INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
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(continued from cover page)
It is a condition to its issuance that the Cumulative Preferred Stock be
rated 'aaa' by Moody's Investors Service, Inc. ('Moody's'). In connection with
the receipt of such rating, the composition of the Fund's portfolio must reflect
guidelines established by Moody's, and the Fund will be required to maintain a
certain discounted asset coverage with respect to the Cumulative Preferred Stock
and its outstanding 7.80% Cumulative Preferred Stock. 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 22, 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 22, 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'.
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 36 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.
2
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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
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<S> <C>
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,
</TABLE>
3
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<TABLE>
<S> <C>
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 the 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 4,000,000 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 long-term 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
long-term 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
Long-Term 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
</TABLE>
4
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<PAGE>
<TABLE>
<S> <C>
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 Long-Term Capital Gains 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 Long-Term 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 Long-Term 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 Long-Term Capital Gains.
See 'Tax Attributes of Preferred Stock Dividends'. Subject to
statutory limitations, investors may also be entitled to offset
the Net Long-Term Capital Gains 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 Long-Term
Capital Gains. To the extent that such dividends are not paid
from Net Long-Term Capital Gains, they will be paid from net
short-term capital gains and net investment income 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 .375% per annum
and, among other things, the Fund will
</TABLE>
5
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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 458%. 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
</TABLE>
6
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<S> <C>
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 22, 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
22, 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 'Description 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 has been made to list
the shares of Cumulative Preferred Stock on the New York Stock
Exchange (the 'NYSE'). However, during an initial period, which
is not expected to exceed 30 days from the date of this
Prospectus, the Cumulative Preferred Stock will not be listed on
any securities exchange. During such period, the Underwriters
intend to
</TABLE>
7
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<TABLE>
<S> <C>
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 Preferred 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 Objectives 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
</TABLE>
8
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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'.
</TABLE>
9
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TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS
The Fund intends to distribute to its stockholders substantially all of its
Net Long-Term Capital Gains, net short-term capital gains and net investment
income. 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, for Federal
income tax purposes, only ordinary income.
Net long-term 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 long-term capital gains on 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 and the Fund's net investment
income ('Ordinary Income') are currently taxable to individual 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 Long-Term Capital Gains. For the Fund's last three
fiscal years, Net Long-Term Capital Gains and Ordinary Income comprised an
average of 66.6% and 33.4%, 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 Long-Term Capital Gains and Ordinary Income
comprised 64.3% and 35.7%, respectively, of such distributions.(1)
In 1997, when legislation reducing certain long-term capital gains tax
rates was enacted, 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. If the lower 20%
maximum rate had applied throughout all of 1997, 1996 and 1995, an average of
54.5% of the Fund's distributions would have been 20% Rate Gains and an average
of 12.1% of its distributions would have been 28% Rate Gains. For all of 1997,
60.2% of the Fund's distributions would have been 20% Rate Gains and 4.1% of
its distributions would have been 28% Rate Gains.
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 Net Long-Term Capital 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
- ------------
(1) Distribution percentages have been retroactively adjusted to reflect
issuances of additional shares of the Fund's Common Stock upon conversions
of the Fund's $40,000,000 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 Long-Term 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 Long-Term Capital Gains and
Ordinary Income comprised 67.9% and 32.1%, respectively, of such
distributions.
10
<PAGE>
<PAGE>
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.
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
STATED ANNUAL DIVIDEND COMPOSED OF ANNUAL DIVIDEND RATE OF
- --------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C>
7.125% 7.25% 7.375%
ORDINARY IS EQUIVALENT TO AN
20% RATE GAINS 28% RATE GAINS INCOME ORDINARY INCOME YIELD OF
- --------------------------- ----------------------- -------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
50% 15% 35% 7.74 % 7.88% 8.01 %
35% 15% 50% 7.57 % 7.70% 7.83 %
20% 15% 65% 7.40 % 7.53% 7.66 %
0% 0% 100% 7.125% 7.25% 7.375%
</TABLE>
Assuming that 20% Rate Gains, 28% Rate Gains and Ordinary Income comprise
50%, 15% 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>
7.125% 7.25% 7.375%
</TABLE>
<TABLE>
<CAPTION>
IS EQUIVALENT TO AN
1998 FEDERAL MARGINAL INCOME TAX BRACKET'D' ORDINARY INCOME YIELD OF
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
39.6%..................................... 8.49% 8.64% 8.78%
36.0%..................................... 8.15% 8.29% 8.44%
31.0%..................................... 7.74% 7.88% 8.01%
28.0%..................................... 7.52% 7.65% 7.78%
15.0%'D'D'................................ 7.33% 7.46% 7.59%
</TABLE>
- ------------
'D' 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.
'D'D' 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.
11
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The selected data set forth below is for a share of Common Stock
outstanding for the periods presented. The financial information was derived
from and should be read in conjunction with the financial statements of the Fund
incorporated by reference into this Prospectus and the Statement of Additional
Information. The financial information for 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
-------- -------- -------- -------- -------- -------- --------
<S> <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
-------- -------- -------- -------- -------- -------- --------
Investment Operations(a):
Net investment income................ 0.21 0.26 0.04 0.04 0.09 0.15 0.17
Net realized and unrealized gain
(loss) on investments............... 3.85 1.92 2.70 0.09 2.12 2.12 3.20
-------- -------- -------- -------- -------- -------- --------
Total from investment operations.... 4.06 2.18 2.74 0.13 2.21 2.27 3.37
-------- -------- -------- -------- -------- -------- --------
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)**
Net realized gain on investments..... (1.02) (1.00) (1.26) (1.04) (1.06) (0.75) (0.44)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to
Common Stockholders............... (1.21) (1.15) (1.29) (1.05) (1.15) (0.90) (0.61)
-------- -------- -------- -------- -------- -------- --------
Capital Stock Transactions:
Effect of rights offerings or
Preferred Stock offering............ -- (0.09) (0.12) (0.14) (0.08) (0.06) (0.10)
Effect of reinvestment of
distributions by Common
Stockholders........................ (0.08) (0.11) (0.11) (0.07)* (0.01) (0.04) (0.01)
-------- -------- -------- -------- -------- -------- --------
Total from capital stock
transactions...................... (0.08) (0.20) (0.23) (0.21) (0.09) (0.10) (0.11)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period(a)....................... $ 16.91 $ 14.32 $ 13.56 $ 12.34 $ 13.47 $ 12.50 $ 11.23
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Market Value, End of Period....... $ 15.063 $ 12.625 $ 11.875 $ 11.00 $ 12.875 $ 12.25 $ 10.375
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Total Return(b):
Net Asset Value(a)................... 27.5% 15.5% 22.6% 1.1% 17.9% 19.9% 39.5%
Market Value......................... 28.8% 16.3% 20.5% (5.6)% 14.8% 26.8% 35.3%
Ratios Based on Average Net Assets:
Total expenses....................... 0.99% 1.20% 2.01% 2.01% 1.33% 0.81% 0.79%
Net investment income................ 1.35% 1.19% 0.34% 0.31% 0.74% 1.31% 1.52%
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%
Management fee expense............... 0.39% 0.39% 0.97% 1.21% 1.09% 0.53% 0.43%
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%
Net investment income................ 1.53% 1.27% 0.34% 0.31% 0.74% 1.31% 1.52%
Supplemental Data:
Net Assets, End of Year (in
thousands).......................... $554,231 $441,837 $338,970 $269,032 $246,558 $202,483 $166,550
Portfolio Turnover Rate.............. 29% 34% 32% 35% 33% 40% 34%
Average Commission Rate Paid'D'...... $ 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
<CAPTION>
YEAR ENDED
-----------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.35 $ 9.25 $ 7.98
-------- -------- --------
Investment Operations(a):
Net investment income................ 0.17 0.15 0.13
Net realized and unrealized gain
(loss) on investments............... (1.49) 1.59 1.68
-------- -------- --------
Total from investment operations.... (1.32) 1.74 1.81
-------- -------- --------
Dividends and Distributions to Preferred
Stockholders:
Net investment income................ -- -- --
Net realized gain on investments..... -- -- --
-------- -------- --------
Total dividends and distributions to
Preferred Stockholders............ -- -- --
-------- -------- --------
Dividends and Distributions to Common
Stockholders:
Net investment income................ (0.17) (0.17) (0.06)
Net realized gain on investments..... (0.15) (0.35) (0.45)
-------- -------- --------
Total dividends and distributions to
Common Stockholders............... (0.32) (0.52) (0.51)
-------- -------- --------
Capital Stock Transactions:
Effect of rights offerings or
Preferred Stock offering............ (0.08) (0.09) (0.00)
Effect of reinvestment of
distributions by Common
Stockholders........................ (0.05) (0.03) (0.03)
-------- -------- --------
Total from capital stock
transactions...................... (0.13) (0.12) (0.03)
-------- -------- --------
Net Asset Value, End of
Period(a)....................... $ 8.58 $ 10.35 $ 9.25
-------- -------- --------
-------- -------- --------
Market Value, End of Period....... $ 8.125 $ 9.50 $ 8.125
-------- -------- --------
-------- -------- --------
Total Return(b):
Net Asset Value(a)................... (13.1)% 19.2% 22.4%
Market Value......................... (10.8)% 23.9% 27.4%
Ratios Based on Average Net Assets:
Total expenses....................... 0.94% 0.95% 1.09%
Net investment income................ 1.78% 1.48% 1.42%
Ratios Based on Average Net Assets
Applicable to Common Stockholders:
Total expenses(c).................... 0.94% 0.95% 1.09%
Management fee expense............... 0.44% 0.44% 0.49%
Interest expense..................... -- -- --
Other operating expenses............. 0.50% 0.51% 0.60%
Net investment income................ 1.78% 1.48% 1.42%
Supplemental Data:
Net Assets, End of Year (in
thousands).......................... $118,308 $130,502 $107,315
Portfolio Turnover Rate.............. 28% 36% 29%
</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.
'D' Beginning in 1996, the Fund is required to disclose its average commission
rate paid per share for purchases and sales of investments.
12
<PAGE>
<PAGE>
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 $96,484,000, 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.
13
<PAGE>
<PAGE>
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
------------ ------------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.001 par value, authorized 50,000,000 shares:
7.80% Cumulative Preferred Stock, authorized 10,000,000 shares, issued
and outstanding 2,400,000 shares..................................... $ 60,000,000 $ 60,000,000
% Tax-Advantaged Cumulative Preferred Stock, as adjusted, authorized
10,000,000 shares, issued and outstanding 4,000,000 shares........... -- 100,000,000
------------ ------------
$ 60,000,000 $160,000,000
------------ ------------
------------ ------------
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............................................. 340,114,273 336,598,273(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 $572,937,477
------------ ------------
------------ ------------
</TABLE>
- ------------
(1) After deducting underwriting discounts and estimated costs of this offering
of $3,516,000.
14
<PAGE>
<PAGE>
PORTFOLIO COMPOSITION
The following tables set forth certain information with respect to the
Fund's investment portfolio as of December 31, 1997.
<TABLE>
<CAPTION>
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
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%
------------ ----------
------------ ----------
</TABLE>
<TABLE>
<S> <C>
OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
Number of issuers................................................................................. 354
Median market capitalization...................................................................... $376 million
</TABLE>
15
<PAGE>
<PAGE>
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.
16
<PAGE>
<PAGE>
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 31,228,098 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
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<PAGE>
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 $258,226,738 or Preferred Stock having an
aggregate involuntary liquidation preference of up to $576,453,476 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
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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.
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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, Boniface A. Zaino, Charles R. Dreifus and by Jack E. Fockler, Jr. 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
20
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<PAGE>
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.
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The following table illustrates, on an annualized basis, the full range of
permitted increases or decreases to the Basic Fee.
<TABLE>
<CAPTION>
DIFFERENCE BETWEEN
PERFORMANCE OF FUND AND %
CHANGE IN S&P 600 INDEX ADJUSTMENT TO 1% BASIC FEE FEE AS ADJUSTED
- --------------------------------------------------------- -------------------------- ---------------
<S> <C> <C>
+12 or more.............................................. +.5% 1.5%
+11...................................................... +.45% 1.45%
+10...................................................... +.4% 1.4%
+9....................................................... +.35% 1.35%
+8....................................................... +.3% 1.3%
+7....................................................... +.25% 1.25%
+6....................................................... +.2% 1.2%
+5....................................................... +.15% 1.15%
+4....................................................... +.1% 1.1%
+3....................................................... +.05% 1.05%
+/-2..................................................... 0 1%
- 3..................................................... - 0.5% .95%
- 4..................................................... -.1% .9%
- 5..................................................... -.15% .85%
- 6..................................................... -.2% .8%
- 7..................................................... -.25% .75%
- 8..................................................... -.3% .7%
- 9..................................................... -.35% .65%
- 10.................................................... -.4% .6
- 11.................................................... -.45% .55%
- 12 or less............................................ -.5% .5%
</TABLE>
In calculating the investment performance of the Fund and the percentage
change in the investment record of the S&P 600, all dividends and other
distributions during the performance period are treated as having been
reinvested, and no effect is given to gain or loss resulting from capital
share transactions of the Fund. Fractions of a percentage point are rounded to
the nearest whole point (to the higher whole point if exactly one-half).
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.
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DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the 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 of 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 a 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
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<PAGE>
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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 $3,516,000), would
have been computed as follows:
<TABLE>
<S> <C> <C> <C> <C>
Value of Fund assets less liabilities
not constituting senior securities $732,937,477
--------------------------------------------- = ------------- = 458%
Senior securities representing indebtedness $160,000,000
plus aggregate liquidation preference of
the Cumulative Preferred Stock
and the 7.80% Preferred
</TABLE>
Basic Maintenance Amount. The Fund will be required under the Articles
Supplementary to maintain, as of each Valuation Date, portfolio holdings meeting
specified guidelines of Moody's, as described under 'Investment Objectives and
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
24
<PAGE>
<PAGE>
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 and/or any other 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 or any other Preferred Stock may be made.
25
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Optional Redemption. Prior to June 22, 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 22, 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
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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'.
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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 .375% 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 6,000,000
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 Depository 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).
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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, 4,000,000 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 Moody's 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 March 31, 1998.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
(EXCLUSIVE OF
AMOUNT HELD AMOUNT HELD
BY FUND FOR BY FUND FOR
AMOUNT ITS OWN ITS OWN
TITLE OF CLASS AUTHORIZED ACCOUNT ACCOUNT)
- ------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Common Stock....................................................... 150,000,000 0 31,228,098
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.
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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 stockholders) 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. 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.
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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 judgment and is not binding on the IRS or courts.
31
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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
32
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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).
33
<PAGE>
<PAGE>
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:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
PaineWebber Incorporated.........................................................
Smith Barney Inc.................................................................
Prudential Securities Incorporated...............................................
---------
Total....................................................................... 4,000,000
---------
---------
</TABLE>
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 has been made to list the shares of Cumulative
Preferred Stock on the NYSE. However,
34
<PAGE>
<PAGE>
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.
35
<PAGE>
<PAGE>
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 Information is as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Principal Stockholders................................................................. 2
Directors and Officers................................................................. 2
Code of Ethics and Related Matters..................................................... 4
Investment Advisory and Other Services................................................. 5
Brokerage Allocation and Other Practices............................................... 6
Net Asset Value........................................................................ 6
Financial Statements................................................................... 7
</TABLE>
36
<PAGE>
<PAGE>
GLOSSARY
'Articles Supplementary' means the Fund's Articles Supplementary creating
and fixing the rights of the Cumulative Preferred Stock.
'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 securities of the Fund which are
stock, including all outstanding shares of Cumulative Preferred Stock.
'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 of '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
subject to redemption or repurchase or, without duplication, 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 23 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
37
<PAGE>
<PAGE>
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 23 of this
Prospectus.
'Fund' means Royce Value Trust, Inc., a Maryland corporation.
'Liquidation Preference' has the meaning set forth on page 26 of this
Prospectus.
'Moody's' means Moody's Investors Service, Inc., or its successor.
'Moody's Discount Factor' means, with respect to a Moody's Eligible Asset
specified below, the following applicable number:
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
Moody's Short-term Money Market Instruments (other than U.S. Government
Obligations set forth below) and other commercial paper:
Demand or time deposits, certificates of deposit and bankers' acceptances
includible in Moody's Short Term Money Market Instruments........................ 1.00
Commercial paper rated P-1 by Moody's maturing in 30 days or less................. 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days but in 270
days or less..................................................................... 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less................... 1.25
Repurchase obligations includible in Moody's Short-Term Money Market Instruments
if term is less than 30 days and counterparty is rated at least A2............... 1.00
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........ 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
</TABLE>
(table continued on next page)
38
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
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
</TABLE>
(table continued on next page)
39
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MOODY'S
TYPE OF MOODY'S ELIGIBLE ASSET DISCOUNT FACTOR
- --------------------------------------------------------------------------------------- ----------------
<S> <C>
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
</TABLE>
'Moody's Eligible Asset' 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 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 Fund's
holdings of any issue of preferred stock will not be less than $500,000 nor
more than $5,000,000; notwithstanding the foregoing, preferred stock which
is
40
<PAGE>
<PAGE>
currently convertible into common stock which is a Moody's Eligible Asset
pursuant to clause (v) below is a Moody's Eligible Asset to the extent of
the aggregate market value of the number of shares of common stock into
which the preferred stock is convertible;
(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:
41
<PAGE>
<PAGE>
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>
NON-UTILITY UTILITY UTILITY
MAXIMUM MAXIMUM SINGLE 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 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 25 of this
Prospectus.
42
<PAGE>
<PAGE>
'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 25 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:
(iii) U.S. Government Obligations;
(iv) 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.
(v) 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 t the tine
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);
(vi) 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
(vii) 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.
43
<PAGE>
<PAGE>
'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.
44
<PAGE>
<PAGE>
_____________________________________ ____________________________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND, ITS INVESTMENT
ADVISER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................................................................... 3
Tax Attributes of Preferred Stock Dividends.............................................................................. 10
Financial Highlights..................................................................................................... 12
The Fund................................................................................................................. 13
Use of Proceeds.......................................................................................................... 13
Capitalization........................................................................................................... 14
Portfolio Composition.................................................................................................... 15
Investment Objectives and Methods/Policies............................................................................... 16
Investment Advisory and Other Services................................................................................... 20
Description of Cumulative Preferred Stock................................................................................ 23
Description of Capital Stock............................................................................................. 29
Taxation................................................................................................................. 29
Custodian, Dividend-Paying Agent, Transfer Agent and Registrar........................................................... 33
Underwriting............................................................................................................. 34
Legal Matters............................................................................................................ 35
Experts.................................................................................................................. 35
Additional Information................................................................................................... 35
Table of Contents of Statement of Additional Information................................................................. 36
Glossary................................................................................................................. 37
</TABLE>
4,000,000 SHARES
ROYCE VALUE
TRUST, INC.
% TAX-ADVANTAGED CUMULATIVE
PREFERRED STOCK
------------------------
PROSPECTUS
------------------------
Co-Book Managers
----------------
PAINEWEBBER INCORPORATED
SALOMON SMITH BARNEY
PRUDENTIAL SECURITIES INCORPORATED
------------------------
, 1998
_____________________________________ ____________________________________
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
SUBJECT TO COMPLETION, DATED MAY 14, 1998
STATEMENT OF ADDITIONAL INFORMATION
4,000,000 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Principal Stockholders..................................................................................... 2
Directors and Officers..................................................................................... 2
Code of Ethics and Related Matters......................................................................... 4
Investment Advisory and Other Services..................................................................... 5
Brokerage Allocation and Other Practices................................................................... 6
Net Asset Value............................................................................................ 6
Financial Statements....................................................................................... 7
</TABLE>
Date: , 1998
<PAGE>
<PAGE>
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>
PERCENTAGE OF
NAME AND ADDRESS OF OWNER CLASS OF STOCK AMOUNT AND NATURE OF OWNERSHIP CLASS
- ---------------------------------- --------------- ---------------------------------------------- -------------
<S> <C> <C> <C>
Yale University .................. Common 2,758,709 shares -- Beneficial (sole voting 10.5%
451 College Street and investment power)
P.O. Box 1074 Yale Station
New Haven, CT 06520
Cede & Co. FAST .................. Common 29,098,964 shares -- Record 93.2%
P.O. Box 20 Preferred 2,368,565 shares -- Record 91.1%
Bowling Green Station
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 set forth certain information as to each director and
officer of the Fund.
<TABLE>
<CAPTION>
POSITION HELD WITH PRINCIPAL OCCUPATION AND OTHER AFFILIATIONS
NAME, ADDRESS AND AGE 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 and Secretary, Treasurer, sole director and sole
New York, NY 10019 Treasurer 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.
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Richard M. Galkin (59) ................. Director Private investor and President of Richard M.
5284 Boca Marina Galkin Associates, Inc., tele- communications
Boca Raton, FL 33487 consultants.
Stephen L. Isaacs (58) ................. Director President of the Center for Health and Social
60 Harmon Avenue Policy since September 1996; President of
Pelham, NY 10803 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 (since
New York, NY 10019 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, having
New York, NY 10019 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, having
New York, NY 10019 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), having
1414 Avenue of the Americas been employed by Royce (since October 1986);
New York, NY 10019 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); Secretary
New York, NY 10019 of RGT (since October 1996) and of the other
Royce Funds (since June 1996); and Associate
of Seward & Kissel prior to May 1996.
</TABLE>
- ------------
* An 'interested person' of the Fund and/or Royce under Section 2(a)(19) of the
1940 Act.
3
<PAGE>
<PAGE>
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 FROM THE FUND AND
DIRECTOR 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
4
<PAGE>
<PAGE>
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.
5
<PAGE>
<PAGE>
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
6
<PAGE>
<PAGE>
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.
7
<PAGE>
<PAGE>
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
<TABLE>
<C> <S>
(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.(5)
(6) Articles of Amendment dated March 19, 1998 to Articles Supplementary creating the Fund's 8%
Cumulative Preferred Stock.(5)
(7) Form of Articles Supplementary creating the Fund's % Tax-Advantaged Cumulative Preferred
Stock.
(8) Articles of Correction dated May 11, 1998.
(b) Amended and Restated By-laws of the Fund.(6)
(c) Not applicable.
(d)(1) Form of specimen certificate for % Tax-Advantaged Cumulative Preferred Stock.(5)
(2) Portions of the Articles Supplementary of the Fund defining the rights of holders of %
Tax-Advantaged Cumulative Preferred Stock.(7)
(e) Amended and Restated Distribution Reinvestment and Cash Purchase Plan.(8)
(f) Not applicable.
(g)(1) Form of Investment Advisory Agreement between the Fund and Royce & Associates, Inc.
('Royce').(8)
(2) Form of Letter Agreement by and between the Fund and Royce.
(h) Form of Underwriting Agreement.
(i) Not applicable.
</TABLE>
II-1
<PAGE>
<PAGE>
<TABLE>
<C> <S>
(j)(1) Custodian Contract with State Street Bank and Trust Company ('State Street').(9)
(2) Amendment dated December 11, 1987 to Custodian Contract.(10)
(3) Amendment dated May 13, 1988 to Custodian Contract.(10)
(4) Amendment dated April 2, 1992 to Custodian Contract.(11)
(k)(1) Registrar, Transfer Agency and Service Agreement between Fund and State Street.(12)
(2) First Amendment to Registrar, Transfer Agency and Paying Agency Agreement.
(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.
</TABLE>
- ------------
(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 No. 333-8039).
(5) Previously filed on April 29, 1998 as an exhibit to the Registration
Statement.
(6) 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).
(7) Reference is made to Article II of the Registrant's Articles Supplementary
to be filed as Exhibit (a)(7) to this Registration Statement.
(8) 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).
(9) 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).
(10) 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).
(11) 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).
(12) 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).
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit (h) to this Registration Statement.
II-2
<PAGE>
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees........................................................................... $ 29,500
Listing fees................................................................................ 44,300
Printing expenses (other than stock certificates)........................................... 100,000
Accounting fees and expenses................................................................ 17,000
Legal fees and expenses..................................................................... 125,000
Rating Agency fees.......................................................................... 25,000
Miscellaneous............................................................................... 25,200
--------
Total.................................................................................. $366,000
--------
--------
</TABLE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
- --------------------------------------------------------------------------------------- --------------
<S> <C>
Common Stock ($.01 par value).......................................................... 2,492
7.80% Cumulative Preferred Stock ($.001 par value)..................................... 28
</TABLE>
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
II-3
<PAGE>
<PAGE>
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
1. Not applicable.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Fund undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of
prospectus filed as part of the Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the Fund
pursuant to Rule 497(h) will be deemed to be a part of the Registration
Statement as of the time it was declared effective.
The Fund undertakes that, for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a
form of prospectus will be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide
offering thereof.
6. The Fund undertakes to send by first class mail or other means designed
to ensure equally prompt delivery, within two business days of recept of
a written or oral request, any Statement of Additional Information
constituting Part B of this Registration Statement.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the 12th day of
May, 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>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ CHARLES M. ROYCE Director, President and Treasurer (Principal May 12, 1998
......................................... Executive, Financial and Accounting
(CHARLES M. ROYCE) Officer)
/s/ JOHN D. DIEDERICH Director May 12, 1998
.........................................
(JOHN D. DIEDERICH)
/s/ RICHARD M. GALKIN Director May 12, 1998
.........................................
(RICHARD M. GALKIN)
/s/ STEPHEN L. ISAACS Director May 12, 1998
.........................................
(STEPHEN L. ISAACS)
/s/ DAVID L. MEISTER Director May 12, 1998
.........................................
(DAVID L. MEISTER)
</TABLE>
II-5
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ....................'D'
<PAGE>
<PAGE>
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:
ARTICLE I.
DEFINITIONS
Unless the context or use indicates another or different meaning or
intent, the following terms when used in these Articles Supplementary shall have
the meanings set forth below, whether such terms are used in the singular or
plural and regardless of their tense:
"Accountant's Confirmation"* means a letter from an Independent
Accountant delivered to Moody's with respect to certain Basic Maintenance
Reports substantially to the effect that:
(i) the Independent Accountant has read the Basic Maintenance
Report for the current Quarterly Valuation Date and a randomly
selected Basic Maintenance Report prepared by the Corporation
during the quarter ending on such Quarterly Valuation Date (the
"Reports");
(ii) with respect to the issue size compliance, issuer
diversification and industry diversification calculations, such
calculations and the resulting Market Value of Moody's Eligible
Assets and Portfolio Calculation are numerically correct;
(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;
<PAGE>
<PAGE>
(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.
2
<PAGE>
<PAGE>
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 of "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, without duplication, any of (i)(B) through
(i)(E) and provided that in the event the Corporation has repurchased Cumulative
Preferred Stock at a price
3
<PAGE>
<PAGE>
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.
4
<PAGE>
<PAGE>
"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:
(a) as to any corporate bond or convertible corporate bond which
is a Moody's Eligible Asset, (i) the product of (A) the unpaid principal balance
of such bond as of the Valuation Date and (B)(1) if the bond is traded on a
national securities exchange or quoted on the NASDAQ System, the last sales
price reported on the Valuation Date or (2) if there was no reported sales price
on the Valuation Date or if the bond is not traded on a national securities
exchange or quoted on the NASDAQ System, the lower of two bid prices for such
bond provided by two recognized securities dealers with a minimum capitalization
of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one
such securities dealer and any other source (provided that the utilization of
such source would not adversely affect Moody's then-current rating of the
Cumulative Preferred Stock) to the custodian of the Corporation's assets, at
least one of which shall be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation reducible to written form
or similar means, and in turn provided to the Corporation by any such means by
such custodian, plus (ii) accrued interest on such bond or, if two bid prices
cannot be obtained, such Moody's Eligible Asset shall have a Market Value of
zero;
5
<PAGE>
<PAGE>
(b) as to any common or preferred stock which is a Moody's
Eligible Asset, (i) if the stock is traded on a national securities exchange or
quoted on the NASDAQ System, the last sales price reported on the Valuation Date
or (ii) if there was no reported sales price on the Valuation Date, the lower of
two bid prices for such stock provided by two recognized securities dealers with
a minimum capitalization of $25,000,000 (or otherwise approved for such purpose
by Moody's) or by one such securities dealer and any other source (provided that
the utilization of such source would not adversely affect Moody's then-current
rating of the Cumulative Preferred Stock) to the custodian of the Corporation's
assets, at least one of which shall be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation reducible to
written form or similar means, and in turn provided to the Corporation by any
such means by such custodian, or, if two bid prices cannot be obtained, such
Moody's Eligible Asset shall have a Market Value of zero;
(c) the product of (i) as to U.S. Government Obligations, Short
Term Money Market Instruments (other than demand deposits, federal funds,
bankers' acceptances and next Business Day's repurchase agreements) and other
commercial paper, the face amount or aggregate principal amount of such U.S.
Government Obligations, Short Term Money Market Instruments or other commercial
paper, as the case may be, and (ii) the lower of the bid prices for the same
kind of securities or instruments, as the case may be, having, as nearly as
practicable, comparable interest rates and maturities provided by two recognized
securities dealers having minimum capitalization of $25,000,000 (or otherwise
approved for such purpose by Moody's) or by one such securities dealer and any
other source (provided that the utilization of such source would not adversely
affect Moody's then-current rating of the Cumulative Preferred Stock) to the
custodian of the Corporation's assets, at least one of which shall be provided
in writing or by telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar means, and in turn
provided to the Corporation by any such means by such custodian, or, if two bid
prices cannot be obtained, such Moody's Eligible Asset will have a Market Value
of zero;
(d) as to cash, demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements included in Short Term
Money Market Instruments, the face value thereof.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Moody's Discount Factor"* means, with respect to a Moody's Eligible
Asset specified below, the following applicable number:
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
- ------------------------------ ----------------
<S> <C>
Moody's Short-Term Money Market Instruments
(other than U.S. Government Obligations set forth below)
and other commercial paper:
Demand or time deposits,
certificates of deposit and bankers' acceptances includible in
Moody's Short-Term Money Market Instruments.................... 1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less.................................... 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270 days or less.......... 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less................................... 1.25
Repurchase obligations includible in Moody's
Short-Term Money Market Instruments if term is less than
30 days and counterparty is rated at least A2.................. 1.00
Other repurchase obligations......................................... Discount Factor
applicable to underlying
assets
Common stocks........................................................ 3.00
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Prefer stocks:
Auction rate preferred stocks.............................. 3.50
Other preferred stocks issued by issuers
in the financial and industrial industries......... 2.35
Other preferred stocks issued by issuers
in the utilities industry........................... 1.60
U.S. Government Obligations (other than U.S.
Treasury Securities Strips set forth below) with remaining
terms to maturity of:
1 year or less............................................. 1.08
2 years or less............................................ 1.15
3 years or less............................................ 1.20
4 years or less............................................ 1.26
5 years or less............................................ 1.31
7 years of less............................................ 1.40
10 years or less........................................... 1.48
15 years or less........................................... 1.54
20 years or less........................................... 1.61
30 years or less........................................... 1.63
U.S. Treasury Securities Strips with
remaining terms to maturity of:
1 year or less............................................. 1.08
2 years or less............................................ 1.16
3 years or less............................................ 1.23
4 years or less............................................ 1.30
5 years or less............................................ 1.37
7 years or less............................................ 1.51
10 years or less........................................... 1.69
15 years or less........................................... 1.99
20 years or less........................................... 2.28
30 years or less........................................... 2.56
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Corporate bonds:
Corporate bonds rated Aaa with remaining
terms to maturity of:
1 year or less............................................. 1.14
2 years or less............................................ 1.21
3 years or less............................................ 1.26
4 years or less............................................ 1.32
5 years or less............................................ 1.38
7 years or less............................................ 1.47
10 years or less........................................... 1.55
15 years or less........................................... 1.62
20 years or less........................................... 1.69
30 years or less........................................... 1.71
Corporate bonds rated Aa with remaining
terms to maturity of:
1 year or less............................................. 1.19
2 years or less............................................ 1.26
3 years or less............................................ 1.32
4 years or less............................................ 1.38
5 years or less............................................ 1.44
7 years or less............................................ 1.54
10 years or less........................................... 1.63
15 years or less........................................... 1.69
20 years or less........................................... 1.77
30 years or less........................................... 1.79
Corporate bonds rated A with remaining terms
to maturity of:
1 year or less............................................. 1.24
2 years or less............................................ 1.32
3 years or less............................................ 1.38
4 years or less............................................ 1.45
5 years or less............................................ 1.51
7 years or less............................................ 1.61
10 years or less........................................... 1.70
15 years or less........................................... 1.77
20 years or less........................................... 1.85
30 years or less........................................... 1.87
</TABLE>
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<PAGE>
Convertible corporate bonds with senior debt securities rated Aa issued by
the following types of issuers:
<TABLE>
<S> <C>
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................................................. 3.29
Financial.................................................. 3.24
Transportation............................................. 4.59
</TABLE>
"Moody's Eligible Assets"* means:
(i) cash (including, for this purpose, receivables for
investments sold to a counterparty whose senior debt securities
are rated at least Baa3 by Moody's or a counterparty approved by
Moody's and payable within five Business Days following such
Valuation Date and dividends and interest receivable within 70
days on investments);
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(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;
notwithstanding the foregoing, preferred stock which is currently
convertible into common stock which is a Moody's Eligible Asset
pursuant to clause (v) below is a Moody's Eligible Asset to the
extent of the aggregate Market Value of the number of shares of
common stock into which the preferred stock is convertible;
(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, (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,
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<PAGE>
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;
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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>
<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
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<PAGE>
<PAGE>
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
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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
15
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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 any other Preferred Stock.
"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.
16
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<PAGE>
"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
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<PAGE>
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.
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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.
(b) (i) No dividends shall be declared or paid or set apart for
payment on any shares of Cumulative Preferred Stock for any Dividend Period or
part thereof unless full cumulative dividends have been or contemporaneously are
declared and paid on all outstanding shares of Cumulative Preferred Stock
through the most recent Dividend Payment Date therefor. If full cumulative
dividends are not declared and paid on shares of Cumulative Preferred Stock, any
dividends on the shares of Cumulative Preferred Stock shall be declared and paid
por rata on all outstanding shares of Cumulative Preferred Stock. No holders of
shares of Cumulative Preferred Stock shall be entitled to any dividends, whether
payable in cash, property or stock, in excess of full cumulative dividends as
provided in this paragraph 1(b)(i) on shares of Cumulative Preferred Stock. No
interest or sum of money in lieu of interest shall be payable in respect of any
dividend payments on any shares of Cumulative Preferred Stock that may be in
arrears.
(ii) For so long as shares of Cumulative Preferred Stock are
outstanding, the Corporation shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution paid in
shares of, or options, warrants or rights to subscribe for or purchase 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
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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.
(iii) Any dividend payment made on the shares of Cumulative
Preferred Stock shall first be credited against the dividends accumulated with
respect to the earliest Dividend Period for which dividends have not been paid.
(c) Not later than the Business Day next preceding each Dividend
Payment Date, the Corporation shall deposit with the Paying Agent Deposit
Securities having an initial combined value sufficient to pay the dividends that
are payable on such Dividend Payment Date, which Deposit Securities shall mature
on or prior to such Dividend Payment Date. The Corporation may direct the Paying
Agent with respect to the investment of any such Deposit Securities, provided
that such investment consists exclusively of Deposit Securities and provided
further that the proceeds of any such investment will be available at the
opening of business on such Dividend Payment Date.
(d) The Board of Directors may declare an additional dividend on
the Cumulative Preferred Stock each year in order to permit the Corporation to
distribute its income in accordance with Section 855 (or any successor
provision) of the Internal Revenue Code of 1986, as amended (the "Code"), 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.
(e) The 7.80% Preferred will rank on parity with the Cumulative
Preferred Stock as to payment of dividends.
2. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of Cumulative Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, after
claims of creditors but before any distribution or payment shall be made in
respect of the Common Stock or any other stock of the Corporation ranking junior
to the Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount
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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.
(b) If, upon any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the holders of all outstanding
shares of Cumulative Preferred Stock and any other outstanding class or series
of Preferred Stock of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to payment upon liquidation, shall be insufficient to permit
the payment in full to such holders of Cumulative Preferred Stock of the
Liquidation Preference and the amounts due upon liquidation with respect to such
other Preferred Stock, then such available assets shall be distributed among the
holders of shares of Cumulative Preferred Stock and such other Preferred Stock
ratably in proportion to the respective preferential amounts to which they are
entitled. Unless and until the Liquidation Preference has been paid in full to
the holders of shares of Cumulative Preferred Stock, no dividends or
distributions shall be made to holders of the Common Stock or any other stock of
the Corporation ranking junior to the Cumulative Preferred Stock as to
liquidation.
(c) The 7.80% Preferred will rank on parity with the Cumulative
Preferred Stock as to payment upon liquidation.
3. Redemption.
Shares of the Cumulative Preferred Stock shall be redeemed or redeemable
by the Corporation as provided below:
(a) Mandatory Redemptions.
If the Corporation is required to redeem any shares of Cumulative
Preferred Stock pursuant to paragraphs 5(b) or 5(c) of Article II hereof, then
the Corporation shall, to the extent permitted by the 1940 Act, Maryland law and
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 and/or other
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
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or declared by the Corporation) through the date of redemption (the "Redemption
Price"). In the event that shares of Cumulative Preferred Stock are redeemed
pursuant to paragraph 5(b) of Article II hereof, the Corporation may, but shall
not be required to, redeem a sufficient number of shares of Cumulative Preferred
Stock pursuant to this paragraph 3(a) in order that the "asset coverage" of a
class of senior security which is stock, as defined in Section 18(h) of the 1940
Act, of the remaining outstanding shares of Cumulative Preferred Stock and any
other Preferred Stock after redemption is up to 275%.
(b) Optional Redemptions.
Prior to June 22, 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 22, 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.
(c) Procedures for Redemption.
(i) If the Corporation shall determine or be required to redeem
shares of Cumulative Preferred Stock pursuant to this paragraph 3, it shall mail
a written notice of redemption ("Notice of Redemption") with respect to such
redemption by first class mail, postage prepaid, to each holder of the shares to
be redeemed at such holder's address as the same appears on the stock books of
the Corporation on the record date in respect of such redemption established by
the Board of Directors. Each such Notice of Redemption shall state: (A) the
redemption date, which shall be not fewer than 30 days nor more than 45 days
after the date of such notice; (B) the number of shares of Cumulative Preferred
Stock to be redeemed; (C) the CUSIP number(s) of such shares; (D) the Redemption
Price; (E) the place or places where the certificate(s) for such shares
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require and the Notice of Redemption shall so state) are to be surrendered for
payment in respect of such redemption; (F) that dividends on the shares to be
redeemed will cease to 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
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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 or any
other 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.
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4. Voting Rights.
(a) General.
Except as otherwise provided by law or as specified in the Charter or
By-Laws, each holder of shares of Cumulative Preferred Stock shall be entitled
to one vote for each share held on each matter submitted to a vote of
stockholders of the Corporation, and the holders of outstanding shares of
Preferred Stock, including Cumulative Preferred Stock, and of shares of Common
Stock shall vote together as a single class; provided that, at any meeting of
the stockholders of the Corporation held for the election of directors, the
holders of outstanding shares of Preferred Stock, including Cumulative Preferred
Stock, shall be entitled, as a class, to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation, to elect two
directors of the Corporation. Subject to paragraph 4(b) of Article II hereof,
the holders of outstanding shares of capital stock of the Corporation, including
the holders of outstanding shares of Preferred Stock (including the Cumulative
Preferred Stock), voting as a single class, shall elect the balance of the
directors.
(b) Right to Elect Majority of Board of Directors.
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting Period"),
the number of directors constituting the Board of Directors shall be
automatically increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock, would
constitute a majority of the Board of Directors as so increased by such smallest
number; and the holders of shares of Preferred Stock shall be entitled, voting
separately as one class (to the exclusion of the holders of all other securities
and classes of capital stock of the Corporation), to elect such smallest number
of additional directors, together with the two directors that such holders are
in any event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not
earned or declared, and whether or not funds are then
legally available in an amount sufficient therefor) on the
outstanding shares of Cumulative Preferred Stock equal to
at least two full years' dividends shall be due and unpaid
and sufficient Deposit Securities shall not have been
deposited with the Paying Agent for the payment of such
accumulated dividends; or
(ii) if at any time holders of any other shares of
Preferred Stock are entitled to elect a majority of the
directors of the Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 4(b) shall cease, subject always, however, to the reverting of
such voting rights in the holders of Preferred Stock upon the further occurrence
of any of the events described in this paragraph 4(b).
(c) Right to Vote with Respect to Certain Other Matters.
(i) 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
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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.
(ii) 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.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock to elect additional directors as described
in paragraph 4(b) above, the Corporation shall call a special meeting of such
holders and instruct the Paying Agent to mail a notice of such special meeting
to such holders, such meeting to be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send such
notice to the Paying Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such special
meeting shall be the close of business on the fifth Business Day preceding the
day on which such notice is mailed. At any such special meeting and at each
meeting held during a Voting Period, such holders of Preferred Stock, voting
together as a class (to the exclusion of the holders of all other securities and
classes of capital stock of the Corporation), shall be entitled to elect the
number of directors prescribed in paragraph 4(b) above. At any such meeting or
adjournment thereof in the absence of a quorum, a majority of such holders
present in person or by proxy shall have the power to adjourn the meeting
without
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notice, other than by an announcement at the meeting, to a date not more than
120 days after the original record date.
(ii) For purposes of determining any rights of the holders of
Cumulative Preferred Stock to vote on any matter or the number of shares
required to constitute a quorum, whether such right is created by these Articles
Supplementary, by the other provisions of the Charter, by statute or otherwise,
a share of Cumulative Preferred Stock which is not outstanding shall not be
counted.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Preferred Stock,
including Cumulative Preferred Stock, to elect directors shall continue,
notwithstanding the election at such meeting by such holders of the number of
directors that they are entitled to elect, and the persons so elected by such
holders, together with the two incumbent directors elected by the holders of
Preferred Stock, including Cumulative Preferred Stock, and the remaining
incumbent directors elected by the holders of the Common Stock and Preferred
Stock, shall constitute the duly elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the term
of office of the additional directors elected by the holders of Preferred Stock,
including Cumulative Preferred Stock, pursuant to paragraph 4(b) above shall
terminate, the remaining directors shall constitute the directors of the
Corporation and the voting rights of such holders of Preferred Stock, including
Cumulative Preferred Stock, to elect additional directors pursuant to paragraph
4(b) above shall cease, subject to the provisions of the last sentence of
paragraph 4(b).
(e) Exclusive Remedy.
Unless otherwise required by law, the holders of shares of Cumulative
Preferred Stock shall not have any rights or preferences other than those
specifically set forth herein. The holders of shares of Cumulative Preferred
Stock shall have no preemptive rights or rights to cumulative voting. In the
event that the Corporation fails to pay any dividends on the shares of
Cumulative Preferred Stock, the exclusive remedy of the holders shall be the
right to vote for directors pursuant to the provisions of this paragraph 4.
(f) Notification to Moody's.
In the event a vote of holders of Cumulative Preferred Stock is required
pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the
Cumulative Preferred Stock is rated by Moody's, the Corporation shall, not later
than ten Business Days prior to the date on which such vote is to be taken,
notify Moody's that such vote is to be taken and the nature of the action with
respect to which such vote is to be taken and, not later than ten Business Days
after the date on which such vote is taken, notify Moody's of the result of such
vote.
5. Coverage Tests.
(a) Determination of Compliance.
For so long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation shall make the following determinations:
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(i) Asset Coverage. The Corporation shall maintain, as of the last
Business Day of each March, June, September and December of each year in which
any shares of Cumulative Preferred Stock are outstanding, the Asset Coverage.
(ii) Basic Maintenance Amount Requirement.
(A) For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall maintain, on each Valuation Date, a Portfolio
Calculation at least equal to the Basic Maintenance Amount, each as of such
Valuation Date. Upon any failure to maintain the required Portfolio Calculation,
the Corporation shall use its best efforts to reattain a Portfolio Calculation
at least equal to the Basic Maintenance Amount on or prior to the Basic
Maintenance Amount Cure Date, by altering the composition of its portfolio or
otherwise.
(B) The Corporation shall prepare a Basic Maintenance Report
relating to each Valuation Date. On or before 5:00 P.M., New York City time, on
the third Business Day after the first Valuation Date following the Date of
Original Issue of the Cumulative Preferred Stock and after each (A) Quarterly
Valuation Date, (B) Valuation Date on which the Corporation fails to satisfy the
requirements of paragraph 5(a)(ii)(A) above, (C) Basic Maintenance Amount Cure
Date following a Valuation Date on which the Corporation fails to satisfy the
requirements of paragraph 5(a)(ii)(A) above and (D) Valuation Date and any
immediately succeeding Business Day on which the Portfolio Calculation exceeds
the Basic Maintenance Amount by 5% or less, the Corporation shall complete and
deliver to Moody's a Basic Maintenance Report, which will be deemed to have been
delivered to Moody's if Moody's receives a copy or telecopy, telex or other
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
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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).
(b) Failure to Meet Asset Coverage.
If the Asset Coverage is not satisfied as provided in paragraph 5(a)(i)
hereof and such failure is not cured as of the related Asset Coverage Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock and/or proceed to redeem a sufficient
number of shares of any other 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 any shares of Cumulative Preferred Stock to be
redeemed, as contemplated by paragraph 3(a) of Article II hereof, and/or any
other Preferred Stock to be redeemed, as contemplated by its terms.
(c) Failure to Maintain a Portfolio Calculation At Least Equal to
the Basic Maintenance Amount.
If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A) above
and such failure is not cured by the related Basic Maintenance Amount Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock and/or proceed to redeem a sufficient
number of shares of any other 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
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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 any shares of Cumulative Preferred Stock to be redeemed, as
contemplated by paragraph 3(a) of Article II hereof, and/or any other Preferred
Stock to be redeemed, as contemplated by its terms.
(d) Status of Shares Called for Redemption.
For purposes of determining whether the requirements of paragraphs
5(a)(i) and 5(a)(ii)(A) hereof are satisfied, (i) no share of the Cumulative
Preferred Stock and/or any other 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 of Cumulative Preferred Stock and/or the applicable
redemption price for such share of any other Preferred Stock shall have been
deposited in trust with the Paying Agent and the requisite Notice of Redemption
and/or applicable notice of redemption for shares of any other Preferred Stock
shall have been given, and (ii) such Deposit Securities deposited with the
Paying Agent shall not be included in determining whether the requirements of
paragraphs 5(a)(i) and 5(a)(ii)(A) hereof are satisfied.
6. Certain Other Restrictions.
(a) For so long as the Cumulative Preferred Stock is rated by
Moody's, the Corporation will not, and will cause the Adviser not to, (i)
knowingly and willfully purchase or sell a portfolio security for the specific
purpose of causing, and with the actual knowledge that the effect of such
purchase or sale will be to cause, the Portfolio Calculation as of the date of
the purchase or sale to be less than the Basic Maintenance Amount as of such
date, (ii) in the event that, as of the immediately preceding Valuation Date,
the Portfolio Calculation exceeded the Basic Maintenance Amount by 5% or less,
alter the composition of the Corporation's portfolio securities in a manner
reasonably expected to reduce the Portfolio Calculation, unless the Corporation
shall have confirmed that, after giving effect to such alteration, the Portfolio
Calculation exceeded the Basic Maintenance Amount or (iii) declare or pay any
dividend or other distribution on any shares of Common Stock or repurchase any
shares of Common Stock, unless the Corporation shall have confirmed that, after
giving effect to such declaration, other distribution or repurchase, the
Corporation continues to satisfy the requirements of paragraph 5(a)(ii)(A) of
Article II hereof.
(b) For so long as the Cumulative Preferred Stock is rated by
Moody's, the Corporation shall not (a) acquire or otherwise invest in (i) future
contracts or (ii) options on futures contracts, (b) engage in reverse repurchase
agreements, (c) engage in short sales, (d) overdraw any bank account, (e) write
options on portfolio securities other than call options on securities held in
the Corporation's portfolio or that the Corporation has an immediate right to
acquire through conversion or exchange of securities held in its portfolio, or
(f) borrow money, 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
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investment activity will not adversely affect Moody's then current rating of the
Cumulative Preferred Stock. Furthermore, for so long as the Cumulative Preferred
Stock is rated by Moody's, unless the Corporation shall have received the
written confirmation from Moody's referred to in the preceding sentence, the
Corporation may engage in the lending of its portfolio securities only in an
amount of up to 5% of the Corporation's total assets, provided that the
Corporation receives cash collateral for such loaned securities which is
maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities and, if invested, is invested only in
money market mutual funds meeting the requirements of Rule 2a-7 under the 1940
Act that maintain a constant $1.00 per share net asset value. In determining the
Portfolio Calculation, the Corporation shall use the Moody's Discount Factor
applicable to the loaned securities rather than the Moody's Discount Factor
applicable to the collateral.
(c) For so long as the Cumulative Preferred Stock is rated by
Moody's, the Corporation shall not consolidate the Corporation with, merge the
Corporation into, sell or otherwise transfer all or substantially all of the
Corporation's assets to another entity or adopt a plan of liquidation of the
Corporation, in each case without providing prior written notification to
Moody's.
7. Termination of Rating Agency Provisions.
(a) The Board of Directors may determine that it is not in the
best interests of the Corporation to continue to comply with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's, in
which case the Corporation will no longer be required to comply with any of the
provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect
to Moody's, provided that (i) the Corporation has given the Paying Agent,
Moody's and holders of the Cumulative Preferred Stock at least 20 calendar days
written notice of such termination of compliance, (ii) the Corporation is in
compliance with the provisions of paragraphs 5(a)(i), 5(a)(ii), 5(c) and 6 of
Article II hereof at the time the notice required in clause (i) hereof is given
and at the time of the termination of compliance with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
(iii) at the time the notice required in clause (i) hereof is given and at the
time of termination of compliance with the provisions of paragraphs 5(a)(ii),
5(c) and 6 of Article II hereof with respect to Moody's the Cumulative Preferred
Stock is listed on the New York Stock Exchange or on another exchange registered
with the Securities and Exchange Commission as a national securities exchange
and (iv) at the time of termination of compliance with the provisions 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
.375% per annum.
(b) On the date that the notice is given in paragraph 7(a) above
and on the date that compliance with the provisions of paragraphs 5(a)(ii), 5(c)
and 6 of Article II hereof with respect to Moody's is terminated, the
Corporation shall provide the Paying Agent and Moody's with an Officers'
Certificate as to the compliance with the provisions of paragraph 7(a) hereof,
and the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with
respect to Moody's shall terminate on such later date and thereafter have no
force or effect.
8. Limitation on Issuance of Additional Preferred Stock.
30
<PAGE>
<PAGE>
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.
31
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<PAGE>
IN WITNESS WHEREOF, ROYCE VALUE TRUST, INC. has caused these presents to
be signed in its name and on its behalf by a duly authorized officer, and its
corporate seal to be hereunto affixed and attested by its Secretary, and the
said officers of the Corporation further acknowledge said instrument to be the
corporate act of the Corporation, and state that to the best of their knowledge,
information and belief the matters and facts herein set forth with respect to
approval are true in all material respects, all on , 1998.
ROYCE VALUE TRUST, INC.
By ___________________________
Name:
Title:
Attest:
_______________________________
John E. Denneen
Secretary
32
<PAGE>
<PAGE>
ROYCE VALUE TRUST, INC.
CERTIFICATE OF CORRECTION
Royce Value Trust, Inc., a Maryland corporation (the "Corporation"),
hereby certifies that:
FIRST: The title of the document being corrected is
"Articles of Amendment".
SECOND: The only party to the document being corrected is
Royce Value Trust, Inc.
THIRD: The Articles of Amendment were filed on March 23,
1998.
FOURTH: The execution of the document was defective in that
the signatory was incorrectly designated as President
rather than as Vice President.
IN WITNESS WHEREOF, Royce Value Trust, Inc. has caused these presents
to be signed in its name and on its behalf, as of May 11, 1998, by its duly
authorized officers who acknowledge that this Certificate of Correction is the
act of the Corporation, that to the best of their knowledge, information and
belief, all matters and facts set forth, herein that are required to be executed
under oath are true in all material respects, and that this statement is made
under the penalties of perjury.
WITNESS: ROYCE VALUE TRUST, INC.
John E. Denneen John D. Diederich
- -------------------- --------------------------
Name: John E. Denneen Name: John D. Diederich
Title: Secretary Title: Vice President
<PAGE>
<PAGE>
______________, 1998
Royce & Associates, Inc.
1414 Avenue of the Americas
New York , NY 10019
Gentlemen:
Reference is made to the (i) Investment Advisory Agreement dated as of June
30, 1996 (the "Investment Advisory Agreement") by and between Royce Value Trust,
Inc., a Maryland corporation (the "Fund"), and Royce & Associates, Inc.
(formerly Quest Advisory Corp.), a New York corporation ("Royce"), and (ii) the
Underwriting Agreement made _____________, 1998 (the "Underwriting Agreement")
by and between the Fund, Royce, and PaineWebber Incorporated, Salomon Smith
Barney Inc. and Prudential Securities Incorporated (the "Underwriters").
The Fund and Royce hereby acknowledge and agree (i) that Royce became a
party to the Underwriting Agreement and made representations, warranties,
covenants and indemnities therein in favor of the Underwriters at the request of
and as an accommodation to the Fund, and (ii) that as between the Fund, on the
one hand, and Royce, on the other hand, the Fund shall be primarily liable for
the payment and performance of the joint and several obligations of the Fund and
Royce to the Underwriters arising thereunder.
In order to implement the foregoing, the Fund and Royce further acknowledge
and agree that for purposes of Paragraph 8 of the Investment Advisory Agreement
(Protection of the Advisor), any liability of Royce to the Underwriters arising
under the Underwriting Agreement shall be deemed to have been incurred by Royce
as an investment adviser of the Fund, and the Fund hereby agrees to indemnify
Royce and hold Royce harmless from and against all damages, liabilities, costs
and expenses (including reasonable attorneys' fees and amounts reasonably paid
in settlement) incurred by Royce under or by reason of the Underwriting
Agreement (subject, however, to the limitations and procedures set forth in
Paragraph 8 of the Investment Advisory Agreement for indemnification of Royce by
the Fund, and subject to the further limitation that the Fund will not indemnify
Royce for any damage, liability, cost or expense resulting from any incorrect
information concerning Royce which is provided to the Fund by Royce or from any
failure by Royce to provide such information).
Very truly yours,
ROYCE VALUE TRUST, INC.
By:_________________________________
ACCEPTED AND AGREED:
ROYCE & ASSOCIATES, INC.
By:____________________________
<PAGE>
<PAGE>
4,000,000 Shares
ROYCE VALUE TRUST, INC.
% Tax-Advantaged Cumulative Preferred Stock
Liquidation Preference $25.00 Per Share
UNDERWRITING AGREEMENT
May , 1998
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas, 12th Floor
New York, New York 10019
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
PRUDENTIAL SECURITIES INCORPORATED
1 New York Plaza, 15th Floor
New York, New York 10292
Dear Sirs:
Royce Value Trust, Inc., a Maryland corporation (the "Fund"),
proposes, subject to the terms and upon the conditions set forth herein, to
issue and sell to you, the Underwriters named in Schedule I hereto (the
"Underwriters"), an aggregate of 4,000,000 shares of its % Tax-Advantaged
Cumulative Preferred Stock, par value $.001 per share and liquidation preference
$25.00 per share (the "Shares"). The Shares will be authorized by, and subject
to the terms and conditions of, the Articles Supplementary to be adopted in
connection with the issuance of the Shares (the "Articles Supplementary").
The Fund and its investment adviser, Royce & Associates, Inc., a New
York corporation (the "Adviser"), wish to confirm as follows their agreement
with the Underwriters in connection with the purchases of the Shares by you.
The Fund has entered into (i) an investment advisory agreement, dated
as of June 30, 1996, with the Adviser (the "Investment Advisory Agreement"),
(ii) a custodian contract, dated as of October 20, 1986, with State Street Bank
& Trust Company (the "Custodian Contract"), and (iii) the registrar, transfer
agency and paying agency agreements with State Street Bank & Trust Company with
respect to the Common Stock, the 7.80% Cumulative Preferred and the Shares,
dated as of October 20, 1986, August 21, 1996 and , respectively (the
"Registrar, Transfer Agency and Paying Agency Agreements") (collectively,
<PAGE>
<PAGE>
2
the "Fund Agreements"). This Underwriting Agreement is hereinafter referred to
as the "Agreement".
1. Registration Statement and Prospectus. The Fund has prepared in
conformity with the provisions of the Securities Act of 1933, as amended (the
"1933 Act"), the Investment Company Act of 1940, as amended (the "1940 Act" and,
together with the 1933 Act, the "Acts") and the rules and regulations of the
Securities and Exchange Commission (the "Commission") promulgated under the 1933
Act (the "1933 Act Rules and Regulations") and the 1940 Act (the "1940 Act Rules
and Regulations" and, together with the 1933 Act Rules and Regulations, the
"Rules and Regulations") a registration statement on Form N-2 (File No.
333-51295 and 811-4875) under the Acts (the "registration statement"), including
a prospectus relating to the Shares, and has filed the registration statement
and prospectus in accordance with the Acts. The Fund also has filed a
notification of registration of the Fund as an investment company under the 1940
Act on Form N-8A (the "1940 Act Notification"). The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective under the 1933 Act or, if the registration statement became effective
under the 1933 Act prior to the execution of this Agreement, as amended or
supplemented at the time it became effective, prior to the execution of this
Agreement. If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed under the
1933 Act and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment. If the Fund
has filed an abbreviated registration statement to register an additional amount
of Shares pursuant to Rule 462(b) under the 1933 Act (the "Rule 462 Registration
Statement"), then any reference herein to the term "Registration Statement"
shall include such Rule 462 Registration Statement. The term "Prospectus" as
used in this Agreement means the prospectus and statement of additional
information in the forms included in the Registration Statement or, if the
prospectus and statement of additional information included in the Registration
Statement omit information in reliance on Rule 430A under the 1933 Act Rules and
Regulations and such information is included in a prospectus and statement of
additional information filed with the Commission pursuant to Rule 497(h) under
the 1933 Act, the term "Prospectus" as used in this Agreement means the
prospectus and statement of additional information in the forms included in the
Registration Statement as supplemented by the addition of the information
contained in the prospectus filed with the Commission pursuant to Rule 497(h).
The term "Prepricing Prospectus" as used in this Agreement means the prospectus
and statement of additional information subject to completion in the forms
included in the registration statement at the time of filing of Amendment No. 1
to the registration statement with the Commission on May , 1998 and as such
prospectus and statement of additional information shall have been amended from
time to time prior to the date of the Prospectus, together with any other
prospectus and statement of additional information relating to the Fund other
than the Prospectus approved in writing by or prepared by the Fund or the
Adviser. It being understood that the definition of Prepricing Prospectus above
shall not include any Prepricing Prospectus prepared by any Underwriter unless
approved in writing by the Fund or Adviser. The terms "Registration Statement",
"Prospectus" and "Prepricing Prospectus" shall also include any financial
statements incorporated by reference therein.
<PAGE>
<PAGE>
3
The Fund has furnished the Underwriters with copies of such
registration statement, each amendment to such registration statement filed with
the Commission and each Prepricing Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
representations, warranties and agreements contained herein and subject to the
terms and conditions set forth herein, the Fund agrees to issue and sell to the
Underwriters and, each Underwriter agrees, severally and not jointly, to
purchase from the Fund, at a purchase price of $ per Share, the number of
Shares set forth opposite such Underwriter's name on Schedule I hereto (or such
number of Shares increased as set forth in Section 14 hereof).
3. Terms of Public Offering. The Fund and the Adviser have been
advised by you that the Underwriters propose to make a public offering of the
Shares as soon after the Registration Statement and this Agreement have become
effective as in your judgment is advisable and initially to offer the Shares
upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment of the purchase price for the Shares shall be made
at the office of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York 10017, at 10:00 A.M., New York City time, on May , 1998 (the "Closing
Date"). The place of closing for the Shares and the Closing Date may be varied
by agreement between you and the Fund.
Payment shall be made to the Fund by wire transfer in same day funds,
against delivery to you of certificates for the Shares to be purchased by you.
Upon delivery, the Shares shall be represented by one certificate registered in
the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"). The
Fund shall make the certificate representing the Shares available for inspection
by you in New York at least one full business day prior to the Closing Date.
5. Agreements of the Fund and the Adviser. The Fund and the Adviser,
jointly and severally, agree that:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective under the 1933 Act before the offering of the Shares
may commence, the Fund will endeavor to cause the Registration Statement or such
post-effective amendment to become effective under the 1933 Act as soon as
possible and will advise you promptly and, if requested by you, will confirm
such advice in writing when the Registration Statement or such post-effective
amendment has become effective.
(b) The Fund will advise you promptly and, if requested by you, will
confirm such advice in writing: (i) of any request made by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus (or any amendment or supplement to any of the
foregoing) or for additional information, (ii) of the issuance by the
Commission, any state securities commission, any national securities exchange,
any arbitrator, any court or any other governmental, regulatory, self-regulatory
or
<PAGE>
<PAGE>
4
administrative agency or any official of any order suspending the effectiveness
of the Registration Statement, prohibiting or suspending the use of the
Prospectus or any Prepricing Prospectus, of any notice pursuant to Section 8(e)
of the 1940 Act, of the suspension of qualification of the Shares for offering
or sale in any jurisdiction, or the initiation of any proceeding for any such
purposes, (iii) of receipt by the Fund, the Adviser, any affiliate of the Fund
or the Adviser or any representative or attorney of the Fund or the Adviser of
any other material communication from the Commission, any state securities
commission, any national securities exchange, any arbitrator, any court or any
other governmental, regulatory, self-regulatory or administrative agency or any
official relating to the Fund (if such communication relating to the Fund is
received by such person within the period of time referred to in paragraph (f)
below), the Registration Statement, the Prospectus, any Prepricing Prospectus
(or any amendment or supplement to any of the foregoing) or this Agreement and
(iv) within the period of time referred to in paragraph (f) below, of any
material adverse change in the condition (financial or other), business,
property, net assets or results of operations of the Fund or of the happening of
any other event which makes any statement of a material fact made in the
Registration Statement or the Prospectus (or any amendment or supplement to any
of the foregoing) untrue or which requires the making of any additions to or
changes in the Registration Statement or the Prospectus, or any Prepricing
Prospectus (or any amendment or supplement to any of the foregoing) in order to
state a material fact required by the Acts or the Rules and Regulations to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading or of the necessity
to amend or supplement the Registration Statement, the Prospectus, or any
Prepricing Prospectus (or any amendment or supplement to any of the foregoing)
to comply with the Acts, the Rules and Regulations or any other law or order of
any court or regulatory body. If at any time the Commission, any state
securities commission, any national securities exchange, any arbitrator, any
court or any other governmental, regulatory, self-regularity or administrative
agency or any official shall issue any order suspending the effectiveness of the
Registration Statement, prohibiting or suspending the use of the Prospectus (or
any amendment or supplement to any of the foregoing) or suspending the
qualification of the Shares for offering or sale in any jurisdiction, the Fund
will make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Fund will furnish to you, without charge, three signed copies
of the registration statement as originally filed with the Commission and of
each amendment thereto, including financial statements and all exhibits thereto,
and will also furnish to you, without charge, such number of conformed copies of
the registration statement as originally filed and of each amendment thereto,
but without exhibits, as you may request.
(d) The Fund will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall reasonably object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a Prospectus is required by the 1933 Act to be delivered in
connection with sales by any Underwriter or dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934, as amended
(the "1934
<PAGE>
<PAGE>
5
Act"), without delivering a copy of such information, documents or reports to
the Underwriters prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the Fund
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Fund consents to the use,
in accordance with the provisions of the 1933 Act and with the state securities
or Blue Sky laws of the jurisdictions in which the Shares are offered by the
Underwriters and by dealers, prior to the date of the Prospectus, of each
Prepricing Prospectus so furnished by the Fund.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the 1933 Act to be
delivered in connection with sales by any Underwriter or dealer, the Fund will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Fund consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the 1933
Act and with the state securities or Blue Sky laws of the jurisdictions in which
the Shares are offered by the Underwriters and by all dealers to whom Shares may
be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the 1933 Act to
be delivered in connection with sales by any Underwriter or dealer. If during
such period of time any event shall occur that in the judgment of the Fund or in
the opinion of counsel for the Underwriters is required to be set forth in the
Registration Statement or the Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Registration Statement or the Prospectus
to comply with the Acts, the Rules and Regulations or any other federal law,
rule or regulation, or any state securities or Blue Sky disclosure laws, rules
or regulations, the Fund will forthwith prepare and, subject to the provisions
of paragraph (d) above, promptly file with the Commission an appropriate
supplement or amendment thereto, and will expeditiously furnish to the
Underwriters and dealers, without charge, a reasonable number of copies thereof.
In the event that the Fund and you agree that the Registration Statement or the
Prospectus should be amended or supplemented, the Fund, if requested by you,
will promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Fund will make generally available to its security holders an
earnings statement, which need not be audited, covering a twelve-month period
ending December 31, 1998, as soon as practicable after the end of such period,
which earnings statement shall satisfy the provisions of Section 11(a) of the
1933 Act and Rule 158 of the 1933 Act Rules and Regulations.
(h) During the period of five years hereafter, the Fund will furnish
to you (i) as soon as available, a copy of each report of the Fund mailed to
stockholders or filed with the Commission or furnished to the New York Stock
Exchange other than reports on Form
<PAGE>
<PAGE>
6
N-SAR, and (ii) from time to time such other information concerning the Fund as
you may reasonably request.
(i) The Fund will apply the net proceeds from the sale of the Shares
substantially in accordance with the description set forth in the Prospectus and
in such a manner as to comply with the investment objective, policies and
restrictions of the Fund as described in the Prospectus.
(j) The Fund will timely file the requisite copies of the Prospectus
with the Commission pursuant to Rule 497(c) or Rule 497(h) of the 1933 Act Rules
and Regulations, whichever is applicable or, if applicable, will timely file the
certification permitted by Rule 497(j) of the 1933 Act Rules and Regulations and
will advise you of the time and manner of such filing.
(k) Except as provided in this Agreement, the Fund will not sell,
contract to 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 the Prospectus, without the prior written
consent of PaineWebber Incorporated.
(l) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, neither the Fund nor the Adviser has taken, nor will
it take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any securities issued by the Fund to facilitate the sale or resale of the
Shares.
(m) The Fund will use its best efforts to cause the Shares, prior to
the Closing Date, to be assigned a rating of "aaa" by Moody's Investors Service,
Inc. (the "Rating Agency").
(n) The Fund and the Adviser will use their best efforts to perform
all of the agreements required of them and discharge all conditions to closing
as set forth in this Agreement.
6. Representations and Warranties of the Fund and the Adviser. The
Fund and the Adviser, jointly and severally, represent and warrant that:
(a) Each Prepricing Prospectus included as part of the registration
statement as originally filed or as part of any amendment or supplement thereto,
or filed pursuant to Rule 497 of the 1933 Act Rules and Regulations, complied
when so filed in all material respects with the provisions of the Acts and the
Rules and Regulations. The Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus.
(b) The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any supplement
or amendment thereto when filed with the Commission under Rule 497 of the 1933
Act Rules and Regulations and the 1940
<PAGE>
<PAGE>
7
Act Notification when originally filed with the Commission and any amendment or
supplement thereto when filed with the Commission, complied or will comply in
all material respects with the provisions of the Acts and the Rules and
Regulations and did not or will not at any such times contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that this representation and warranty does not apply to statements in or
omissions from the registration statement or the Prospectus made in reliance
upon and in conformity with information relating to any Underwriter furnished to
the Fund in writing by or on behalf of any Underwriter through you expressly for
use therein.
(c) The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will conform to the description thereof in
the Registration Statement and the Prospectus (and any amendment or supplement
to either of them).
(d) All the outstanding shares of the Fund's Common Stock and 7.80%
Cumulative Preferred have been duly authorized and validly issued, are fully
paid and nonassessable and are free of any preemptive or similar rights, and
conform to the description thereof in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them).
(e) The Fund is a corporation duly organized and validly existing in
good standing under the laws of the State of Maryland with full corporate power
and authority to own, lease and operate its property or assets and to conduct
its business as described in the Registration Statement and the Prospectus (and
any amendment or supplement to either of them), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its property or assets or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, prospects, property, net assets or
results of operations of the Fund, or on the ability of the Fund to perform its
obligations under this Agreement or any of the Fund Agreements. The Fund has no
subsidiaries.
(f) There are no legal or governmental proceedings pending or, to the
knowledge of the Fund, threatened, against the Fund, or to which the Fund or any
of its property or assets is subject, that are required to be described in the
Registration Statement or the Prospectus (and any amendment or supplement to
either of them) but are not described as required, and there are no agreements,
contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or the Prospectus (and any amendment or
supplement to either of them) or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Acts or the Rules
and Regulations.
(g) The Fund is not in violation of its articles of incorporation, as
amended, including the 7.80% Cumulative Preferred Articles and the Articles
Supplementary (collectively, the "Charter") or by-laws (the "By-Laws"), or of
any law, ordinance,
<PAGE>
<PAGE>
8
administrative or governmental rule or regulation applicable to the Fund or of
any decree of the Commission, any state securities commission, any national
securities exchange, any arbitrator, any court or governmental agency, body or
official having jurisdiction over the Fund, or in default in any material
respect in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
material agreement, indenture, lease or other instrument to which the Fund is a
party or by which it or any of its property or assets may be bound.
(h) Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or any of the Fund Agreements by the
Fund, nor the consummation by the Fund of the transactions contemplated hereby
or thereby (i) requires any consent, approval, authorization or other order of
or registration or filing with, the Commission, any state securities commission,
any national securities exchange, any arbitrator, any court, regulatory body,
administrative agency or other governmental body, agency or official (except for
the registration of the Shares under the 1933 Act and such consents, approvals,
authorizations, registrations or qualifications as may be required under
applicable state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by you and the required rating agency confirmation),
(ii) violates or will violate or conflicts or will conflict with any provision
of the Charter or By-Laws of the Fund or any statute, law, regulation or
judgment, injunction, order or decree applicable to the Fund or any of its
property or assets, or (iii) conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, any agreement, indenture, lease
or other instrument to which the Fund is a party or by which it or any of its
property or assets may be bound, or will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Fund pursuant
to the terms of any agreement or instrument to which it is a party or by which
it may be bound or to which any of its property or assets is subject. The Fund
is not subject to any order of any court or of any arbitrator, governmental
authority or administrative agency.
(i) The accountants, Tait, Weller & Baker, who will audit the
financial statements of the Fund for the year ending December 31, 1998, are
independent public accountants as required by the Acts and the Rules and
Regulations.
(j) The accountants, Ernst & Young LLP, who have certified or shall
certify the financial statements included in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them) are independent
public accountants as required by the Acts and the Rules and Regulations.
(k) The accountants, Coopers & Lybrand L.L.P., who have audited the
financial information for the seven years ended December 31, 1994 included in
the Registration Statement and the Prospectus (or any amendment or supplement to
either of them) are independent public accountants as required by the Acts and
the Rules and Regulations.
(l) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectus (and
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9
any amendment or supplement to either of them), present fairly the financial
position, results of operations and changes in financial position of the Fund on
the basis stated or incorporated by reference in the Registration Statement at
the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data included in the Registration Statement and the
Prospectus (and any amendment or supplement to either of them) are accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Fund.
(m) The execution and delivery of, and the performance by the Fund of
its obligations under, this Agreement and the Fund Agreements have been duly and
validly authorized by the Fund, and this Agreement and the Fund Agreements have
been duly executed and delivered by the Fund and constitute the valid and
legally binding agreements of the Fund, enforceable against the Fund in
accordance with their terms, except as rights to indemnity and contribution
hereunder and thereunder may be limited by federal or state securities laws.
(n) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Fund has not incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Fund, and there has not been any change in the capital stock, or
material increase in the short-term debt or long-term debt, of the Fund, or any
material adverse change, or any development involving or which may reasonably be
expected to involve, a prospective material adverse change, in the condition
(financial or other), business, prospects, property, net assets or results of
operations of the Fund taken as a whole, whether or not arising in the ordinary
course of business.
(o) The Fund has not distributed and, prior to the later to occur of
the Closing Date and the completion of the distribution of the Shares will not
distribute, any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Acts or the Rules and
Regulations.
(p) The Fund has such permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits") as are necessary to own
its property and assets and to conduct its business in the manner described in
the Prospectus (and any amendment or supplement thereto), subject to such
qualifications as may be set forth in the Prospectus; the Fund has fulfilled and
performed all its material obligations with respect to such permits and no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the Fund under any such permit, subject in each case to such
qualification as may be set forth in the Prospectus (and any amendment or
supplement thereto); and, except as
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<PAGE>
10
described in the Prospectus (and any amendment or supplement thereto), none of
such permits contains any restriction that is materially burdensome to the Fund.
(q) The Fund maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization and with the
applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets and to maintain compliance with the books and records
requirements under the 1940 Act and the 1940 Act Rules and Regulations; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(r) To the Fund's knowledge, neither the Fund nor any employee or
agent of the Fund has made any payment of funds of the Fund or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(s) The Fund has filed all tax returns required to be filed, which
returns are complete and correct, and the Fund is not in default in the payment
of any taxes which were payable pursuant to said returns or any assessments with
respect thereto.
(t) No holder of any security of the Fund has any right to require
registration of shares of Common Stock, 7.80% Preferred, Cumulative Preferred
Stock or any other security of the Fund because of the filing of the
registration statement or consummation of the transactions contemplated by this
Agreement.
(u) The Fund, subject to the registration statement having been
declared effective and the filing of the Prospectus under Rule 497 under the
Rules and Regulations, has taken all required action under the Acts and the
Rules and Regulations to make the public offering and consummate the sale of the
Shares as contemplated by this Agreement.
(v) The conduct by the Fund of its business (as described in the
Prospectus) does not require it to be the owner, possessor or licensee of any
patents, patent licenses, trademarks, service marks or trade names which it does
not own, possess or license.
(w) The Fund is registered under the 1940 Act as a closed-end,
diversified management investment company and the 1940 Act Notification has been
duly filed with the Commission and, at the time of filing thereof and any
amendment or supplement thereto, conformed in all material respects with all
applicable provisions of the 1940 Act and the Rules and Regulations. The Fund
is, and at all times through the completion of the transactions contemplated
hereby will be, in compliance in all material respects with the terms and
conditions of the Acts. No person is serving or acting as an officer, director
or investment adviser of the Fund except in accordance with the provisions of
the 1940 Act and
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<PAGE>
11
the 1940 Act Rules and Regulations and the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and the rules and regulations of the Commission
promulgated under the Advisers Act (the "Advisers Act Rules and Regulations").
(x) Except as stated in this Agreement and in the Prospectus (and any
amendment or supplement thereto), the Fund has not taken, nor will it take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
securities issued by the Fund to facilitate the sale or resale of the Shares,
and the Fund is not aware of any such action taken or to be taken by any
affiliates of the Fund.
(y) The Fund has filed in a reasonably timely manner each document or
report required to be filed by it pursuant to the 1934 Act and the rules and
regulations of the Commission promulgated thereunder (the "1934 Act Rules and
Regulations"); each such document or report at the time it was filed conformed
to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and
none of such documents or reports contained an untrue statement of any material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(z) Each of the Fund Agreements and the Fund's and the Adviser's
obligations under this Agreement and each of the Fund Agreements comply in all
material respects with all applicable provisions of the 1940 Act, the 1940 Act
Rules and Regulations, the Advisers Act and the Advisers Act Rules and
Regulations.
(aa) The Shares have been, or prior to the Closing Date will be,
assigned a rating of "aaa" by the Rating Agency.
(ab) At all times since its inception, as required by Subchapter M of
the Code, the Fund has complied with the requirements to qualify as a regulated
investment company under the Code.
(z) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), no director of
the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or
an "affiliated person" (as defined in the 1940 Act) of any Underwriter.
(aa) The Shares have been, or prior to the Closing Date will be, duly
approved for listing upon notice of issuance on the New York Stock Exchange.
7. Representations and Warranties of the Adviser. The Adviser
represents and warrants that:
(a) The Adviser is a corporation duly incorporated and validly
existing in good standing under the laws of the State of New York, with full
corporate power and authority to own, lease and operate its property or assets
and to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement to either of
<PAGE>
<PAGE>
12
them), and is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its property or
assets or the conduct of its business requires such registration or
qualification, except where the failure so to register or to qualify does not
have a material adverse effect on the condition (financial or other), business,
prospects, property, net assets or results of operations of the Adviser, or on
the ability of the Adviser to perform its obligations under this Agreement and
the Investment Advisory Agreement.
(b) The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not prohibited by the Advisers
Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules
and Regulations from acting under the Investment Advisory Agreement for the Fund
as contemplated by the Prospectus (or any amendment or supplement thereto).
There does not exist any proceeding or, to the Adviser's knowledge, any facts or
circumstances the existence of which could lead to any proceeding which might
adversely affect the registration of the Adviser with the Commission.
(c) There are no legal or governmental proceedings pending or, to the
knowledge of the Adviser, threatened against the Adviser, or to which the
Adviser or any of its property or assets is subject, that are required to be
described in the Registration Statement or the Prospectus (or any amendment or
supplement to either of them) but are not described as required or that may
reasonably be expected to involve a prospective material adverse change, in the
condition (financial or other), business, prospects, property, net assets or
results of operations of the Adviser or on the ability of the Adviser to perform
its obligations under this Agreement and the Investment Advisory Agreement.
(d) Neither the execution, delivery or performance of this Agreement
or the Investment Advisory Agreement by the Adviser, nor the consummation by the
Adviser of the transactions contemplated hereby or thereby (i) requires the
Adviser to obtain any consent, approval, authorization or other order of or
registration with, the Commission, any state securities commission, any national
securities exchange, any arbitrator, any court, regulatory body, administrative
agency or other governmental body, agency or official, (ii) violates or will
violate or conflicts or will conflict with any provision of the certificate of
incorporation or by-laws or other organizational documents of the Adviser or any
statute, law, regulation or judgment, injunction, order or decree applicable to
the Adviser or any of its property or assets, or (iii) conflicts or will
conflict with or constitutes or will constitute a breach of or a default under,
any agreement, indenture, lease or other instrument to which the Adviser is a
party or by which it or any of its property or assets may be bound, or will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Adviser pursuant to the terms of any agreement or
instrument to which it is a party or by which it may be bound or to which any of
the property or assets of the Adviser is subject. The Adviser is not subject to
any order of any court or of any arbitrator, governmental authority or
administrative agency.
(e) The execution and delivery of, and the performance by the Adviser
of its obligations under, this Agreement and the Investment Advisory Agreement
have been duly and validly authorized by the Adviser, and this Agreement and the
Investment Advisory
<PAGE>
<PAGE>
13
Agreement have been duly executed and delivered by the Adviser and each
constitutes the valid and legally binding agreement of the Adviser, enforceable
against the Adviser in accordance with its terms except as rights to indemnity
and contribution hereunder may be limited by federal or state securities laws.
(f) The Adviser has the financial resources available to it necessary
for the performance of its services and obligations as contemplated in the
Prospectus (or any amendment or supplement thereto) and under this Agreement and
the Investment Advisory Agreement.
(g) The description of the Adviser in the Registration Statement and
the Prospectus (and any amendment or supplement thereto) complied and comply in
all material respects with the provisions the Acts, the Advisers Act, the Rules
and Regulations and the Advisers Act Rules and Regulations and did not and will
not contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(h) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement to either of them),
the Adviser has not incurred any liability or obligation, direct or contingent,
or entered into any transaction, not in the ordinary course of business, that is
material to the Fund, and there has not been any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, property, net assets or results of operations of the
Adviser, whether or not arising in the ordinary course of business, or which, in
each case, could have a material adverse effect on the ability of the Adviser to
perform its obligations under this Agreement and the Investment Advisory
Agreement.
(i) The Adviser has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its property and assets and to conduct its business in the
manner described in the Prospectus (and any amendment thereto); the Adviser has
fulfilled and performed all its material obligations with respect to such
permits, and to the Adviser's knowledge no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination thereof or
results in any other material impairment of the rights of the Adviser under any
such permit; and, except as described in the Prospectus (and any amendment or
supplement thereto), none of such permits contains any restriction that is
materially burdensome to the Adviser.
(j) Except as stated in this Agreement and in the Prospectus (and in
any amendment or supplement thereto), the Adviser has not taken, nor will it
take, directly or indirectly, any action designed to or which might reasonably
be expected to cause or result in, stabilization or manipulation of the price of
any securities issued by the Fund to facilitate the
<PAGE>
<PAGE>
14
sale or resale of the Shares, and the Adviser is not aware of any such action
taken or to be taken by any affiliates of the Adviser.
(k) Charles M. Royce is the validly appointed President and Chief
Investment Officer of the Adviser and is the sole voting shareholder of the
Adviser.
8. Indemnification and Contribution. (a) The Fund and the Adviser,
jointly and severally, agree, to the extent permitted by applicable law, to
indemnify and hold harmless you, your directors, officers and employees and each
person, if any, who controls you within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation),
joint and several, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to any Underwriter furnished in writing to the Fund by or
on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any director, officer or
employee of any Underwriter or any person controlling any Underwriter) on
account of any such loss, claim, damage, liability or expense arising from the
sale of the Shares by such Underwriter to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within the time required by
the 1933 Act and the 1933 Act Rules and Regulations, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in such Prepricing Prospectus was corrected in the Prospectus,
provided that the Fund has delivered the Prospectus to the Underwriters in
requisite quantity on a timely basis to permit such delivery or sending. The
foregoing indemnity agreement shall be in addition to any liability which the
Fund or the Adviser may otherwise have.
(b) If any action, suit or proceeding shall be brought against you,
your directors, officers or employees or any person controlling you in respect
of which indemnity may be sought against the Fund or the Adviser, such
indemnified party shall promptly notify the Fund or the Adviser, and the Fund or
the Adviser shall assume the defense thereof, including the employment of
counsel and payment of all fees and expenses. Such indemnified party shall have
the right to employ separate counsel in any such action, suit or proceeding and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the Fund or the
Adviser has agreed in writing to pay such fees and expenses, (ii) the Fund and
the Adviser have failed to assume the defense and employ counsel, (iii) the
indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the Fund and
<PAGE>
<PAGE>
15
the Adviser, or (iv) the named parties to any such action, suit or proceeding
(including any impleaded parties) include both such indemnified party and the
Fund or the Adviser and such indemnified party shall have been advised by its
counsel that representation of such indemnified party and the Fund or the
Adviser by the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Fund and the Adviser shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such indemnified party).
It is understood, however, that the Fund and the Adviser shall, in connection
with any one such action, suit or proceeding or separate but substantially
similar or related actions, suits or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of attorneys (in addition
to any local counsel) at any time for all such indemnified parties, which firm
shall be designated in writing by PaineWebber Incorporated, and that all such
fees and expenses shall be reimbursed as they are incurred and billed. The Fund
and the Adviser shall not be liable for any settlement of any such action, suit
or proceeding effected without their written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Fund and the Adviser agree to indemnify and hold
harmless any indemnified party, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Fund and the Adviser, their directors, any officers who
sign the Registration Statement, and any person who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act, to the same extent as the foregoing indemnity from the Fund and the
Adviser to each Underwriter, but only with respect to information relating to
such Underwriter furnished in writing by or on behalf of such Underwriter
through you expressly for use in the Registration Statement, the Prospectus or
any Prepricing Prospectus, or any amendment or supplement thereto. If any
action, suit or proceeding shall be brought against the Fund or the Adviser, any
of their directors, any such officer, or controlling person based on the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any Underwriter pursuant to this paragraph (c), such Underwriter shall
have the rights and duties given to the Fund and the Adviser by paragraph (b) of
this Section 8 (except that if the Fund or the Adviser shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in the defense thereof, but the fees
and expenses of such counsel shall be at such Underwriter's expense), and the
Fund and the Adviser, their directors, any such officer, and any such
controlling person shall have the rights and duties given to the Underwriters by
paragraph (b) of this Section 8. The foregoing indemnity agreement shall be in
addition to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall, to the extent permitted by applicable law,
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<PAGE>
16
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Fund and the
Adviser on the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other hand from the offering of the Shares, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Fund and the
Adviser on the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Fund and the Adviser on the one hand (treated jointly for this purpose as
one person) and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Fund bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Fund and the
Adviser on the one hand (treated jointly for this purpose as one person) and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Fund and the Adviser on the one hand (treated jointly for this
purpose as one person) or by the Underwriters on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Fund, the Adviser and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by a pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (d) of this
Section 8 shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the the underwriting
discounts and commissions received by such Underwriter. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8 are several in proportion to the respective numbers
of Shares set forth opposite their names in Schedule I hereto (or such numbers
of Shares increased as set forth in Section 14 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such
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<PAGE>
17
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred and billed.
The indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter, any director, officer
or employee of any Underwriter or any person controlling any Underwriter, the
Fund, the Adviser, the directors or officers of the Fund or the Adviser or any
person controlling the Fund or the Adviser, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, any director, officer or employee of any
Underwriter, or any person controlling any Underwriter, or to the Fund, the
Adviser, their directors or officers, or any person controlling the Fund or the
Adviser, shall be entitled to the benefits of the indemnity, contribution, and
reimbursement agreements contained in this Section 8.
9. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Shares may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 497 and 430A under the 1933 Act and the 1933
Act Rules and Regulations shall have been timely made; no stop order suspending
the effectiveness of the Registration Statement or order pursuant to Section
8(e) of the 1940 Act shall have been issued and no proceeding for those purposes
shall have been instituted or, to the knowledge of the Fund, the Adviser or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the registration statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change or any development involving a prospective
change in or affecting the condition (financial or other), business, prospects,
property, net assets, or results of operations of the Fund or the Adviser not
contemplated by the Prospectus, which in your opinion would materially adversely
affect the market for the Shares, (ii) any event or development relating to or
involving the Fund or the Adviser or any officer or director of the Fund or the
Adviser which makes any statement made in the Prospectus untrue or which, in the
opinion of the Fund and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the Acts or the Rules and Regulations or any
other law to be stated therein or
<PAGE>
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18
necessary in order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, materially adversely affect the market for the Shares, or (iii) any
downgrading, nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not indicate the
direction of a possible change, in the rating accorded any of the Fund's
preferred stock by any "nationally recognized statistical rating organization,"
as such term is defined for purposes of Rule 436(g)(2) of the 1933 Act Rules and
Regulations.
(c) You shall have received on the Closing Date an opinion of Brown &
Wood LLP, special counsel to the Fund, dated the Closing Date and addressed to
you, to the effect that:
(i) the Fund is qualified to do business and is in good standing
as a foreign corporation in the State of New York, and, to such
counsel's knowledge, owns, possesses or has obtained and currently
maintains, all material governmental licenses, permits, consents,
orders, approvals and other authorizations under the Federal laws of
the United States and the laws of the State of New York necessary to
carry on its business as contemplated by the Prospectus;
(ii) this Agreement has been duly authorized, executed and
delivered by the Fund and complies with the provisions of the 1940 Act
and the 1940 Act Rules and Regulations applicable to the Fund;
(iii) each of the Investment Advisory Agreement and the Custodian
Contract has been duly authorized, executed and delivered by the Fund
and each complies as to form in all material respects with all
applicable provisions of the 1940 Act and the 1940 Act Rules and
Regulations;
(iv) the Registration Statement is effective under the 1933 Act
and the 1933 Act Rules and Regulations and, to such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act or the 1933
Act Rules and Regulations or proceedings therefor initiated or
threatened by the Commission;
(v) at the time the Registration Statement became effective, the
Registration Statement (other than the financial statements and other
financial or statistical information included therein, as to which no
opinion need be rendered) complied as to form in all material respects
with the requirements of the Acts and the Rules and Regulations;
(vi) to such counsel's knowledge, (A) there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments of the Fund required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed as exhibits thereto,
(B) the descriptions thereof are correct in all material respects, (C)
references thereto
<PAGE>
<PAGE>
19
are correct, and (D) no default exists in the due performance or
observance by the Fund of any material obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument so described, referred to
or filed as an exhibit to the Registration Statement;
(vii) no consent, approval, authorization or order of any court or
governmental authority or agency is required in connection with the
performance by the Fund of its obligations under this Agreement,
except for (A) such as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by you and the required rating agency confirmation (as to which
such counsel need express no opinion) and (B) such as have been made
or obtained under the 1933 Act; and to such counsel's knowledge, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein will not conflict with or constitute
a breach of, or a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Fund pursuant to, any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which the Fund is a
party or by which it may be bound or to which any of the property or
assets of the Fund is subject, nor will such action result in any
violation of the provisions of the Charter or the By-Laws of the Fund,
or, to such counsel's knowledge, any Federal or New York law or
administrative regulation, or administrative or court decree;
(viii) the Fund is registered with the Commission under the 1940
Act and the 1940 Act Rules and Regulations as a closed-end,
diversified management investment company, and all required action has
been taken by the Fund under the Acts and the Rules and Regulations to
make the public offering and consummate the sale of the Shares
pursuant to this Agreement; the provisions of the Charter and the
By-Laws of the Fund comply as to form in all material respects with
the requirements of the 1940 Act and the 1940 Act Rules and
Regulations; and, to such counsel's knowledge, no order of suspension
or revocation of such registration under the 1940 Act and the 1940 Act
Rules and Regulations, has been issued or proceedings therefor
initiated or threatened by the Commission; and
(ix) the information in the Prospectus under the caption
"Taxation", to the extent that it constitutes matters of Federal
income tax law or legal conclusions relating to Federal income tax
matters, has been reviewed by them and is correct in all material
respects.
In rendering such opinion, Brown & Wood LLP shall additionally state that
nothing has come to their attention that would lead them to believe that the
Registration Statement or any amendment or supplement thereto, at the time it
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus or any amendment or
supplement thereto, as of the time it was first provided to the Underwriters or
as of the Closing Date, included an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the
<PAGE>
<PAGE>
20
circumstances under which they were made, not misleading, except that such
counsel need not express any belief with respect to the financial statements and
other financial and statistical information included in the Registration
Statement and the Prospectus (and any amendment or supplement to either of the
foregoing). In addition, Brown & Wood LLP (A) may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the Federal laws of the United States of America, (B) may rely as
to matters involving the laws of the State of Maryland upon the opinion of
Venable, Baetjer and Howard, LLP referred to in paragraph (d) of this Section 9,
and (C) may rely, as to matters of fact, upon the representations and warranties
made by the Fund and the Adviser herein and on certificates and written
statements of officers and employees of and accountants for the Fund and the
Adviser and of public officials. Except as otherwise specifically provided
herein, when giving their opinions to their "knowledge", Brown & Wood LLP have
relied solely upon an inquiry of the attorneys of that firm who have worked on
matters for the Fund, on certificates or written statements of officers of the
Fund and, where appropriate, a review of the Registration Statement, Prospectus,
exhibits to the Registration Statement, the Charter and By-Laws of the Fund and
a review of the minute books of the Fund and have made no other investigation or
inquiry.
(d) You shall have received on the Closing Date an opinion of Venable,
Baetjer and Howard, LLP, special Maryland counsel to the Fund, dated the Closing
Date and addressed to you, to the effect that:
(i) the Fund has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Maryland;
(ii) the Fund has corporate power and authority, under the laws of
the State of Maryland, to own, lease and operate its property or
assets and conduct its business as described in the Registration
Statement and in the Prospectus;
(iii) the authorized capital stock of the Fund conforms as to
legal matters in all material respects to the description thereof in
the Registration Statement under the captions "Description of
Cumulative Preferred Stock" and "Description of Capital Stock";
(iv) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of the
Shares will not be subject to preemptive or other similar rights
pursuant to the Charter or By-Laws of the Fund or the Maryland General
Corporation Law; and the form of certificate used to evidence the
Shares is in due and proper form and complies with all provisions of
applicable Maryland law;
(v) the Fund has full corporate power to enter into the Investment
Advisory Agreement and the Custodian Contract and each has been duly
and validly authorized, executed and delivered by the Fund;
<PAGE>
<PAGE>
21
(vi) to such counsel's knowledge, the execution and delivery of
this Agreement and the consummation of the transactions contemplated
herein will not conflict with or constitute a breach of the Charter or
the By-Laws of the Fund, or any Maryland law (other than Maryland
securities laws) or regulation, or, to their knowledge, any order of
any Maryland court, governmental instrumentality or arbitrator; and
(vii) all descriptions in the Prospectus of Maryland statutes and
regulations or legal or governmental proceedings, if any, under the
laws of the State of Maryland are accurate in all material respects.
In rendering such opinion, Venable, Baetjer and Howard, LLP may rely, as to
matters of fact, upon the representations and warranties made by the Fund and
the Adviser herein and on certificates and written statements of officers and
employees of and accountants for the Fund and the Adviser and of public
officials. Except as otherwise specifically provided herein, when giving their
opinions to their "knowledge", Venable, Baetjer and Howard, LLP have relied
solely upon an inquiry of the attorneys of that firm who have worked on matters
for the Fund, on certificates or written statements of officers of the Fund and,
where appropriate, a review of the Registration Statement, Prospectus, exhibits
to the Registration Statement, the Charter and By-Laws of the Fund and have made
no other investigation or inquiry.
(e) You shall have received on the Closing Date an opinion of either
Howard J. Kashner, Esq., General Counsel for the Adviser, or John E. Denneen,
Esq., Associate General Counsel for the Adviser, dated the Closing Date and
addressed to you, to the effect that:
(i) the Adviser has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of New
York, with corporate power and authority to conduct its business as
described in the Registration Statement and in the Prospectus;
(ii) the Adviser is duly registered as an investment adviser under
the Advisers Act and the Advisers Act Rules and Regulations and,
subject to the matters covered by the no-action letters of the
Commission in Quest Advisory Corp.; Royce Value Trust, Inc. (pub.
avail. December 22, 1986) and Royce Value Trust, Inc. (pub. avail.
July 29, 1988) (collectively, the "No-Action Letters"), is not
prohibited by the Advisers Act, the Advisers Act Rules and
Regulations, the 1940 Act or the 1940 Act Rules and Regulations, from
acting under the Investment Advisory Agreement for the Fund as
contemplated by the Prospectus;
(iii) this Agreement and the Investment Advisory Agreement each
has been duly authorized, executed and delivered by the Adviser and,
subject to the matters covered by the No-Action Letters, constitutes a
valid and binding obligation of the Adviser, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors'
rights generally and to general equitable principles (except as to
those provisions
<PAGE>
<PAGE>
22
relating to indemnity or contribution for liabilities arising under
such agreement, as to which no opinion need be expressed); and, to his
knowledge, neither the execution and delivery of this Agreement or the
Investment Advisory Agreement nor the performance by the Adviser of
its obligations hereunder or thereunder will conflict with, or result
in a breach of, any of the terms and provisions of, or constitute,
with or without the giving of notice or the lapse of time or both, a
default under, any agreement or instrument to which the Adviser is a
party or by which the Adviser is bound, or, except as set forth in the
No-Action Letters, any law, order, rule or regulation applicable to
the Adviser of any jurisdiction, court, Federal or state regulatory
body, administrative agency or other governmental body, stock exchange
or securities association having jurisdiction over the Adviser or its
property or assets or operations; and
(iv) to his knowledge, the description of the Adviser in the
Registration Statement and in the Prospectus (and any amendment or
supplement to either of the foregoing) does not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading.
In rendering such opinion, such counsel (A) may state that he expresses no
opinion as to the laws of any jurisdiction other than the laws of the State of
New York and the federal laws of the United States of America and (B) may rely,
as to matters of fact, upon the representations and warranties made by the Fund
and the Adviser herein and on certificates and written statements of officers
and employees of and accountants for the Fund and the Adviser and of public
officials.
(f) You shall have received on the Closing Date an opinion of Simpson
Thacher & Bartlett, counsel to the Underwriters, dated the Closing Date and
addressed to you, with respect to such matters as the Underwriters may
reasonably request.
(g) You shall have received letters addressed to you and dated the
date hereof and the Closing Date from Tait, Weller & Baker, independent
certified public accountants, substantially in the forms heretofore approved by
you.
(h) You shall have received a letter addressed to you and dated the
date hereof from Ernst & Young LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(i) (i) No order suspending the effectiveness of the registration
statement or the Registration Statement or prohibiting or suspending the use of
the Prospectus (or any amendment or supplement thereto) or any Prepricing
Prospectus shall have been issued and no proceedings for such purpose or for the
purpose of commencing an enforcement action against the Fund, the Adviser or,
with respect to the transactions contemplated by the Prospectus (or any
amendment or supplement thereto) and this Agreement, any Underwriter, may be
pending before or, to the knowledge of the Fund, the Adviser or any Underwriter
or in the reasonable view of counsel to the Underwriters, shall be threatened or
contemplated by
<PAGE>
<PAGE>
23
the Commission at or prior to the Closing Date and that any request for
additional information on the part of the Commission (to be included in the
Registration Statement, the Prospectus or otherwise) be complied with to the
satisfaction of the Underwriters; (ii) there shall not have been any change in
the capital stock of the Fund nor any material increase in the short-term or
long-term debt of the Fund (other than in the ordinary course of business) from
that set forth or contemplated in the Registration Statement or the Prospectus
(or any amendment or supplement thereto); (iii) there shall not have been,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects, property, net assets
or results of operations of the Fund or the Adviser; (iv) the Fund shall not
have any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Fund, other than those
reflected in the Registration Statement or the Prospectus (or any amendment or
supplement to either of them); and (v) all the representations and warranties of
the Fund and the Adviser contained in this Agreement shall be true and correct
on and as of the date hereof and on and as of the Closing Date as if made on and
as of the Closing Date, and you shall have received a certificate of the Fund
and the Adviser, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of each of the Fund and the Adviser (or
such other officers as are acceptable to you), to the effect set forth in this
Section 9(i) and in Section 9(j) hereof.
(j) That neither the Fund nor the Adviser shall have failed at or
prior to the Closing Date to have performed or complied in all material respects
with any of its agreements herein contained and required to be performed or
complied with by it hereunder at or prior to the Closing Date.
(k) The Fund shall have delivered and you shall have received evidence
satisfactory to you that the Shares are rated "aaa" by the Rating Agency as of
the Closing Date, and there shall not have been given any notice of any intended
or potential downgrading, or of any review for a potential downgrading, in the
rating accorded to the Shares by the Rating Agency.
(l) The Shares shall have been listed or approved for listing upon
notice of issuance on the New York Stock Exchange.
(m) The Fund and the Adviser shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Fund or the
Adviser and delivered to you or your counsel shall be deemed a representation
and warranty by the Fund or the Adviser to each Underwriter as to the statements
made therein.
<PAGE>
<PAGE>
24
10. Expenses. The Fund agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (a) the preparation, printing or reproduction, and filing
with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus and
each amendment or supplement to any of them (including, without limitation, the
filing fees prescribed by the Acts and the Rules and Regulations); (b) the
printing (or reproduction) and delivery (including postage, air freight charges
and charges for counting and packaging) of such copies of the Registration
Statement, each Prepricing Prospectus, the Prospectus and all amendments or
supplements to any of them as may be reasonably requested for use in connection
with the offering and sale of the Shares; (c) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(d) the reproduction and delivery of this Agreement, any dealer agreements, the
preliminary Blue Sky memorandum and all other agreements or documents reproduced
and delivered in connection with the offering of the Shares; (e) the
registration of the Shares under the 1934 Act and the listing of the Shares on
the New York Stock Exchange; (f) the reasonable fees (not to exceed $2,000),
expenses and disbursements of counsel for the Underwriters relating to the
preparation, reproduction, and delivery of the preliminary Blue Sky memorandum;
(g) fees paid to the Rating Agency; (h) the transportation and other expenses
incurred by or on behalf of Fund representatives in connection with
presentations to prospective purchasers of the Shares; and (i) the fees and
expenses of the Fund's accountants and the fees and expenses of counsel
(including local and special counsel) for the Fund and of the transfer agent.
11. Information Furnished by the Underwriters. The statements set
forth in [the last paragraph on the cover page, the last paragraph on the inside
cover page, and the statements in the first, third, and fifth paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus],
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 8 hereof.
12. Effective Date of Agreement. This Agreement shall become effective
(a) upon the execution and delivery of this Agreement by the parties or (b) if,
at the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto to be declared
effective before the offering of the Shares may commence, when notification of
the effectiveness of the registration statement or such post-effective amendment
has been released by the Commission. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Fund by notifying you and the Adviser, or
by you by notifying the Fund and the Adviser.
13. Termination of Agreement. (a) This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Fund or the Adviser, by notice to the Fund or the Adviser, if
prior to the Closing Date:
<PAGE>
<PAGE>
25
(i) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market
shall have been suspended or materially limited;
(ii) a general moratorium on commercial banking activities in New
York shall have been declared by either federal or state authorities;
(iii) any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g)(2) under the 1933 Act Rules
and Regulations) has downgraded the rating of any of the Fund's
preferred stock, or any such organization has publicly announced that
it has under surveillance or review (other than an announcement with
positive implications of a possible upgrading), its rating of the
Fund's preferred stock; or
(iv) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is sufficiently
materially adverse as to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters.
(b) Any notice of termination pursuant to this Section 13 shall be
given to the Fund or the Adviser by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
(c) If this Agreement shall be terminated pursuant to any provisions
hereof (other than pursuant to notification by you as provided in Sections 12,
13(a) or 14(b) hereof) or if the sale of the Shares provided for herein is not
consummated because of any condition to your obligations set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Fund or the Adviser to perform any agreement herein or comply with the any
provision hereof, the Fund and the Adviser will reimburse you for all reasonable
out-of-pocket expenses (including reasonable fees and expenses of your counsel)
incurred by you in connection herewith.
14. Defaulting Underwriter. (a) If, on the Closing Date, any
Underwriter shall fail or refuse to purchase Shares which it is obligated
hereunder to purchase and the aggregate number of Shares which such defaulting
Underwriter is obligated to purchase is not more than one-tenth of the aggregate
number of Shares which the Underwriters are obligated to purchase on the Closing
Date, the non-defaulting Underwriters shall be obligated to purchase the Shares
which such defaulting Underwriter is obligated, but fail or refuses to purchase.
If, however, on the Closing Date, any Underwriter shall fail or refuse to
purchase Shares which it is obligated hereunder to purchase and the aggregate
number of Shares which such defaulting Underwriter is obligated to purchase is
more than one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date and arrangements satisfactory to you
and the Fund for the purchase of such Shares by the non-
<PAGE>
<PAGE>
26
defaulting Underwriters or other party or parties approved by you and the Fund
are not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Adviser or
the Fund. In any such case which does not result in termination of this
Agreement, either you or the Fund shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve the defaulting Underwriter from liability in respect of any
such default of such Underwriter under this Agreement. The term "Underwriter" as
used in this Agreement includes, for all purposes of this Agreement, any party
not listed in Schedule I hereto which, pursuant to this Section 14, purchases
Shares which a defaulting Underwriter agreed but failed or refused to purchase.
(b) Any notice under this Section 14 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
15. Notice. Except as otherwise provided in Sections 5, 11 and 12
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Fund or the Adviser, at the office
of the Fund at 1414 Avenue of the Americas, New York, New York 10019, Attention:
Howard J. Kashner, Esq., General Counsel; or (ii) if to you, care of PaineWebber
Incorporated, 1285 Avenue of the Americas, 12th Floor, New York, New York 10019,
Attention: Corporate Finance Department.
16. Persons Entitled to Benefit of Agreement. This Agreement has been
and is made solely for the benefit of the Underwriters, the officers and
employees of the Underwriters, the Fund, the Adviser, the directors and officers
of the Fund and the Adviser, and the other controlling persons referred to in
Section 8 hereof and their respective successors and assigns, to the extent
provided herein, and no other person shall acquire or have any right under or by
virtue of this Agreement. Neither the term "successor" nor the term "successors
and assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within the State of New York.
18. Counterparts. This Agreement may be signed in various counterparts
which together constitute one and the same instrument. If signed in
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.
<PAGE>
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Fund, the Adviser and the Underwriters.
Very truly yours,
ROYCE VALUE TRUST, INC.
By:
--------------------------------
Name:
Title:
ROYCE & ASSOCIATES, INC.
By:
--------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned.
PAINEWEBBER INCORPORATED
By:
---------------------------------
Name:
Title:
SMITH BARNEY INC.
By:
---------------------------------
Name:
Title:
PRUDENTIAL SECURITIES INCORPORATED
By:
---------------------------------
Name:
Title:
<PAGE>
<PAGE>
SCHEDULE I
ROYCE VALUE TRUST, INC.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
PaineWebber Incorporated.........................................
Smith Barney Inc.................................................
Prudential Securities Incorporated. .............................
---------
Total............................................................ 4,000,000
=========
</TABLE>
<PAGE>
<PAGE>
FIRST AMENDMENT
TO
REGISTRAR, TRANSFER AGENCY AND PAYING AGENCY AGREEMENT
1. GENERAL BACKGROUND. In accordance with the Amendment provision in
Section 11 of the Registrar, Transfer Agency and Paying Agency
Agreement between State Street Bank and Trust Company (the "Bank") and
Royce Value Trust, Inc. (the "Fund") dated August 21, 1996 (the
"Agreement"), the parties desire to amend the Agreement.
1.2 This Amendment shall be effective May ___, 1998 (the "First
Amendment") and all defined terms and definitions in the
Agreement shall be the same in the First Amendment except as
specifically revised by the First Amendment.
2. ADDITIONAL STOCK. The Fund will be issuing a new series of Cumulative
Preferred Stock on May ___, 1998. Section 1.01 of the Agreement is
hereby deleted in its entirety and the new Section 1.01 below is
inserted in its place.
1.01 Subject to the terms and conditions set forth in this Agreement,
the Fund hereby employs and appoints the Bank to act as, and the
Bank agrees to act as registrar, transfer agent for the Fund's
authorized and issued shares of its Cumulative Preferred Stock,
including its 7.8% Cumulative Preferred Stock and its ____%
Tax-Advantaged Cumulative Preferred Stock ("Shares"), dividend
paying agent and agent in connection with the payment of any
redemption or liquidation proceeds as set out in the prospectuses
of the Fund offering the sale of the Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
in their names and on their behalf by and through their duly authorized
officers, as of this ____ day of _________, 1998.
STATE STREET BANK ROYCE VALUE TRUST, INC.
AND TRUST COMPANY
________________________________ ____________________________________
By: By:
Title: Title:
<PAGE>
<PAGE>
EXHIBIT (L)
VENABLE, BAETJER AND HOWARD, LLP
1800 MERCANTILE BANK AND TRUST BUILDING
TWO HOPKINS PLAZA
BALTIMORE, MARYLAND 21201
MAY 12, 1998
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
RE: ROYCE VALUE TRUST, INC.
Ladies and Gentlemen:
We have acted as special Maryland counsel to Royce Value Trust, Inc., a
Maryland corporation (the 'Fund'), in connection with the issuance of 4,000,000
shares of its % Tax-Advantaged Cumulative Preferred Stock, par value $.001
per share (the 'Cumulative Preferred Stock').
As special Maryland counsel for the Fund, we are familiar with its Charter
and Bylaws. We have examined the prospectus included in its Registration
Statement on Form N-2 for the Cumulative Preferred Stock (Securities Act
Registration No. 333-51295, Investment Company Act File No. 811-4875), the
'Registration Statement'), substantially in the form in which it is to become
effective (the 'Prospectus'). We are also familiar with the form of Articles
Supplementary relating to the Cumulative Preferred Stock (the 'Articles
Supplementary') that has been filed as an exhibit to the Registration Statement.
We have further examined and relied upon a certificate of the Maryland State
Department of Assessments and Taxation ('SDAT') to the effect that the Fund is
duly incorporated and existing under the laws of the State of Maryland and is in
good standing and duly authorized to transact business in the State of Maryland.
We have also examined and relied upon such corporate records of the Fund
and other documents and certificates with respect to factual matters as we have
deemed necessary to render the opinion expressed herein. We have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
<PAGE>
<PAGE>
Brown & Wood LLP
May 12, 1998
Page 2
Based on such examination, we are of the opinion and so advise you that
when the Articles Supplementary have been filed for record with SDAT, and when
the final terms of the issuance of the Cumulative Preferred Stock have been
authorized by the Board of directors pursuant to Section 2-203 of the Maryland
General Corporation Law, the Cumulative Preferred Stock to be offered for sale
pursuant to the Prospectus will have been duly authorized and, when thereafter
sold, issued and paid for as contemplated by the Prospectus, will have been
validly and legally issued and will be fully paid and nonassessable.
This letter expresses our opinion with respect to the Maryland General
Corporation Law governing matters such as due organization and the authorization
and issuance of stock, but it does not extend to the securities or 'Blue Sky'
laws of Maryland, to federal securities laws or to other laws.
You may rely upon our foregoing opinion in rendering your opinion to the
Fund that is to be filed as an exhibit to the Registration Statement. We consent
to the reference to us under the caption 'Legal Matters' in the Prospectus and
to the filing of this opinion as an exhibit to the Registration Statement. We do
not thereby admit that we are 'experts' within the meaning of the Securities
Act of 1933 and the rules and regulations thereunder. We assume no obligation to
supplement this opinion if any applicable laws change after the date hereof or
if we become aware of any facts that might change the opinions expressed herein
after the date hereof. This opinion may not be relied upon by any other person
or for any other purpose without our prior written consent.
Very truly yours,
/s/ VENABLE, BAETJER AND HOWARD, LLP
<PAGE>
<PAGE>
EXHIBIT (n)(1)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our Firm in the Pre-Effective Amendment No.
1 to the Registration Statement on Form N-2 of Royce Value Trust, Inc.
/s/TAIT, WELLER & BAKER
-----------------------------
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
May 8, 1998
<PAGE>
<PAGE>
EXHIBIT (n)(2)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Financial
Highlights', 'Experts' and 'Financial Statements' and to the incorporation by
reference of our report dated February 10, 1998, in this Registration Statement
(Form N-2 No. 333-51295) of Royce Value Trust, Inc.
ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
May 8, 1998
<PAGE>
<PAGE>
EXHIBIT (n)(3)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Royce Value Trust, Inc.:
We consent to the reference to our Firm under the headings "Financial
Highlights" and "Experts" in the Prospectus of the Royce Value Trust, Inc. on
Form N-2 Amendment No. 23 under the Investment Company Act of 1940 (File No.
811-4875) and the Pre-Effective Amendment No. 1 under the Securities Act of 1933
(File No. 333-51295). 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 incorporated by
reference in the Registration Statement.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 12, 1998
<PAGE>
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<NAME> ROYCE VALUE TRUST
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<PAGE>
