AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1997
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-5397
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
/x/ Registration Statement Under The Securities Act of 1933
/ / Pre-Effective Amendment No.
/ / Post-Effective Amendment No.
and/or
/x/ Registration Statement Under The Investment Company Act of 1940
/x/ Amendment No. 9
(check appropriate box or boxes)
ROYCE GLOBAL 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 GLOBAL TRUST, INC.
1414 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(Name and Address of Agent for Service)
COPIES TO
<TABLE>
<CAPTION>
<S> <C> <C>
Frank P. Bruno, Esq. Howard J. Kashner, Esq. Steven M. Felsenstein, Esq.
Brown & Wood LLP Royce Global Trust, Inc. Stradley, Ronon, Stevens & Young, LLP
One World Trade Center 1414 Avenue of the Americas 2600 One Commerce Square
New York, New York 10048-0557 New York, New York 10019 Philadelphia, Pennsylvania 19103
(table continued)
<C>
Gary S. Schpero, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
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>
Amount Proposed Maximum Proposed Maximum Amount of
Title of Securities Being Offering Price Aggregate Offering Registration
Being Registered Registered(1) Per Share(1) Price(1) Fee
<S> <C> <C> <C> <C>
800,000 Shares $25.00 $20,000,000 $6,060.61
% Cumulative Preferred Stock
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number in Form N-2 Caption in Prospectus
<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 Objective and Policies
8. General Description of the Registrant . . . . . . . . . . . Front Cover Page; Prospectus Summary; The Fund; Investment
Objective and Policies
9. Management . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Investment Advisory and Other Services;
Custodian, Transfer Agent and Dividend-Paying Agent
10. Capital Stock, Long-Term Debt, and Other Securities . . . . Front Cover Page; Prospectus Summary; Ordinary Income Equivalent
Yield Tables; Capitalization; Investment Objective and 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
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this
Registration Statement.
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This 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, DATED AUGUST 25, 1997
PROSPECTUS
800,000 SHARES
ROYCE GLOBAL TRUST, INC.
% Cumulative Preferred Stock
(Liquidation Preference $25.00 Per Share)
---------------------
The % Cumulative Preferred Stock, liquidation preference $25.00 per
share (the "Cumulative Preferred Stock"), to be issued by Royce Global 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 investment objective is long-term capital appreciation, which it seeks
by normally investing more than 75% of its assets in common stocks,
convertible preferred stocks, convertible debentures and other equity
securities. 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, 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 December 23, 1997.
Under current market conditions, the investment adviser expects that,
commencing in 1998, dividends paid on the Cumulative Preferred Stock will
consist primarily of long-term capital gains (maximum Federal income tax rate
of 20% for individuals) and mid-term capital gains (maximum Federal income
tax rate of 28% for individuals). See "Taxation". No assurance can be
given, however, as to what percentage, if any, of the dividends paid on the
Cumulative Preferred Stock will consist of long-term and mid-term capital
gains.
It is a condition to its issuance that the Cumulative Preferred Stock be
rated "aaa" by Moody's Investors Service, Inc. ("Moody's"). In connection
with the receipt of such rating, the composition of the Fund's portfolio must
reflect guidelines established by Moody's, and the Fund will be required to
maintain a certain discounted asset coverage with respect to the Cumulative
Preferred Stock.
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 225% or to maintain the discounted asset coverage
required by Moody's. Commencing September 1, 2002 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 September 1,
2002, the Cumulative Preferred Stock will be redeemable, at the option of the
Fund, for cash at a price equal to the Redemption Price, only to the extent
necessary for the Fund to continue to qualify for tax treatment as a
regulated investment company. See "Description of Cumulative Preferred
Stock--Redemption".
(Continued on next page)
___________________
APPLICATION WILL BE MADE TO LIST THE CUMULATIVE PREFERRED STOCK ON THE AMERICAN
STOCK EXCHANGE (THE "AMEX"). TRADING OF THE CUMULATIVE PREFERRED STOCK ON
THE AMEX 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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds
Public(1) or Commissions(2) to Fund(3)
<S> <C> <C> <C>
Per Share . . . . . . . . . . . . . . . . . . $25.00 $0.7875 $24.2125
Total(3) . . . . . . . . . . . . . . . . . . $20,000,000 $630,000 $19,370,000
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original
Issue.
(2) The Fund and the investment adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
(3) Before deducting offering expenses payable by the Fund, estimated
at $190,000.
___________________
The shares of Cumulative Preferred Stock are being offered by the
Underwriter named herein, subject to prior sale, when, as and if accepted by
it and subject to certain conditions. It is expected that delivery of the
shares of Cumulative Preferred Stock will be made in book-entry form through
the facilities of The Depository Trust Company on or about ,
1997.
___________________
SMITH BARNEY INC.
, 1997
(continued from cover page)
If the Fund voluntarily terminates compliance with the Moody's
guidelines, the dividend rate payable on the Cumulative Preferred Stock will
be increased and, among other things, the Fund will no longer be required to
maintain the discounted asset coverage required by Moody's. See "Investment
Objective and 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 , 1997 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.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE
CUMULATIVE PREFERRED STOCK OF THE FUND, INCLUDING THE ENTRY OF STABILIZING
BIDS, COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to
the more detailed information included elsewhere in this Prospectus and the
Statement of Additional Information. Capitalized terms not defined in this
Summary are defined in the Glossary that appears at the end of this
Prospectus.
The Fund; Investment
Objective and Policies Royce Global Trust, Inc. (the "Fund") has been
engaged in business as a closed-end management
investment company since its initial public
offering in March 1988. Since November 1,
1996, when Royce & Associates, Inc. ("Royce")
became its investment adviser, the Fund's
investment objective has been long-term capital
appreciation, which it seeks to achieve by
normally investing more than 75% of its assets
in common stocks, convertible preferred stocks,
convertible debentures and other equity
securities. No assurance can be given that the
Fund's investment objective will be achieved.
Royce invests the Fund's assets in a limited
number of domestic and foreign companies,
selected using a value approach. While the
Fund is not restricted as to stock market
capitalization, Royce focuses the Fund's
investments primarily in small-cap companies
(companies with stock market capitalizations
below $1 billion) with significant business
activities in the United States. The Fund's
total return on the net asset value of its
Common Stock for the eight month period from
November 1, 1996 to June 30, 1997, was 20.5%,
and is not intended to indicate future
performance. See "Investment Objective and
Policies".
The Investment Adviser; Fees Royce also serves as investment adviser to
other management investment companies, with
aggregate net assets of approximately $2.1
billion as of July 31, 1997, and manages other
institutional accounts. The Fund had another
investment adviser and operated under a
different investment strategy prior to November
1, 1996.
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,
Portfolio Manager and Managing Director, 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 is
entitled to receive a monthly fee equal to 1/12
of 1% (1% on an annualized basis) of the
average net assets of the Fund for each month
during the term of the Agreement.
Royce will voluntarily waive the portion of its
investment advisory fee that is attributable to
the amount of the net proceeds to the Fund of
this offering and of any other Preferred Stock
offering for any month when the Fund's average
annual total return from the date of the
Preferred Stock's original issue fails to
exceed the Preferred Stock dividend rate
during that period. Royce had voluntarily
waived its fee until such time as the market
price of the Fund's Common Stock closed for
a period of 20 consecutive trading days at
or above $5.28, the Fund's net asset value on
October 31, 1996. This condition was satisfied
on August 20, 1997. See "Investment Advisory
and Other Services--Advisory Fee".
The Offering The Fund is offering 800,000 shares of %
Cumulative Preferred Stock, par value $.01 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, 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 December 23,
1997, to holders of record on the preceding
March 6, June 6, September 6 and December 6,
respectively. See "Description of Cumulative
Preferred Stock--Dividends".
Potential Tax Benefit
to Certain Investors The Fund is required to allocate income taxed
as long-term capital gains, as well as other
types of income, proportionately among holders
of shares of Common Stock and shares of
Cumulative Preferred Stock in accordance with
the current position of the Internal Revenue
Service (the "IRS"). Under current market
conditions, Royce expects that, commencing in
1998, dividends paid on the Cumulative
Preferred Stock will consist primarily of long-
term and mid-term capital gains. Royce expects
that in 1997, under current market conditions,
the dividend paid on the Cumulative Preferred
Stock will consist primarily of ordinary income
and short-term capital gains. Certain
investors in the Cumulative Preferred Stock may
realize a tax benefit to the extent that
dividends paid by the Fund on those shares are
composed of long-term and mid-term capital
gains. See "Ordinary Income Equivalent Yield
Tables". No assurance can be given, however,
as to what percentage, if any, of the dividends
to be paid on the Cumulative Preferred Stock
will consist of long-term or mid-term capital
gains. To the extent that dividends on the
shares of Cumulative Preferred Stock are not
paid from long-term or mid-term capital gains,
they will be paid from net investment income
(which includes both ordinary income and short-
term capital gains) and taxed as ordinary
income or will represent a return of capital.
Capital Gains Rate Reduction Under recently enacted legislation, "long-term
capital gain" has been broken down into
additional categories of gain, taxable at
different rates. These categories include mid-
term gain. Net mid-term gains on securities
held by the Fund for more than one year but not
more than eighteen months now will be taxed at
the individual taxpayer's marginal Federal
income tax rate, but not higher than 28%. Net
gains on securities held by the Fund for more
than eighteen months now will be taxed at a
maximum rate of 20%. For individual taxpayers
in the 15% marginal Federal income tax bracket,
the tax rate on such gains now will be 10%.
There is some uncertainty as to the manner in
which the categories of gain and the related
rates will be passed through to stockholders as
capital gain dividends. See "Taxation".
Rating It is a condition to its issuance that the
Cumulative Preferred Stock be issued with a
rating of "aaa" from Moody's Investors Service,
Inc. ("Moody's"). The Articles Supplementary
creating and fixing the rights and preferences
of the Cumulative Preferred Stock (the
"Articles Supplementary") contain certain
provisions which reflect guidelines established
by Moody's (the "Rating Agency Guidelines") in
order to obtain such rating on the Cumulative
Preferred Stock on the Date of Original Issue.
Although it is the Fund's present intention to
continue to comply with the Rating Agency
Guidelines, the Board of Directors of the Fund
may determine that it is not in the best
interests of the Fund to continue to do so. 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 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 Coverage The Fund will be required to maintain, as of
the last Business Day of March, June, September
and December of each year, Asset Coverage of at
least 225% with respect to the Cumulative
Preferred Stock. This required Asset Coverage
is greater than the 200% asset coverage
required by Section 18 of the Investment
Company Act of 1940, as amended (the "1940
Act"). If the Fund had issued and sold the
Cumulative Preferred Stock offered hereby as of
June 30, 1997, the Asset Coverage would have
been 350%. See "Description of Cumulative
Preferred Stock--Asset Maintenance".
Also, pursuant to the Rating Agency Guidelines,
the Fund will be required to maintain a
Portfolio Calculation for Moody's at least
equal to the Basic Maintenance Amount. The
discount factors and guidelines for determining
the Portfolio Calculation have been established
by Moody's in connection with the Fund's
receipt of a rating on the Cumulative Preferred
Stock on its Date of Original Issue of "aaa"
from Moody's. See "Investment Objective and
Policies--Rating Agency Guidelines".
Voting Rights At all times, holders of shares of Cumulative
Preferred Stock and any other Preferred Stock
will elect two members of the Fund's Board of
Directors, and holders of Cumulative Preferred
Stock, any other Preferred Stock and Common
Stock, voting as a single class, will elect the
remaining directors. However, upon a failure
by the Fund to pay dividends on the Cumulative
Preferred Stock 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 1940 Act and Maryland law.
Except as otherwise indicated in this
Prospectus and as otherwise required by
applicable law, holders of Cumulative Preferred
Stock will be entitled to one vote per share on
each matter submitted to a vote of stockholders
and will vote together with holders of shares
of Common Stock as a single class. See
"Description of Cumulative Preferred Stock--
Voting Rights".
Mandatory Redemption The Cumulative Preferred Stock is subject to
mandatory redemption in whole or in part by the
Fund in the event that the Fund fails to
maintain the quarterly Asset Coverage or to
maintain a Portfolio Calculation 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 250%. 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 September 1, 2002 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 September 1, 2002,
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 objective and
policies. See "Use of Proceeds".
Listing Prior to this offering, there has been no
public market for the Cumulative Preferred
Stock. Application will be made to list the
shares of Cumulative Preferred Stock on the
American Stock Exchange (the "AMEX"). However,
during an initial period, which is not expected
to exceed 30 days from the date of this
Prospectus, the Cumulative Preferred Stock may
not be listed on such Exchange. During such
period, the Underwriter intends to make a
market in the Cumulative Preferred Stock;
however, they have no obligation to do so.
Consequently, an investment in the Cumulative
Preferred Stock may be illiquid during such
period.
Special Considerations and
Risk Factors The market price for the Cumulative Preferred
Stock will be influenced by changes in interest
rates, the perceived credit quality of the
Cumulative Preferred Stock and other factors.
As indicated above, the Cumulative Preferred
Stock is subject to redemption under specified
circumstances. To the extent that the Fund
experiences a substantial decline in the value
of its net assets, it may be required to redeem
Cumulative Preferred Stock to restore
compliance with the applicable asset coverage
requirements. See "Description of Cumulative
Preferred Stock--Redemption".
The credit rating on the Cumulative Preferred
Stock could be reduced or withdrawn while an
investor holds shares either as a result of the
Fund's termination of compliance with the
Rating Agency Guidelines or otherwise, and the
credit rating does not eliminate or mitigate
the risks of investing in the Cumulative
Preferred Stock. A reduction or withdrawal of
the credit rating may have an adverse effect on
the market value of the Cumulative Preferred
Stock. 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. As of July 31, 1997, the Fund had no
outstanding indebtedness and had not issued any
Preferred Stock. See "Investment Objective and
Policies--Senior Securities".
The Fund invests a portion of its assets in
securities of foreign issuers. Investments in
such securities and in securities denominated
in foreign currencies involve risks not
typically present in domestic investment,
including fluctuations in foreign exchange
rates, future foreign political and economic
developments and the possible imposition of
exchange controls or other foreign or U.S.
governmental laws or restrictions applicable to
such investments. See "Investment Objective
and Policies--Investment Policies and Risk
Factors".
All equity securities are subject to price
volatility, the potential bankruptcy of the
issuer, general movements in markets, overall
economic conditions and perceptions of
potential growth. The Fund primarily invests
in common stocks, convertible preferred stocks,
convertible debentures and other equity
securities. See "Investment Objective and
Policies--Investment Policies and Risk
Factors".
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 if necessary
in order to maintain compliance with such
requirements. See "Taxation" for a more
complete discussion of these and other Federal
income tax considerations.
Custodian, Transfer and
Dividend-Paying Agent and
Registrar State Street Bank and Trust Company ("State
Street") serves as the Fund's custodian and,
with respect to the Cumulative Preferred Stock,
as transfer and dividend paying agent and
registrar and as agent to provide notice of
redemption and certain voting rights. See
"Custodian, Transfer and Dividend--Paying Agent
and Registrar".
ORDINARY INCOME EQUIVALENT YIELD TABLES
Under current market conditions, Royce expects that, commencing in 1998,
dividends paid on the Cumulative Preferred Stock will consist primarily of
long-term capital gains ("L/T Capital Gains") and mid-term capital gains
("M/T Capital Gains"). Royce expects that, under current market conditions,
the dividend to be paid on the Cumulative Preferred Stock in December 1997
will consist primarily of ordinary income and short-term capital gains
("Ordinary Income"). Individual investors in the Cumulative Preferred Stock
would, under current Federal tax law, realize a tax advantage on their
investment to the extent that distributions by the Fund to its stockholders
were partially composed of the less highly taxed L/T Capital Gains and M/T
Capital Gains.
The following tables show 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 L/T Capital Gains, M/T Capital Gains and Ordinary
Income for an investor in the 31.0% Federal marginal tax bracket and assuming
no change in the recently enacted maximum Federal long-term capital gain tax
rate for individuals of 20.0% on securities held by the Fund for more than
eighteen months and mid-term capital gain tax rate for individuals of 28.0%
on securities held by the Fund for more than one year but not more than
eighteen months. The tables also assume that the newly created categories of
gain will retain their character when paid as capital gain dividends.
<TABLE>
<CAPTION>
A CUMULATIVE PREFERRED STOCK
DIVIDEND RATE OF
PERCENTAGE OF CUMULATIVE PREFERRED STOCK
DIVIDEND COMPOSED OF 7.50% 7.625% 7.75%
Ordinary IS EQUIVALENT TO AN ORDINARY
L/T CAPITAL GAINS M/T CAPITAL GAINS Income INCOME YIELD OF
<S> <C> <C> <C> <C> <C>
33.3% 33.3% 33.4% 8.01% 8.14% 8.27%
25.0% 25.0% 50.0% 7.88% 8.01% 8.14%
16.7% 16.7% 66.6% 7.76% 7.88% 8.01%
</TABLE>
A number of factors could affect the composition of the Fund's
distributions. Such factors include (i) active management of the Fund's
assets, which may result in varying proportions of L/T Capital Gains, M/T
Capital Gains, Ordinary Income and/or return of capital in Fund
distributions; and (ii) possible revocation or revision of the IRS revenue
ruling requiring the proportionate allocation of L/T Capital Gains and M/T
Capital Gains among holders of various classes of capital stock.
As illustrated in the table below, assuming a Cumulative Preferred Stock
dividend composed of 33.3% L/T Capital Gains, 33.3% M/T Capital Gains and
33.4% Ordinary Income, 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
DIVIDEND RATE OF
7.50% 7.625% 7.75%
1997 FEDERAL IS EQUIVALENT TO AN ORDINARY
TAX BRACKET+ INCOME YIELD OF
<S> <C> <C> <C>
39.6% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.79% 8.93% 9.08%
36.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.43% 8.58% 8.71%
31.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.00% 8.13% 8.27%
28.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.77% 7.91% 8.03%
15.0% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.65% 7.78% 7.90%
</TABLE>
____________________
/
+/ Annual taxable income levels corresponding to the 1997 Federal marginal
tax brackets are as follows: 39.6%-- over $271,050 for both single and
joint returns; 36.0%--$124,651-$271,050 for single returns, $151,751-
$271,050 for joint returns; 31.0%--$59,751-$124,650 for single returns,
$99,601-$151,750 for joint returns; and 28.0%--$24,651-$59,750 for
single returns, $41,201-$99,600 for joint returns. An investor's
marginal tax rates may exceed the rates shown in the above table due to
the reduction, or possible elimination, of the personal exemption
deduction for high-income taxpayers and an overall limit on itemized
deductions. Income also may be subject to certain state, local and
foreign taxes. For investors who pay alternative minimum tax,
equivalent yields may be lower than those shown above. The tax rates
shown above do not apply to corporate taxpayers.
-------------------
The tax characteristics of the Fund are described more fully under
"Taxation".
The preceding tables are for illustrative purposes only and cannot be taken
as an indication of the composition of the Fund's future distributions.
FINANCIAL HIGHLIGHTS
The selected data set forth below is for a share of Common Stock
outstanding for the periods presented. The financial information was derived
from and should be read in conjunction with the financial statements of the
Fund incorporated by reference into this Prospectus and the Statement of
Additional Information. The financial information for the year ended
December 31, 1996 has been audited by Ernst & Young LLP, independent
auditors, as stated in their unqualified report accompanying such financial
statements. The financial information for each of the seven years in the
period ended December 31, 1995 and for the period from March 2, 1988
(commencement of operations) to December 31, 1988 has been audited by KPMG
Peat Marwick LLP, independent accountants, whose reports thereon were
unqualified. Financial information for the six months ended June 30, 1997 is
unaudited.
<TABLE>
<CAPTION>
Six Period from
Months (commencement of
ended Year ended December 31, operation) March
June 2, 1988 to
30, December 31, 1988
1997
1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year . . . . . . . . . . $ 5.52 $ 5.09 $ 4.70 $ 5.24 $ 4.99 $ 6.01 $ 5.59 $ 5.91 $ 5.52 $ 5.57
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Income from Investment
Operations:
Net investment income 0.04 0.06 0.13 0.19 0.04 0.04 0.21 0.25 0.24 0.28
Net realized and
unrealized gain on
investments and foreign
currency . . . . . . . 0.80 0.35 0.36 (0.62) 0.46 (0.64) 0.49 (0.28) 0.41 (0.03)
---- ---- ---- ------ ----- ------ ---- ----- ---- ------
Total from investment
operations . . . . . . 0.84 0.41 0.49 (0.43) 0.50 (0.60) 0.70 (0.03) 0.65 0.25
---- ---- ---- ----- ---- ------ ---- ----- ---- ----
Dividends and Distributions:
Net investment income
- - (0.16) (0.11) (0.03) (0.02) (0.17) (0.24) (0.23) (0.25)
Net realized gain on
investments and foreign
currency . . . . . . . - - (0.01) - (0.22) (0.05) (0.11) (0.05) (0.03) -
Other sources . . . . - - - - - (0.35) - - - (0.05)
----- ----- ------ ----- ------ ----- ------ ------ ------ ------
Total dividends and
distributions . . . . - - (0.17) (0.11) (0.25) (0.42) (0.28) (0.29) (0.26) (0.30)
------ ------ ------- ------ ------ ------ ------ ----- ------ ------
Capital Stock Transactions - 0.02 0.07 - - - - - - -
------ ------ ------- ------- ------- ------ ------ ------ ------ ------
Net Asset Value, End of
Period . . . . . . . . . . $ 6.36 $ 5.52 $ 5.09 $ 4.70 $ 5.24 $ 4.99 $ 6.01 $ 5.59 $ 5.91 $ 5.52
------ ------- ------- ------- ------- -------- ------ ------ ------ --------
------ ------- ------- ------- ------- -------- ------ ------ ------ --------
Market Value, End of Period
$ 5.00 $ 4.59 $ 4.19 $ 3.56 $ 4.31 $ 4.06 $ 4.63 - - -
------ ------- ------- ------- ------- ------- ------ ------ ------ --------
------ ------- ------- ------- ------- ------- ------ ------ ------ --------
Total Return:(a)
Net Asset Value . . . . . . 15.2% - - - - - - - - -
Market Value . . . . . . . 8.8% 9.6% 22.3% (17.4%) 9.3% (3.3%) (4.5%) - - -
Ratios Based on Average Net
Assets:
Total Expenses(b) . . . . . 0.64%* 1.91% 2.14% 2.27% 2.43% 2.21% 2.36% 2.48% 1.99% 2.17%*
Net investment income . . . 1.58%* 1.80% 2.80% 3.81% 0.74% 0.67% 4.01% 4.33% 4.34% 6.76%*
Supplemental Data:
Net Assets, End of Period
(in thousands) . . . . . . $50,839 $44,154 $41,385 $41,106 $45,839 $43,615 $52,540 $48,830 $51,710 $45,509
Portfolio Turnover Rate . . 34% 159% 76% 483% 445% 267% 269% 312% 244% 30%
Average Commission Rate
Paid+ . . . . . . . . . . . $0.062 $0.0396 - - - - - - - -
(table continued)
Period from
(commencement of
operation) March
2, 1988 to
December 31, 1988
<S> <C>
Net Asset Value, Beginning
of Year . . . . . . . . . . $ 5.57
Income from Investment
Operations:
Net investment income 0.28
Net realized and
unrealized gain on
investments and foreign
currency . . . . . . . (0.03)
Total from investment
operations . . . . . . 0.25
Dividends and Distributions:
Net investment income (0.25)
Net realized gain on
investments and foreign
currency . . . . . . . -
Other sources . . . . (0.05)
Total dividends and
distributions . . . . (0.30)
Capital Stock Transactions
Net Asset Value, End of
Period . . . . . . . . . . $ 5.52
Market Value, End of Period -
Total Return:(a)
Net Asset Value . . . . . . -
Market Value . . . . . . . -
Ratios Based on Average Net
Assets:
Total Expenses(b) . . . . . 2.17%*
Net investment income . . . 6.76%*
Supplemental Data:
Net Assets, End of Period
(in thousands) . . . . . . $45,509
Portfolio Turnover Rate . . 30%
Average Commission Rate
Paid+ . . . . . . . . . . . -
</TABLE>
___________________________
(a) Net Asset Value and Market Value Total Returns are based on the change
in price per share during the periods and assume reinvestment of
distributions at actual prices pursuant to the Fund's dividend
reinvestment plans.
(b) Expense ratios are shown after fee waivers by the Fund's present
investment adviser. For the periods ended June 30, 1997 and December
31, 1996, the expense ratios before the waivers would have been 1.64%
and 2.08%, respectively.
+ For fiscal years beginning after October 1, 1995, the Fund is
required to disclose its average commission rate paid per share for
purchases and sales of investments.
* Annualized.
THE FUND
Royce Global Trust, Inc. (the "Fund") is a closed-end diversified
management investment company. It was incorporated under the name "America's
All Season Fund, Inc." under the laws of the State of Maryland on October
30, 1987 and is registered under the 1940 Act. The Fund commenced operations
in March 1988. As of July 31, 1997, the Fund had 7,998,419 shares of Common
Stock issued and outstanding, with an aggregate net asset value of
$52,384,529. 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 investment objective of long-term capital
appreciation by normally investing more than 75% of its assets in common
stocks, convertible preferred stocks, convertible debentures and other equity
securities. See "Investment Objective and Policies".
USE OF PROCEEDS
The net proceeds of the offering are estimated at $19,180,000, after
deduction of the underwriting discounts and estimated offering expenses
payable by the Fund. The Fund's investment adviser expects to invest such
proceeds in accordance with the Fund's investment objective 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 in which the Fund may invest. See
"Investment Objective and Policies--Investment Policies and Risk Factors".
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund
as of June 30, 1997, and as adjusted to give effect to this offering.
<TABLE>
<CAPTION>
OUTSTANDING AS ADJUSTED
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $.01 par value:
No shares authorized, issued or outstanding;
as adjusted, 5,000,000 shares of % Cumulative
Preferred Stock authorized, and 800,000 of such
shares issued and outstanding - $20,000,000
Common Stock, $.01 par value:
Authorized 100,000,000 shares; 7,998,419 shares issued
and outstanding; as adjusted, 95,000,000 shares authorized $ 79,984 79,984
Additional paid-in capital 39,913,578 39,913,578
Undistributed net investment income 1,191,440 1,191,440
Accumulated net realized gain on
investments and foreign currency 3,995,308 3,995,308
Net unrealized appreciation on investments
and foreign currency 5,658,983 5,658,983
----------- -----------
Net assets applicable to outstanding Common Stock $50,839,293 $50,019,293
___________ ___________
</TABLE>
- --------------------
(1) After deducting underwriting discounts and estimated costs of this
offering of $820,000.
PORTFOLIO COMPOSITION
The following tables set forth certain unaudited information with
respect to the Fund's investment portfolio as of June 30, 1997.
<TABLE>
<CAPTION>
Value Percentage
<S> <C> <C>
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,226,556 83.0%
U.S. Treasury Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,006,880 7.9%
Fixed Income Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791,687 1.6%
Cash and other assets less liabilities . . . . . . . . . . . . . . . . . . . . . . . 3,814,170 7.5%
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,839,293 100.0%
</TABLE>
Sector Weightings in Common Stock Portfolio
<TABLE>
<CAPTION>
Value Percentage
<S> <C> <C>
Industrial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,059,189 15.8%
Industrial Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,183,730 14.1%
Consumer Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,425,519 10.7%
Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,384,012 10.6%
Financial Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,406,675 8.7%
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,050,337 8.0%
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,446,600 4.8%
Consumer Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,354,000 4.6%
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,662,675 3.3%
Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,253,819 2.4%
Total common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,226,556 83.0%
</TABLE>
OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
Number of issuers . . . . . . . . . . . . . . . . 74
Median market capitalization (total portfolio) . . . $518 million
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. It
seeks to achieve this objective by normally investing more than 75% of its
assets in common stocks, convertible preferred stocks, convertible debentures
and other equity securities. There are market risks inherent in any
investment, and there is no assurance that the investment objective of the
Fund will be achieved.
The Fund will normally invest more than 65% of its assets in securities
of companies of at least three countries, including the United States. In
most instances, investments will be made in companies principally based in
the United States or the other developed countries of North America, Europe,
Asia and Australia and not in emerging markets countries. Royce intends to
invest primarily in American Depository Receipts ("ADRs"), in U.S. exchange-
listed securities and in Nasdaq National Market System securities.
The assets of the Fund that are not required to be invested in the
equity securities of domestic and foreign companies may be invested in direct
obligations of the U.S. Government or its agencies and in the non-convertible
preferred stocks and debt securities of domestic and foreign companies.
INVESTMENT POLICIES AND RISK FACTORS
Royce invests the Fund's assets primarily in a limited number of
companies which, it believes, have unusually strong returns on assets, cash
flows and balance sheets or unusual business strengths and/or prospects.
Other characteristics, such as a company's growth potential and valuation
considerations, are also used in selecting investments for the Fund. While
it does not limit the stock market capitalizations of the companies in which
the Fund may invest, Royce has historically focused on small-cap equity
securities (companies with stock market capitalizations below $1 billion).
Currently, the Fund invests primarily in companies which are either domiciled
in the United States with global business activities or domiciled in foreign
countries but with a substantial U.S. presence.
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 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 in time and thus provide
capital appreciation for the Fund's portfolio.
Foreign Investments. The Fund invests a portion of its assets in
securities of foreign issuers. Foreign investments involve certain risks
which typically are not present in securities of domestic issuers.
There may be less information available about a foreign company than a
domestic company; foreign companies may not be subject to accounting,
auditing and reporting standards and requirements comparable to those
applicable to domestic companies; and foreign markets, brokers and issuers
are generally subject to less extensive government regulation than their
domestic counterparts. Foreign securities may be less liquid and may be
subject to greater price volatility than domestic securities. Foreign
brokerage commissions and custodial fees are generally higher than those in
the United States. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, thereby making it difficult to conduct such transactions.
Delays or problems with settlements might affect the liquidity of the Fund's
portfolio. Foreign investments may also be subject to local economic and
political risks, political, economic and social instability, military action
or unrest or adverse diplomatic developments, and possible nationalization of
issuers or expropriation of their assets, which might adversely affect the
Fund's ability to realize on its investment in such securities. There is no
assurance that Royce will be able to anticipate these potential events or
counter their effects. Furthermore, some foreign securities are subject to
brokerage taxes levied by foreign governments, which have the effect of
increasing the cost of such investment and reducing the realized gain or
increasing the realized loss on such securities at the time of sale.
The Fund does not expect to purchase or sell foreign currencies to hedge
against declines in the U.S. dollar or to lock in the value of the foreign
securities it purchases, and its foreign investments may be adversely
affected by changes in foreign currency rates. Consequently, the risks
associated with such investments may be greater than if the Fund did engage
in foreign currency transactions for hedging purposes. Foreign investments
may also be adversely affected by exchange control regulations, if any, in
such foreign markets, and the Fund's ability to make certain distributions
necessary to maintain eligibility as a regulated investment company and avoid
the imposition of income and excise taxes may to that extent be limited.
Income earned or received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Any such taxes paid by the Fund will reduce its cash available
for distribution to stockholders. The Fund is required to calculate its
distributable income and capital gains for U.S. Federal income tax purposes
by reference to the U.S. dollar. Fluctuations in applicable foreign currency
exchange rates may cause the Fund's distributable income and capital gains
for U.S. Federal income tax purposes to differ from the value of its
investments calculated by reference to foreign currencies. If the Fund
invests in stock of a so-called passive foreign investment company, the Fund
may make certain elections that will affect the calculation of its net
investment income and capital gains. See "Taxation".
Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of sponsored or unsponsored ADRs, European Depositary
Receipts ("EDRs") and Global Depositary Receipts ("GDRs") (collectively,
"Depositary Receipts") or other securities convertible into securities of
foreign issuers. Depositary Receipts may not necessarily be denominated in
the same currency as the underlying securities into which they may be
converted. ADRs are receipts typically issued by an American bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe that evidence a similar
ownership arrangement. GDRs are receipts issued throughout the world that
evidence a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form,
are designed for use in European securities markets. GDRs are tradeable both
in the U.S. and in Europe and are designed for use throughout the world.
Depositary Receipts are alternatives to the purchase of the underlying
foreign securities in their national markets and currencies. The Fund may
invest in unsponsored Depositary Receipts. The issuers of unsponsored
Depositary Receipts are not obligated to disclose material information in the
United States and, therefore, there may be less information available
regarding such issuers and there may not be a correlation between such
information and the market value of the Depositary Receipts. Depositary
Receipts also involve the risks associated with other investments in foreign
securities, as discussed above.
Fixed Income Securities. Up to 25% of the Fund's total assets may be
invested in direct obligations of the U.S. Government or its agencies and in
non-convertible preferred stocks and debt securities of various domestic and
foreign issuers. Within this category, up to 5% of the Fund's total assets
may be invested in below investment-grade debt securities, also known as
high-yield/high-risk securities. Such debt securities may be in the lowest-
rated categories of recognized rating agencies (C in the case of Moody's or D
in the case of Standard & Poor's Ratings Services) or may be unrated. Such
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 Standard & Poor's 500 Composite Stock
Price Index.
Other Investment Companies. The Fund may also indirectly invest in the
securities of domestic and foreign companies by investing in the securities
of other investment companies that invest primarily in such companies. The
other investment companies in which the Fund may invest may be domestic
companies registered under the 1940 Act or foreign companies that are not so
registered or otherwise regulated. They usually have their own management
fees and expenses, and Royce will also earn its fee on Fund assets invested
in such other companies, which would result in a duplication of fees to the
extent of any such investment. However, Royce will waive its management fee
on any Fund assets invested in open-end investment companies, and no sales
charge will be incurred on such an investment. See "Investment Advisory and
Other Services--Advisory Fee".
Temporary Investments. The assets of the Fund are normally invested as
described above. 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 agreements 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.
Securities Lending. The Fund is authorized to lend up to 25% of its
assets to qualified institutional investors for the purpose of realizing
additional income. The Rating Agency Guidelines, however, limit the amount
that the Fund may lend to 5% of its total assets. Loans of securities of the
Fund will be collateralized by cash or securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. The collateral will
equal at least 100% of the current market value of the loaned securities.
The risks of securities lending include possible delays in receiving
additional collateral or in recovery of loaned securities or loss of rights
in the collateral if the borrower defaults or becomes insolvent.
Reverse Repurchase Agreements. The Fund is also authorized to enter
into reverse repurchase agreements. However, the Rating Agency Guidelines
prohibit such transactions. Such agreements involve the sale of securities
held by the Fund pursuant to an agreement to repurchase the securities at an
agreed-upon price, date and interest payment. When effecting reverse
repurchase transactions, liquid securities of a dollar amount equal in value
to the securities subject to the agreement are required to be maintained in a
segregated account with the Fund's custodian bank, and the reverse repurchase
agreement is required to be marked to market each day.
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, other Common Stock distributions, 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 Common Stock
of the Fund. 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 June 30, 1997, the Fund had total assets of $51,576,759 and total
liabilities of $737,466 and had not issued any debt securities or Preferred
Stock. Accordingly, as of such date, the Fund could have, under such
policies and restrictions, issued and sold senior securities representing
indebtedness of up to $25,419,647 or Preferred Stock having an involuntary
liquidation preference of up to $50,839,293 or various combinations of lesser
amounts of both securities representing indebtedness and such Preferred
Stock.
The Fund's investment policies are subject to certain restrictions. See
"--Investment Restrictions".
RATING AGENCY GUIDELINES
Certain of the capitalized terms used herein are defined in the Glossary
that appears at the end of this Prospectus.
Moody's has established guidelines in connection with the Fund's receipt
of a rating for the Cumulative Preferred Stock on their Date of Original
Issue of "aaa" by Moody's. Moody's, a nationally-recognized securities
rating organization, issues ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines have been
developed by Moody's in connection with issuances of asset-backed and similar
securities, including debt obligations and various 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 Fund intends to maintain a Portfolio Calculation at least equal to
the Basic Maintenance Amount. If the Fund fails to meet such requirement and
such failure is not cured, the Fund will be required to redeem some or all of
the Cumulative Preferred Stock. See "Description of Cumulative Preferred
Stock--Redemption--Mandatory Redemption". The Rating Agency Guidelines also
exclude from Moody's Eligible Assets and, therefore, from the Portfolio
Calculation, certain types of securities in which the Fund may invest and
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 objective. For a further discussion of the Rating Agency
Guidelines, see "Description of Cumulative Preferred Stock".
The Fund may, but is not required to, adopt any modifications to the
Moody's guidelines that may hereafter be established by Moody's. Failure to
adopt such modifications, however, may result in a change in the Moody's
rating or a withdrawal of a rating altogether. In addition, Moody's may, at
any time, change or withdraw such rating. As set forth in the Articles
Supplementary, the Board of Directors of the Fund may, without stockholder
approval, adjust, modify, alter or change the Rating Agency Guidelines if
Moody's advises the Fund in writing that such adjustment, modification,
alteration or change will not adversely affect its then current rating on the
Cumulative Preferred Stock. Furthermore, under certain circumstances, the
Board of Directors of the Fund may determine that it is not in the best
interests of the Fund to continue to comply with the Rating Agency
Guidelines. If the Fund terminates compliance with the Rating Agency
Guidelines, it is likely that Moody's will change its rating on the
Cumulative Preferred Stock or withdraw its rating altogether, which may have
an adverse effect on the market value of the Cumulative Preferred Stock. It
is the Fund's present intention to continue to comply with the Rating Agency
Guidelines.
As recently described by Moody's, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred
stock obligations. The rating on the Cumulative Preferred Stock is not a
recommendation to purchase, hold or sell such shares, inasmuch as the rating
does not comment as to market price or suitability for a particular investor.
Moreover, the Rating Agency Guidelines do not address the likelihood that a
holder of Cumulative Preferred Stock will be able to sell such shares. The
rating is based on current information furnished to Moody's by the Fund and
Royce and information obtained from other sources. The rating may be
changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information.
CHANGES IN INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective of long-term capital appreciation
principally through investment in common stocks, convertible preferred
stocks, convertible debentures and other equity securities is a fundamental
policy of the Fund and may not be changed without approvals of holders of a
majority of the Fund's outstanding shares of Common Stock and outstanding
shares of Cumulative Preferred Stock and any other Preferred Stock, voting as
a single class, and a majority of the outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock, voting as a separate class
(which for this purpose and under the 1940 Act means the lesser of (i) 67% 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 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 Objective and Policies". The Fund may not:
1. As to 75% of the Fund's total assets, invest more than 5% of its
total assets in the securities of any one issuer. (This limitation
does not apply to cash and cash items or to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.)
2. Invest in any investment company if a purchase of its shares would
result in the Fund and its affiliates owning more than 3% of the
total outstanding stock of such company.
3. Purchase more than 10% of the voting securities or more than 10% of
any class of securities of any issuer. For purposes of this
restriction, all outstanding fixed income securities of an issuer
are considered as one class.
4. Purchase or sell commodities or commodity future contracts. (This
restriction does not limit the Fund's use of financial futures and
options thereon, or the investment of not more than 25% of the
Fund's assets in gold and silver bullion or certificates for such
precious metals. Illiquid investments in either gold, silver or
certificates for gold or silver are limited to 10% of the Fund's
assets.)
5. Make loans of money or securities, except (i) by the purchase of
fixed income obligations in which the Fund may invest consistent
with its investment objective and policies; (ii) by entering into
securities lending transactions described in "Investment Objective
and Policies"; and (iii) by entering into reverse repurchase
agreements, as described in "Investment Objective and Policies".
6. Invest in the securities of any company if, to the knowledge of the
Fund, any officer or director of the Fund or the investment adviser
owns more than .5% of the outstanding securities of such company
and such officers and directors (who own more than .5%) in the
aggregate own more than 5% of the outstanding securities of such
company.
7. Borrow money, except to the extent that it may (i) borrow from
banks for temporary or emergency purposes in an amount not
exceeding 5% of the Fund's assets or (ii) borrow in an amount up to
331/3% of the value of the Fund's total assets (including the
amount borrowed) valued at market less liabilities (not including
the amount borrowed) at the time the borrowing was made; provided
that the Fund may engage in reverse repurchase agreements, as set
forth in "Investment Objective and Policies".
8. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 331/3% of the value of its net assets,
but only to secure borrowings authorized by Restriction 7 above.
9. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933
in disposing of a portfolio security.
10. Purchase or sell real estate or interests therein, although it may
purchase securities of issuers which engage in real estate
operations and securities which are secured by real estate or
interests therein.
11. Invest for the purpose of exercising control or management of
another company.
12. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the
Fund may invest in the securities of companies which invest in or
sponsor such programs.
13. Concentrate its investments in any industry.
14. Make purchases of securities on "margin" from an affiliated person,
provided that the Fund may engage in short sales and may satisfy
margin requirements with respect to futures transactions.
Notwithstanding Restriction 4 above, the Fund has no current
intention of investing in financial futures and options thereon, gold and
silver bullion or certificates for such precious metals.
The policies set forth below are operating policies of the Fund and
may be changed by the Board of Directors without stockholder approval or
prior notice to stockholders. The Fund may not:
a. Make investments which would cause more than 50% of the Fund's
assets to be invested in equity securities traded exclusively in
markets outside the United States.
b. Invest in emerging market countries.
Limitations a and b do not prevent the Fund from purchasing
sponsored or unsponsored depository receipts trading within the
U.S. and/or developed markets in Europe which represent an interest
in foreign equity securities trading in other markets, including
securities of issuers located or trading in emerging market
countries.
c. Make investments which would cause more that 25% of the Fund's
assets to be invested in non-equity securities traded exclusively
in markets outside the U.S.
d. Make investments which would cause more than 5% of the Fund's
assets to be invested in below investment grade non-convertible
debt securities.
e. Deal in foreign currency futures, either for speculative or hedging
purposes.
f. Engage in "swaps," or invest more than 10% of its assets in
illiquid securities.
g. Make short sales of securities, other than short sales against-the-
box in which, at the time of the short sale, the Fund holds or has
an unrestricted right to receive the security to be sold short.
h. Invest in derivative securities of a speculative nature. (This
limitation is not intended to prevent the Fund from using
investments in repurchase agreements, reverse repurchase
agreements, warrants, rights, options and convertible securities.)
i. Borrow from banks for leveraging purposes. (The Fund may, however,
issue other senior securities under Section 18 of the 1940 Act.)
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.
INVESTMENT ADVISORY AND OTHER SERVICES
Royce is a New York corporation organized in February 1967, with its
principal office at 1414 Avenue of the Americas, New York, New York 10019.
It became the investment adviser of the Fund on November 1, 1996, succeeding
another company that managed the Fund's assets using a different investment
strategy from that used by Royce. Royce also serves as investment adviser to
other management investment companies, with aggregate net assets of
approximately $2.1 billion as of July 31, 1997, and manages other
institutional accounts.
Under the Fund's Articles of Incorporation, as amended, and the 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, Portfolio Manager and Managing Director, and by Jack E.
Fockler, Jr., Managing Director. See "Directors and Officers" in the
Statement of Additional Information.
INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Fund and Royce,
Royce determines the composition of the Fund's portfolio, the nature and
timing of the changes in it and the manner of implementing such changes;
provides the Fund with investment advisory, research and related services for
the investment of its assets; furnishes, without expense to the Fund, the
services of those of its executive officers and full-time employees who may
be duly elected directors or executive officers of the Fund and pays their
compensation and expenses; and pays all expenses incurred in performing its
investment advisory duties under the Agreement.
The Fund pays all of its own administrative and other costs and expenses
attributable to its operations and transactions (except those set forth
above), including, without limitation, registrar, transfer agent and
custodian fees; legal, administrative and clerical services; rent for its
office space and facilities; auditing; preparation, printing and distribution
of its proxy statements, stockholder reports and notices; Federal and state
registration fees; listing fees and expenses; Federal, state and local taxes;
non-affiliated directors fees; interest on its borrowings; brokerage
commissions; and the cost of issue, sale and repurchase of its shares. Thus,
unlike most other investment companies, the Fund is required to pay
substantially all of its expenses, and Royce does not incur substantial fixed
expenses.
ADVISORY FEE
As compensation for its services under the Investment Advisory
Agreement, Royce is entitled to receive a monthly fee equal to 1/12 of 1% (1%
on an annualized basis) of the average of the net assets of the Fund.
Because the fee is computed based on the Fund's net assets and not on 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. However, because preferred stock is a form of equity, 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 any
Preferred Stock that may be issued and sold by the Fund, including the
Cumulative Preferred Stock.
Royce has agreed to reduce the monthly fees payable to it under the
Investment Advisory Agreement to the extent necessary so that the ratio of
the expenses of the Fund (including the fees payable to Royce, but excluding
interest, dividends on securities sold short, taxes, brokerage commissions,
distribution fees, amortization of organization expenses and litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business) will not exceed, for each of the
fiscal years of the Fund ending December 31, 1997 and 1998, 1.75% of the
Fund's average net assets for such fiscal year. Royce will voluntarily
reduce this ratio to 1.375%, effective for periods from the Date of
Original Issue.
Royce will also waive the portion of its investment advisory fee that is
attributable to the amount of the net proceeds to the Fund of this offering
and of any other Preferred Stock offering for any month when the Fund's
average annual total return (before reduction for that portion of the
fee for the month that is subject to potential waiver, but assuming a
continuous stockholder who reinvested all distributions and fully
participated in any primary rights offerings) from the date of the
Preferred Stock's original issue fails to exceed the Preferred Stock
dividend rate during that period.
Royce had voluntarily waived the investment advisory fees payable to it
by the Fund until such time as the market price of the Fund's Common Stock,
adjusted for any distributions to stockholders or other capital
transactions, closed for a period of 20 consecutive trading days at or
above $5.28, the net asset value of a share of the Fund's Common Stock on
October 31, 1996. This condition was satisfied on August 20, 1997.
DESCRIPTION OF CUMULATIVE PREFERRED STOCK
The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Articles Supplementary, the form of which is
filed as an exhibit to the Fund's Registration Statement. Certain of the
capitalized terms used herein are defined in the Glossary that appears at the
end of this Prospectus.
GENERAL
Under the Articles Supplementary, the Fund will be authorized to issue
up to 5,000,000 shares of Cumulative Preferred Stock, 800,000 of which are
being offered hereby. No fractional shares of Cumulative Preferred Stock
will be issued. As of the date of this Prospectus, there were no shares of
Cumulative Preferred Stock or any other Preferred Stock of the Fund issued or
outstanding. 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
but unissued Preferred Stock from time to time by setting or changing the
preferences, rights, voting powers, restrictions, limitations or terms of
redemption. The Fund will not issue any class of stock senior to the shares
of Cumulative Preferred Stock.
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 % 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 December 23, 1997, 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 upon liquidation) in respect of the Common Stock or
any other stock of the Fund ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any
shares of its Common Stock or any other junior stock (except by conversion
into or exchange for stock of the Fund ranking junior to the Cumulative
Preferred Stock as to dividends and upon liquidation), unless, in each case,
(i) immediately after such transaction, the Fund will have a Portfolio
Calculation for Moody's at least equal to the Basic Maintenance Amount and
the Fund will maintain the Asset Coverage (see "--Asset Maintenance" and "--
Redemption" below), (ii) full cumulative dividends on shares of Cumulative
Preferred Stock due on or prior to the date of the 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.
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 225% (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"). This required Asset Coverage is higher than the 200% asset
coverage required by the 1940 Act. If the Fund fails to maintain the Asset
Coverage on such dates and such failure is not cured in 60 days, the Fund
will be required under certain circumstances to redeem certain of the shares
of Cumulative Preferred Stock. See "--Redemption" below.
If the shares of Cumulative Preferred Stock offered hereby had been
issued and sold on June 30, 1997, 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
$820,000), would have been computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Value of Fund assets less liabilities not
constituting senior securities $70,019,293
= = 350%
Senior securities representing indebtedness plus liquidation $20,000,000
preference of the Cumulative Preferred Stock
</TABLE>
Basic Maintenance Amount. The Fund will be required under the Articles
Supplementary to maintain, as of each Valuation Date, portfolio holdings
meeting specified guidelines of Moody's, as described under "Investment
Objective and 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
preference of the Cumulative Preferred Stock, 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" below.
Any security not in compliance with the Rating Agency Guidelines will be
excluded from the Portfolio Calculation.
The Moody's Discount Factors and guidelines for determining the market
value of the Fund's portfolio holdings have been based on criteria
established in connection with the rating of the Cumulative Preferred Stock.
These factors include, but are not limited to, the sensitivity of the market
value of the relevant asset to changes in interest rates, the liquidity and
depth of the market for the relevant asset, the credit quality of the
relevant asset (for example, the lower the rating of a corporate debt
obligation, the higher the related discount factor) and the frequency with
which the relevant asset is marked to market. The Moody's Discount Factor
relating to any asset of the Fund and the Basic Maintenance Amount, the
assets eligible for inclusion in the calculation of the discounted value of
the Fund's portfolio and certain definitions and methods of calculation
relating thereto may be changed from time to time by the Board of Directors,
provided that, among other things, such changes will not impair the rating
then assigned to the Cumulative Preferred Stock by Moody's.
On or before the third Business Day after each Quarterly Valuation Date,
the Fund is required to deliver to Moody's a Basic Maintenance Report.
Within ten Business Days after delivery of such report relating to the
Quarterly Valuation Date, the Fund will deliver a letter prepared by the
Fund's independent accountants regarding the accuracy of the calculations
made by the Fund in its most recent Basic Maintenance Report. If any such
letter prepared by the Fund's independent accountants shows that an error was
made in the most recent Basic Maintenance Report, the calculation or
determination made by the Fund's independent accountants will be conclusive
and binding on the Fund.
REDEMPTION
Mandatory Redemption. The Fund will be required to redeem, at a
redemption price equal to $25.00 per share plus accumulated and unpaid
dividends through the date of redemption (whether or not earned or declared)
(the "Redemption Price"), certain of the shares of Cumulative Preferred Stock
(to the extent permitted under the 1940 Act and Maryland law) in the event
that:
(i) the Fund fails to maintain the quarterly Asset Coverage, and
such failure is not cured on or before 60 days following such failure (a
"Cure Date"); or
(ii) for so long as the Fund is complying with the Rating Agency
Guidelines, the Fund fails to maintain a Portfolio Calculation at least
equal to the Basic Maintenance Amount as of any Valuation Date, and such
failure is not cured on or before the 14th day after such Valuation Date
(also, a "Cure Date").
The amount of such mandatory redemption will equal the minimum number of
outstanding shares of Cumulative Preferred Stock the redemption of which, if
such redemption had occurred immediately prior to the opening of business on
a Cure Date, would have resulted in the Asset Coverage having been satisfied
or the Fund having a Portfolio Calculation for Moody's equal to or greater
than the Basic Maintenance Amount on such Cure Date or, if the Asset Coverage
or a Portfolio Calculation for Moody's equal to or greater than the Basic
Maintenance Amount, as the case may be, cannot be so restored, all of the
shares of Cumulative Preferred Stock, at the Redemption Price. In the event
that shares of Cumulative Preferred Stock are redeemed due to the occurrence
of (i) above, the Fund may, but is not required to, redeem a sufficient
number of shares of Cumulative Preferred Stock in order to increase the
"asset coverage", as defined in the 1940 Act, of the remaining outstanding
shares of Cumulative Preferred Stock and any other Preferred Stock after
redemption up to 250%. 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 redemptions 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, ratably from each holder
whose shares are to be redeemed, and the remainder of the shares required to
be redeemed will be redeemed on the earliest practicable date on which the
Fund will have funds legally available for the redemption of, or is otherwise
able to redeem, such shares upon written notice of redemption ("Notice of
Redemption").
If fewer than all shares of Cumulative Preferred Stock are to be
redeemed, such redemption will be made pro rata from each holder of shares in
accordance with the respective number of shares held by each such holder on
the record date for such redemption. If fewer than all shares of Cumulative
Preferred Stock held by any holder are to be redeemed, the Notice of
Redemption mailed to such holder will specify the number of shares to be
redeemed from such holder. Unless all accumulated and unpaid dividends for
all past dividend periods will have been or are contemporaneously paid or
declared and Deposit Securities for the payment thereof deposited with the
Paying Agent, no redemptions of Cumulative Preferred Stock may be made.
Optional Redemption. Prior to September 1, 2002, the shares of
Cumulative Preferred Stock are not subject to any optional redemption by the
Fund unless such redemption is necessary, in the judgment of the Fund, to
maintain the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). Commencing September
1, 2002 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 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 holders of
shares of the Common Stock and of any other series of the Preferred Stock of
the Fund, to vote on matters affecting the Cumulative Preferred Stock that do
not adversely affect such other class or series, and (ii) holders of shares
of any other outstanding series of Preferred Stock will be entitled, as a
series, to the exclusion of holders of shares of the Cumulative Preferred
Stock, to vote on matters affecting such other series of the Preferred Stock
that do not adversely affect the Cumulative Preferred Stock.
In connection with the election of the Fund's directors, holders of
shares of Cumulative Preferred Stock and any other Preferred Stock, voting as
a separate class, will be entitled at all times to elect two of the Fund's
directors, and the remaining directors will be elected by holders of shares
of Common Stock and holders of shares of Cumulative Preferred Stock and any
other Preferred Stock, voting together as a single class. In addition, if at
any time dividends on outstanding shares of Cumulative Preferred Stock 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 investment objective or changes in the investment
restrictions described as fundamental policies under "Investment Objective
and Policies". The class vote of holders of shares of the Cumulative
Preferred Stock and any other Preferred Stock described above in each case
will be in addition to a separate vote of the requisite percentage of shares
of Common Stock and Cumulative Preferred Stock and any other Preferred Stock,
voting together as a single class, necessary to authorize the action in
question. See "Description of Capital Stock--Certain Voting Requirements".
The foregoing voting provisions will not apply to any shares of
Cumulative Preferred Stock if, at or prior to the time when the act with
respect to which such vote otherwise would be required will be effected, such
shares will have been (i) redeemed or (ii) called for redemption and
sufficient Deposit Securities provided to the Paying Agent to effect such
redemption.
TERMINATION OF RATING AGENCY GUIDELINES
The Articles Supplementary provide that the Board of Directors of the
Fund may determine that it is not in the best interests of the Fund to
continue to comply with the Rating Agency Guidelines, in which case the Fund
will no longer be required to comply with such guidelines, provided that (i)
the 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 AMEX 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 the Cumulative Preferred Stock is
increased by .375% per annum.
If the Fund terminates compliance with the Rating Agency Guidelines,
Moody's may change its rating on the Cumulative Preferred Stock or withdraw
its rating altogether, which may have an adverse effect on the market value
of the Cumulative Preferred Stock. It is the Fund's present intention to
continue to comply with the Rating Agency Guidelines.
LIMITATION ON 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
4,200,000 additional shares of the Cumulative Preferred Stock and/or shares
of one or more other series of the 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.
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 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 when it is deemed advisable by the Board of
Directors in compliance with the requirements of the 1940 Act and the rules
and regulations thereunder.
BOOK-ENTRY
Shares of Cumulative Preferred Stock will initially be held in the name
of Cede & Co. ("Cede"), as nominee for The Depositary Trust Company ("DTC").
The Fund will treat Cede as the holder of record of the Cumulative Preferred
Stock for all purposes. In accordance with the procedures of DTC, however,
purchasers of Cumulative Preferred Stock will be deemed the beneficial owners
of shares purchased for purposes of dividends, voting and liquidation rights.
Purchasers of Cumulative Preferred Stock may obtain registered certificates
by contacting the Transfer Agent (as defined below).
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK
Common Stock. The Fund is authorized to issue 95,000,000 shares of
Common Stock, par value $.01 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 Nasdaq National Market System-listed company,
the Fund is required to hold annual meetings of its stockholders.
Preferred Stock. The Board of Directors is authorized to classify or
reclassify any unissued shares of capital stock by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such shares. In this regard, the Board of Directors has
reclassified 5,000,000 shares of unissued Common Stock as Cumulative
Preferred Stock, of which 800,000 are offered hereby. The terms of the
Cumulative Preferred Stock materially limit and/or qualify the rights of the
holders of the Fund's Common Stock. See "Description of Cumulative Preferred
Stock".
The following table shows the number of shares of (i) capital stock
authorized, (ii) capital stock held by the Fund for its own account and
(iii) capital stock outstanding for each class of authorized securities of
the Fund as of the date of this Prospectus.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD (EXCLUSIVE OF
BY FUND AMOUNT HELD
AMOUNT FOR ITS OWN BY FUND FOR ITS
TITLE OF CLASS AUTHORIZED ACCOUNT OWN ACCOUNT)
<S> <C> <C> <C>
Common Stock . . . . . . . . . . . . . . . . . . . 95,000,000 shares -0- 7,998,419
Cumulative Preferred Stock . . . . . . . . . . . . 5,000,000 shares -0- -0-
</TABLE>
CERTAIN VOTING REQUIREMENTS
Under the Fund's Charter, (i) the dissolution of the Fund; (ii) a merger
or consolidation of the Fund (in which the Fund is not the surviving
corporation); (iii) the sale, lease, exchange or other disposal of all or
substantially all the property and assets of the Fund to any individual or
entity; or (iv) any amendment of the Articles of Incorporation which makes
any class of the Fund's stock redeemable securities (as that term is defined
in the 1940 Act) will have to be approved by the holders of at least 662/3%
of the outstanding shares of the Fund's Common Stock and Preferred Stock,
voting together as a single class. Such 662/3% vote, which will also be
required to alter, amend or repeal the provision of the Fund's Charter
containing these voting requirements, is the vote provided for certain of
these matters by the Maryland General Corporation Law in the absence of the
Charter providing for a greater or lesser percentage. Other of these matters
would not require a vote under such Law in the absence of such provisions in
the Charter.
The foregoing voting requirements could have the effect of limiting the
ability of third parties to acquire control of the Fund. This could in turn
have the effect of depriving stockholders of potential opportunities to sell
their shares at above market prices.
TAXATION
The following Federal income tax discussion is based on the advice of
Brown & Wood LLP, special counsel to the Fund. The discussion reflects
applicable tax laws of the United States as of the date of this Prospectus,
which tax laws are subject to being changed retroactively or prospectively.
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("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 (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,
however, will be treated as long-term capital loss to the extent of any
capital gain dividends received by the stockholder. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis
of a holder's shares and, after such adjusted tax basis is reduced to zero,
will constitute capital gains to such holder (assuming the shares are held as
a capital asset).
Capital gain dividends may be taxed at a lower rate than ordinary income
dividends for certain non-corporate taxpayers. Under recent legislation,
"long-term capital gain" has been broken down into additional categories of
gain, taxable at different rates. These categories include mid-term gain as
well as certain other categories of gain that the Fund does not expect to
realize. Net mid-term gains on securities held longer than one year but not
longer than eighteen months are taxed at the taxpayer's marginal Federal
income tax rate, but not higher than 28%. Net gains on securities held
longer than eighteen months are taxed at a maximum rate of 20%. For
taxpayers in the 15% marginal Federal income tax bracket, the tax rate on
such gains is 10%. Although the legislation does not explain the mechanism
for taxing gain in these categories to stockholders of RICs, it authorizes
the IRS to adopt regulations applying the new categories of gain and the new
rates to sales of securities by RICs. Accordingly, there is currently some
uncertainty as to the manner in which the categories of gain and related
rates will be passed through to stockholders as capital gain dividends.
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.
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. It is
anticipated that any IRS guidance permitting categories of gain and related
rates to be passed through to stockholders would require that the Fund also
designate the portions of its capital gain dividends that constitute mid-term
gain and long-term gain. 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.
Ordinary income dividends (but not capital gain dividends) paid to
stockholders who are non-resident aliens or foreign entities will be subject
to a 30% United States withholding tax under existing provisions of the Code
applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty
law. Non-resident stockholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Under certain provisions of the Code, some stockholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where
the stockholder maintains his or her account), certifying under penalties of
perjury that such stockholder's taxpayer identification number is correct and
that such stockholder (i) has never been notified by the IRS that he or she
is subject to backup withholding, (ii) has been notified by the IRS that he
or she is no longer subject to backup withholding, or (iii) is exempt from
backup withholding. Corporate stockholders and certain other stockholders
are exempt from backup withholding. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules from payments
made to a stockholder may be credited against such stockholder's Federal
income tax liability.
At the time of a stockholder's purchase, the market price of the Fund's
Common Stock or Cumulative Preferred Stock may reflect undistributed net
investment income or net capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the stockholder even though the
distribution economically is a return of part of the stockholder's
investment. Investors should carefully consider the tax implications of
acquiring shares just prior to a distribution, as they will receive a
distribution that would nevertheless be taxable to them.
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 holders of Cumulative Preferred Stock. The amount of net
capital gains and other types of income allocable among the Cumulative
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 and Cumulative 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
between shares of Common Stock and Cumulative Preferred Stock will be
respected for Federal income tax purposes. However, there is currently no
direct guidance from the IRS or other sources specifically addressing whether
the Fund's method of allocation will be respected for Federal income tax
purposes, and it is possible that the IRS could disagree with counsel's
opinion and attempt to reallocate the Fund's net capital gains or other
taxable income. Brown & Wood LLP has advised the Fund that, in its opinion,
if the IRS were to challenge in court the Fund's allocation of income and
gain, the IRS would be unlikely to prevail. The opinion of Brown & Wood LLP,
however, represents only its best legal judgment and is not binding on the
IRS or the courts.
TAXATION OF THE FUND
Qualification as a RIC requires, among other things, (i) 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, and (ii) that for
the Fund's taxable year beginning on January 1, 1997, less than 30%
of its gross income be derived from the sale of certain types of securities
held for less than three months (the "short-short test"). The short-short
test for RIC qualification has been repealed for the Fund's taxable years
beginning on January 1, 1997. 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 certain
undistributed amounts from previous years. While the Fund intends to
distribute its ordinary income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund's 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 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 so-called passive foreign investment
company ("PFIC"), it may be subject to Federal income tax at ordinary rates,
and an additional charge in the nature of interest, on a portion of its
distributions from the PFIC and on gain from the disposition of the shares of
the PFIC, even if such distributions and gain are paid by the Fund as a
dividend to its stockholders. In some cases, the Fund may be able to elect
to include annually in income its pro rata share of the ordinary earnings and
capital gains (whether or not distributed) of the PFIC. Alternatively, under
recent legislation, the Fund could elect to mark to market at the end of each
taxable year its shares in PFICs; in this case, the Fund would recognize as
ordinary income any increase in the value of such shares, and as ordinary
loss any decrease in such value to the extent it did not exceed prior
increases included in income. Under either election, the Fund might be
required to recognize in a year income in excess of its distributions from
PFICs and its proceeds from dispositions of PFIC stock during that year.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative, judicial or
administrative action, either prospectively or retroactively.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations.
State law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
OTHER TAXATION
Distributions may also be subject to additional state, local and foreign
taxes, depending on each stockholder's particular situation. Stockholders
are advised to consult their own tax advisers with respect to the particular
tax consequences to them of an investment in the Cumulative Preferred Stock.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
State Street Bank, which is located at 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian of the securities, cash and other
assets of the Fund, as dividend-paying agent and as transfer agent and
registrar for the Fund's Cumulative Preferred Stock. Stockholder inquiries
should be directed to P.O. Box 8100, Boston, Massachusetts 02266-8100. (Tel.
No. (800) 426-5523).
UNDERWRITING
Upon the terms and subject to the conditions contained in an
Underwriting Agreement dated the date hereof, the Underwriter named below has
agreed to purchase, and the Fund has agreed to sell to such Underwriter, the
number of shares of Cumulative Preferred Stock set forth opposite the name of
such Underwriter:
<TABLE>
<CAPTION>
Number of
Name Shares
<S> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
</TABLE>
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for 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. The Underwriter is
obligated to take and pay for all shares of Cumulative Preferred Stock
offered hereby if any are taken.
The Underwriter proposes to offer part of the shares of Cumulative
Preferred Stock offered hereby directly to the public at the public offering
price set forth on the cover page of this Prospectus and part of the shares
to certain dealers at a price which represents a concession not in excess of
$ per share under the public offering price. The Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the initial offering of the shares of
Cumulative Preferred Stock to the public, the public offering price and such
concessions may be changed by the Underwriter. 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 , 1997.
The Fund and Royce have agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
The Underwriter has 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 Underwriter 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
Underwriter in connection with the offering. A "penalty bid" is an
arrangement permitting the Underwriter to reclaim the selling concession
otherwise accruing to the 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 Underwriter has advised the Fund that such
transactions may be effected on the AMEX or otherwise and, if commenced, may
be discontinued at any time.
The Underwriter has 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 a broker or dealer in connection
with the execution of portfolio transactions for the Fund. See "Brokerage
Allocation and Other Practices" in the Statement of Additional Information.
Prior to the offering, there has been no public market for the
Cumulative Preferred Stock. Application will be made to list the Cumulative
Preferred Stock on the AMEX. 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 Underwriter intends to make a market in the Cumulative Preferred
Stock; however, it has no obligation to do so. Consequently, an investment
in the Cumulative Preferred Stock may be illiquid during such period.
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 Underwriter.
LEGAL MATTERS
Certain matters concerning the legality under Maryland law of the
Cumulative Preferred Stock will be passed on by Stradley Ronon Stevens &
Young, LLP, Philadelphia, Pennsylvania, counsel to the Fund. 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 (a partnership which
includes professional corporations), New York, New York, counsel to the
Underwriter. Brown & Wood LLP and Simpson Thacher & Bartlett will each rely
as to matters of Maryland law on the opinion of Stradley Ronon Stevens &
Young, LLP.
EXPERTS
Ernst & Young LLP are the current independent auditors of the Fund. The
audited financial statements of the Fund and certain of the information
appearing under the caption "Financial Highlights" at December 31, 1996, and
for the year then ended, included in this Prospectus have been audited by
Ernst & Young LLP, independent auditors, and for periods prior to 1996 by
KPMG Peat Marwick LLP, independent auditors, as set forth in their reports
with respect thereto, and are included in reliance upon such reports and upon
the authority of such firms as experts in accounting and auditing. Ernst
& Young LLP has an office at 787 Seventh Avenue, New York, New York 10019,
and also performs tax and other professional services for the Fund. The
address of KPMG Peat Marwick LLP is 111 North Orange Avenue, Suite 1600,
Orlando, Florida 32802.
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 can be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., 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.
This Prospectus constitutes part of a Registration Statement filed by
the Fund with the Commission under the Securities Act of 1933, as amended,
and the 1940 Act. This Prospectus omits certain of the information contained
in the Registration Statement, and reference is hereby made to the
Registration Statement and related exhibits for further information with
respect to the Fund and the Cumulative Preferred Stock offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference. The complete Registration Statement may be obtained from
the Commission upon payment of the fee prescribed by its rules and
regulations.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information dated , 1997, 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:
Page
----
Principal Stockholders . . . . . . . . . . . . . . . . . B-2
Directors and Officers . . . . . . . . . . . . . . . . . B-2
Code of Ethics and Related Matters . . . . . . . . . . . B-4
Investment Advisory and Other Services . . . . . . . . . B-5
Brokerage Allocation and Other Practices . . . . . . . . B-6
Net Asset Value . . . . . . . . . . . . . . . . . . . . B-7
Financial Statements . . . . . . . . . . . . . . . . . . B-8
GLOSSARY
"Articles Supplementary" means the Fund's Articles Supplementary
creating and fixing the rights of the Cumulative Preferred Stock.
"Asset Coverage" has the meaning set forth on page 24 of this
Prospectus.
"Basic Maintenance Amount" means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by
the Liquidation Preference; (B) to the extent not included in (A), the
aggregate amount of cash dividends (whether or not earned or declared) that
will have accumulated for each outstanding share of Cumulative Preferred
Stock from the most recent Dividend Payment Date to which dividends have been
paid or duly provided for (or, in the event the Basic Maintenance Amount is
calculated on a date prior to the initial Dividend Payment Date with respect
to the Cumulative Preferred Stock, then from the Date of Original Issue)
through the Valuation Date plus all dividends to accumulate on the Cumulative
Preferred Stock then outstanding during the 70 days following such Valuation
Date; (C) the Fund's other liabilities due and payable as of such Valuation
Date (except that dividends and other distributions payable by the Fund by
the issuance of Common Stock will not be included as a liability) and such
liabilities projected to become due and payable 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); (D) any current liabilities of the Fund as of such
Valuation Date to the extent not reflected in any of (i)(A) through (i)(C)
(including, without limitation, and immediately upon determination, any
amounts due and payable by the Fund pursuant to reverse repurchase agreements
and any payables for assets purchased as of such Valuation Date) less (ii)
(A) the Discounted Value of any of the Fund's assets and/or (B) the face
value of any of the Fund's assets if, in the case of both (ii)(A) and
(ii)(B), such assets are either cash or securities which mature prior to or
on the date of redemption or repurchase of Cumulative Preferred Stock or
payment of another liability and are either U.S. Government Obligations or
securities which have a rating assigned by Moody's of at least Aaa, P-1,
VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+ or A-1+, in both cases
irrevocably held by the Fund's custodian bank in a segregated account or
deposited by the Fund with the Paying Agent for the payment of the amounts
needed to redeem or repurchase Cumulative Preferred Stock subject to
redemption or repurchase or any of (i)(B) through (i) and provided that in
the event the Fund has repurchased Cumulative Preferred Stock at a price of
less than the Liquidation Preference thereof and irrevocably segregated or
deposited assets as described above with its custodian bank or the Paying
Agent for the payment of the repurchase price the Fund may deduct 100% of the
Liquidation Preference of such Cumulative Preferred Stock to be repurchased
from (i) above.
"Business Day" means a day on which the New York Stock Exchange is open
for trading and that is neither a Saturday, Sunday nor any other day on which
banks in the City of New York are authorized by law to close.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Fund on file in
the Maryland State Department of Assessments and Taxation.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Fund.
"Cumulative Preferred Stock" means the % Cumulative Preferred Stock,
par value $.01 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 Market Instruments and
U.S. Government Obligations. Except for determining whether the Fund has a
Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security will be deemed to have a value equal to its principal
or face amount payable at maturity plus any interest payable thereon after
delivery of such Deposit Security but only if payable on or prior to the
applicable payment date in advance of which the relevant deposit is made.
"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 Global 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.
"Moody's Discount Factor" means, with respect to a Moody's Eligible
Asset specified below, the following applicable number:
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
<S> <C>
Moody's Short Term Money Market Instruments
(other than U.S. Government Obligations set forth below) and other commercial paper:
Demand or time deposits,
certificates of deposit and bankers' acceptances includible in Moody's Short Term Money
Market Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270 days or less . . . . . . . . . . . . . . . . . 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25
Repurchase obligations includible in Moody's
Short Term Money Market Instruments if term is less than 30 days and counterparty is
rated at least A2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Other repurchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount Factor applicable to
underlying assets
Common stocks: 3.00
Preferred stocks:
Auction rate preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50
Other preferred stocks issued by issuers
in the financial and industrial industries . . . . . . . . . . . . . . . . . . . . 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
Corporate bonds:
Corporate bonds rated Aaa with remaining
terms to maturity of:
1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.14
2 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.21
3 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26
4 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.32
5 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.38
7 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.47
10 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.55
15 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.62
20 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.69
30 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.71
Corporate bonds rated Aa with remaining
terms to maturity of:
1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.19
2 years of less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26
3 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.32
4 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.38
5 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.44
7 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.54
10 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.63
15 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.69
20 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.77
30 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.79
Corporate bonds rated A with remaining terms
to maturity of:
1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24
2 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.32
3 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.38
4 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.45
5 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.51
7 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.61
10 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.70
15 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.77
20 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.85
30 years or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.87
Convertible corporate bonds with senior debt
securities rated Aa issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.80
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.97
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.27
Convertible corporate bonds with senior debt
securities rated A issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.85
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.02
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.97
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.32
Convertible corporate bonds with senior debt
securities rated Baa issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.48
Convertible corporate bonds with senior debt
securities rated Ba issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.19
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.14
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.49
Convertible corporate bonds with senior debt
securities rated B1 or B2 issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.29
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.24
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.59
</TABLE>
"Moody's Eligible Assets" means:
(i) cash (including, for this purpose, receivables for
investments sold to a counterparty whose senior debt securities are
rated at least Baa3 by Moody's or a counterparty approved by Moody's and
payable within five Business Days following such Valuation Date and
dividends and interest receivable within 70 days on investments);
(ii) Short-Term Money Market Instruments;
(iii) commercial paper that is not includible as a Short-Term
Money Market Instrument having on the Valuation Date a rating from
Moody's of at least P-1 and maturing within 270 days;
(iv) preferred stocks (A) which either (1) are issued by issuers
whose senior debt securities are rated at least Baa1 by Moody's or (2)
are rated at least "baa3" by Moody's (or in the event an issuer's senior
debt securities or preferred stock is not rated by Moody's, which either
(1) are issued by an issuer whose senior debt securities are rated at
least A by S&P or (2) are rated at least A by S&P and for this purpose
have been assigned a Moody's equivalent rating of at least "baa3"), (B)
of issuers which have (or, in the case of issuers which are special
purpose corporations, whose parent companies have) common stock listed
on the New York Stock Exchange or the American Stock Exchange, (C) which
have a minimum issue size (when taken together with other of the
issuer's issues of similar tenor) of $50,000,000, (D) which have paid
cash dividends consistently during the preceding three-year period (or,
in the case of new issues without a dividend history, are rated at least
"a1" by Moody's or, if not rated by Moody's, are rated at least AA by
S&P), (E) which pay cumulative cash dividends in U.S. dollars, (F) which
are not convertible into any other class of stock and do not have
warrants attached, (G) which are not issued by issuers in the
transportation industry and (H) in the case of auction rate preferred
stocks, which are rated at least "aa" by Moody's, or if not rated by
Moody's, AAA by S&P or are otherwise approved in writing by Moody's and
have never had a failed auction; provided, however, that for this
purpose the aggregate market value of the Company's holdings of any
issue of preferred stock will not be less than $500,000 nor more than
$5,000,000;
(v) common stocks (A) (i) which are traded in the United States on
a national securities exchange or in the over-the-counter market, (ii)
which, if cash dividend paying, pay cash dividends in U.S. dollars, and
(iii) which may be sold without restriction by the Fund; provided,
however, that (1) common stock which, while a Moody's Eligible Asset
owned by the Fund, ceases paying any regular cash dividend will no
longer be considered a Moody's Eligible Asset until 71 days after the
date of the announcement of such cessation, unless the issuer of the
common stock has senior debt securities rated at least A3 by Moody's and
(2) the aggregate market value of the Fund's holdings of the common
stock of any issuer 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, France, Germany, Italy, Japan, the Netherlands, New
Zealand, Spain, Sweden 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 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 Fund's holdings do not exceed 10% of the aggregate market
value of any individual issue of corporate bonds calculated at the time
of original issuance, (F) the cash flow from which must be controlled by
an Indenture trustee and (G) which are not issued in connection with a
reorganization under any bankruptcy law;
(viii) convertible corporate bonds (A) which are issued by
issuers whose senior debt securities are rated at least B2 by Moody's
(or, in the event an issuer's senior debt securities are not rated by
Moody's, which are issued by issuers whose senior debt securities are
rated at least BB by S&P and which for this purpose is assigned a
Moody's equivalent rating of one full rating category lower), (B) which
are convertible into common stocks which are traded on the New York
Stock Exchange or the American Stock Exchange or are quoted on the
NASDAQ National Market System and (C) which, if cash dividend paying,
pay cash dividends in U.S. dollars; provided, however, that once
convertible corporate bonds have been converted into common stock, the
common stock issued upon conversion must satisfy the criteria set forth
in clause (v) above and other relevant criteria set forth in this
definition in order to be a Moody's Eligible Asset;
provided, however, that the Fund's investment in preferred stock, common
stock, corporate bonds and convertible corporate bonds described above must
be within the following diversification requirements (utilizing Moody's
industry and sub-industry categories) in order to be included in Moody's
Eligible Assets:
<TABLE>
<CAPTION>
Issuer:
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%
"a", A 10% 10%
CS/CB, "Baa", Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 (Caa subordinate) 2% 2%
</TABLE>
<TABLE>
<CAPTION>
Industry and State:
Utility Utility
Non-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 $50,000,000 to $100,000,000 are
limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for
the related Moody's rating category and each lower Moody's rating
category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility
bonds and utility convertible bonds, the definition of industry refers
to sub-industries (electric, water, hydro power, gas, diversified).
Investments in other sub-industries are eligible only to the extent that
the combined sum represents a percentage position of the Moody's
Eligible Assets less than or equal to the percentage limits in the
diversification tables above.
(7) Such percentage will be 15% in the case of utilities regulated by
California, New York and Texas.
and provided, further, that the Fund's investments in auction rate preferred
stocks described in clause (iv) above will be included in Moody's Eligible
Assets only to the extent that the aggregate market value of such stocks does
not exceed 10% of the aggregate Market Value of all of the Fund's investments
meeting the criteria set forth in clauses (i) through (viii) above less the
aggregate market value of those investments excluded from Moody's Eligible
Assets pursuant to the immediately preceding proviso; and
(ix) no assets which are subject to any lien or irrevocably
deposited by the Fund for the payment of amounts needed to meet the
obligations described in clauses (i)(A) through (i)(E) of the definition
of "Basic Maintenance Amount" may be includible in Moody's Eligible
Assets.
"1940 Act" means the Investment Company Act of 1940, as amended.
"Notice of Redemption" has the meaning set forth on page 26 of this
Prospectus.
"Paying Agent" means The Bank of New York 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 $.01 per share,
of the Fund, and includes the Cumulative Preferred Stock.
"Redemption Price" has the meaning set forth on page 25 of this
Prospectus.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Fund (or, in the case of an instrument specified by clauses (i) and (ii)
below, on the Valuation Date), the remaining terms to maturity thereof are
not in excess of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is issued
by an issuer (or guaranteed or supported by a person or entity other
than the issuer) whose long-term unsecured debt obligations are rated at
least Aa by Moody's;
(iii) demand or time deposits in or certificates of deposit of or
banker's acceptances issued by (A) a depository institution or trust
company incorporated under the laws of the United States of America or
any state thereof or the District of Columbia or (B) a United States
branch office or agency of a foreign depository institution (provided
that such branch office or agency is subject to banking regulation under
the laws of the United States, any state thereof or the District of
Columbia) if, in each case, the commercial paper, if any, and the long-
term unsecured debt obligations (other than such obligations the ratings
of which are based on the credit of a person or entity other than such
depository institution or trust company) of such depository institution
or trust company at the time of purchase or acquisition and the
Valuation Date, have (1) credit ratings from Moody's of at least P-1 in
the case of commercial paper and (2) credit ratings from Moody's of at
least Aa in the case of long-term unsecured debt obligations; provided,
however, that in the case of any such investment that matures in no more
than one Business Day from the date of purchase or other acquisition by
the Fund, all of the foregoing requirements will be applicable except
that the required long-term unsecured debt credit rating of such
depository institution or trust company from Moody's will be at least
A2; and provided, further, however, that the foregoing credit rating
requirements will be deemed to be met with respect to a depository
institution or trust company if (1) such depository institution or trust
company is the principal depository institution in a holding company
system, (2) the commercial paper, if any, of such depository institution
or trust company is not rated below P-1 by Moody's and (3) the holding
company will meet all of the foregoing credit rating requirements
(including the preceding proviso in the case of investments that mature
in no more than one Business Day from the date of purchase or other
acquisition by the Fund);
(iv) repurchase obligations with respect to any U.S. Government
Obligation entered into with a depository institution, trust company or
securities dealer (acting as principal) which is rated (A) at least Aa3
if the maturity is three months or less, (B) at least A1 if the maturity
is two months or less and (C) at least A2 if the maturity is one month
or less; and
(v) Eurodollar demand or time deposits in, or certificates of
deposit of, the head office or the London branch office of a depository
institution or trust company meeting the credit rating requirements of
commercial paper and long-term unsecured debt obligations specified in
clause (iii) above, provided that the interest receivable by the Fund
will be payable in U.S. dollars and will not be subject to any
withholding or similar taxes.
"S&P" means Standard & Poor's Ratings Services.
"U.S. Government Obligations" means direct non-callable obligations of
the United States, provided that such direct obligations are entitled to the
full faith and credit of the United States and that any such obligations,
other than United States Treasury Bills and U.S. Treasury Securities Strips,
provide for the periodic payment of interest and the full payment of
principal at maturity.
"Valuation Date" means every Friday or, if such day is not a Business
Day, the immediately preceding Business Day.
<TABLE>
<CAPTION>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING, 800,000 SHARES
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED HEREIN, 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 UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, ROYCE GLOBAL
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE TRUST, INC.
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 SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITATION IS
UNLAWFUL.
______________ % CUMULATIVE PREFERRED STOCK
TABLE OF CONTENTS
PROSPECTUS
Page
, 1997
Prospectus Summary . . . . . . . . . . . . . . . . . . . . .
Ordinary Income Equivalent
Yield Tables . . . . . . . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . Smith Barney Inc.
Portfolio Composition . . . . . . . . . . . . . . . . . . . .
Investment Objective and
Policies . . . . . . . . . . . . . . . . . . . . . . . .
Investment Advisory and
Other Services . . . . . . . . . . . . . . . . . . . . .
Description of Cumulative
Preferred Stock . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . .
Custodian, Transfer Agent and
Dividend-Paying Agent . . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . .
Table of Contents of Statement of
Additional Information . . . . . . . . . . . . . . . . .
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information does not
constitute a prospectus.
SUBJECT TO COMPLETION, DATED AUGUST 25, 1997
STATEMENT OF ADDITIONAL INFORMATION
800,000 SHARES
ROYCE GLOBAL TRUST, INC.
% CUMULATIVE PREFERRED STOCK
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
The % Cumulative Preferred Stock, liquidation preference $25.00 per share
(the "Cumulative Preferred Stock"), to be issued by Royce Global 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 objective and policies.
The Fund is a closed-end diversified management investment company. The
Fund's investment objective is long-term capital appreciation, which it seeks
by normally investing more than 75% of its assets in common stocks,
convertible preferred stocks, convertible debentures and other equity
securities. 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 , 1997).
Please retain this document for future reference. To obtain an additional
copy of the Prospectus, the Fund's Annual Report to Stockholders for the year
ended December 31, 1996 or the Fund's Semi-Annual Report to Stockholders for
the six months ended June 30, 1997, please call Investor Information at 1-
800-221-4268. Defined terms used herein have the meanings assigned to them
in the Prospectus.
TABLE OF CONTENTS
Page
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Ethics and Related Matters . . . . . . . . . . . . . . . . . .
Investment Advisory and Other Services . . . . . . . . . . . . . . . .
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . .
Dated , 1997
PRINCIPAL STOCKHOLDERS
As of July 31, 1997, the following persons owned of record or were known
by the Fund to have owned beneficially 5% or more of the 7,998,419 shares of
its Common Stock then outstanding:
<TABLE>
<CAPTION>
Name and Address Type and Percentage of Ownership
<S> <C> <C>
Charles M. Royce 577,700 shares-Beneficial 7.2%
1414 Avenue of the Americas (sole voting and sole investment power)
New York, NY 10019
Magten Asset Management Corp. 1,373,000 shares-Beneficial 17.2%(1)
35 East 21st Street (shared voting and sole investment power)
New York, NY 10022
Financial & Investment Management 591,515 shares-Beneficial 7.4%
Group, Ltd. (shared voting and sole investment power)
417 St. Joseph Street
P.O. Box 40
Suttons Bay, MI 49682
Wachovia Corporation 581,182 shares-Beneficial 7.3%
100 North Main Street (voting and sole investment power)
Winston Salem, NC 27150
Depository Trust Company 6,580,195 shares-Record 80.3 %
Cede & Co.
P.O. Box 20 Bowling Green Station
New York, NY 10274
</TABLE>
- --------------------------
(1) Of this 17.2%, General Motors Employees Domestic Group Pension Trust, an
advisory client of Magten Asset Management Corp., has an interest with
respect to more than 5% of the Fund's outstanding shares of Common
Stock.
All directors and officers of the Fund as a group owned approximately
7.6% of the Fund's outstanding shares of Common Stock as of such date.
DIRECTORS AND OFFICERS
The following table sets forth certain information as to each director
and officer of the Fund.
<TABLE>
<CAPTION>
Position with Principal Occupations and Other Affiliations
Name and Address the Fund During the Last Five Years
<S> <C> <C>
Charles M. Royce* (58) Director, President, Managing Director (since April 1997), Secretary,
1414 Avenue of the Americas President and Treasurer, sole director and sole voting shareholder of Royce &
New York, NY 10019 Treasurer 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 Royce Micro-Cap
Trust, Inc. ("RMCT") (since September 1993), Royce Value Trust, Inc.
("RVT") and the Fund (since October 1996), closed-end diversified
management investment companies of which Royce is the investment
adviser (TRF, RMCT, RVT and the Fund collectively, "The Royce
Funds"); Secretary and sole director and shareholder of Royce Fund
Services, Inc. ("RFS"), formerly named Quest Distributors, Inc., the
distributor of TRF's shares; and managing general partner of Royce
Management Company ("RMC"), formerly named Quest Management Company,
a registered investment adviser, and its predecessor.
Richard M. Galkin (59) Director Private investor and President of Richard M. Galkin Associates,
5284 Boca Marina Inc., tele-communications consultants.
Boca Raton, FL 33487
Stephen L. Isaacs (58) Director President of The Center for Health and Social Policy since September
65 Harmon Avenue 1996; President of Stephen L. Isaacs Associates, Consultants; and
Pelham, NY 10803 Director of Columbia University Development Law and Policy Program
and Professor at Columbia University until August 1996.
David L. Meister (57) Director Consultant to the communications industry since January 1993; and
111 Marquez Place Executive Officer of Digital Planet Inc. from April 1991 to December
Pacific Palisades, CA 90272 1992.
John D. Diederich* (46) Vice President Director of Operations of The Royce Funds; Vice President of the
1414 Avenue of the Americas Fund (since October 1996) and of RMCT and RVT (since April 1997);
New York, NY 10019 Director of RMCT and RVT (since July 1997); President of RFS (since
November 1995); and President of Fund/Plan Services, Inc. from
January 1988 to December 1992.
Jack E. Fockler, Jr. * (38) Vice President Managing Director (since April 1997) and Vice President (since
1414 Avenue of the Americas August 1993) of Royce, having been employed by Royce since October
New York, NY 10019 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 President (since
1414 Avenue of the Americas August 1993) of Royce, having been employed by Royce since October
New York, NY 10019 1991; Vice President of the Fund (since October 1996) and of the
other Royce Funds (since April 1995); and General Partner of RMC and
its predecessor.
Daniel A. O'Byrne* (35) Vice President Vice President of Royce (since May 1994), having been employed by
1414 Avenue of the Americas and Assistant Royce since October 1986; and Vice President of the Fund (since
New York, NY 10019 Secretary October 1996) and of the other Royce Funds (since July 1994).
John E. Denneen* (30) Secretary Associate General Counsel and Chief Compliance Officer of Royce
1414 Avenue of the Americas (since May 1996); Secretary of the Fund (since October 1996) and of
New York, NY 10019 the other Royce Funds (since June 1996); and Associate of Seward &
Kissel from September 1992 to May 1996.
</TABLE>
- ---------------
* An "interested person" of the Fund and/or Royce under Section 2(a)(19) of
the 1940 Act.
---------------
Normally, holders of shares of the Preferred Stock of the Fund,
including the Cumulative Preferred Stock, voting as a separate class, will
elect two members of the Fund's Board of 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. Isaacs and Meister have been designated as the Preferred Stock
directors, subject to election at the first meeting of the Fund's
stockholders to be called after issuance of the Cumulative Preferred Stock.
All of the Fund's directors are also trustees of TRF and directors of
RMCT and RVT.
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 other
registered investment companies comprising The Royce Funds to each director
of the Fund for the year ended December 31, 1996.
Aggregate Total Compensation
Compensation From From the Fund and
Director the Fund Other Royce Funds
- -------- -------- ------------------
Charles M. Royce $ 0 $ 0
Richard M. Galkin 3,500 64,500
Stephen L. Isaacs 3,500 64,500
David L. Meister 3,500 64,500
Fees paid to these directors aggregated $10,500 for the year ended
December 31, 1996.
For 1996, each of the Fund's current non-affiliated directors received a
base fee at the annual rate of $7,500 per year plus $750 for each meeting of
the Board of Directors attended. No current director of the Fund received
remuneration for services as a director for the year ended December 31, 1996
in addition to or in lieu of this standard arrangement. For 1997, the Fund's
non-affiliated directors will receive a base fee of $2,500 plus $400 for each
meeting attended.
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 and RMC
("Royce-related persons") and interested trustees/directors, officers and
employees of The Royce Funds are prohibited from personal trading in any
security which is then being purchased or sold or considered for purchase or
sale by a Royce Fund or any other Royce or RMC account. Such persons are
permitted to engage in other personal securities transactions if (i) the
securities involved are U.S. Government debt securities, municipal debt
securities, money market instruments, shares of affiliated or non-affiliated
registered open-end investment companies or shares acquired from an issuer in
a rights offering or under an automatic dividend reinvestment plan or
employer-sponsored automatic payroll deduction cash purchase plan or (ii)
they first obtain permission to trade from Royce's Compliance Officer and an
executive officer of Royce. The Code contains standards for the granting of
such permission, and it is expected that permission to trade will be granted
only in a limited number of instances.
Royce's and RMC's clients include several private investment companies
in which Royce or RMC has (and, therefore, Charles M. Royce, Jack E. Fockler,
Jr. and/or W. Whitney George may be deemed to beneficially own) a share of up
to 15% of the company's realized and unrealized net capital gains from
securities transactions, but less than 5% of the company's equity interests.
The Code of Ethics does not restrict transactions effected by Royce or RMC
for such private investment company accounts. Transactions for such private
investment company accounts are subject to Royce's and RMC's allocation
guidelines and procedures. See "Brokerage Allocation and Other Practices".
As of July 31, 1997, 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 approximately $31.5 million, and their equity interests in
Royce-related private investment companies totalled approximately $3.5
million.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY FEE
For the six months ended June 30, 1997, Royce voluntarily waived its
total investment advisory fee of $226,989. For the period from November 1,
1996 through December 31, 1996, Royce likewise waived the total investment
advisory fee of $73,772.
Prior to November 1, 1996, the Fund was party to a management agreement
with Veitia and Associates, Inc. to conduct the management and investment
activity of the Fund. That agreement provided for management fees, computed
daily and payable monthly, at an annualized rate of 1.0% of the Fund's
average daily net assets up to the first $100 million of net assets; 0.85% of
1% of average daily net assets in excess of $100 million and up to $250
million; and 0.70% of 1% of average daily net assets in excess of $250
million. For the period January 1, 1996 through October 31, 1996, the Fund
accrued and paid management fees totaling $349,725. For the years ended
December 31, 1995 and 1994, the Fund accrued and paid management fees
totaling $413,686 and $434,386, 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 the 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,
1998 and may be continued in effect from year to year thereafter if such
continuance is specifically approved at least annually by the Board of
Directors or by the vote of a majority of the Fund's outstanding voting
securities and, in either case, by a majority of the directors who are not
parties to the Agreement or interested persons of any such party. The
Investment Advisory Agreement will automatically terminate if it is assigned
(as defined by the 1940 Act and the rules thereunder) and may be terminated
without penalty by vote of a majority of the Fund's outstanding voting
securities or by either party thereto on not less than 60 days' written
notice.
SERVICE CONTRACT WITH STATE STREET
State Street Bank and Trust Company, 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, 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, 1996, 1995 and 1994, the Fund paid $99,627,
$159,916 and $208,485, respectively, in fees to the Fund's custodians and
transfer agents.
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. 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. 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, 1996, 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, 1996, 1995 and 1994,
the Fund paid brokerage commissions of approximately $111,000, $160,000 and
$52,000, respectively.
The Underwriter has effected purchases and sales of the portfolio
securities of the Fund and of other accounts managed by Royce and RMC and may
be chosen to effect future transactions for the Fund and such other accounts.
NET ASSET VALUE
The Fund calculates the net asset value of its shares of Common Stock
daily and makes that information available daily by telephone (800-221-4268)
and weekly for publication. Currently, The Wall Street Journal, The New York
Times and Barron's publish net asset values for closed-end investment
companies weekly. Net asset value per share of Common Stock is determined at
the close of regular trading on the New York Stock Exchange (currently 4:00
P.M., Eastern time) on each day on which the Exchange is open. The net asset
value of the Fund's Common Stock is calculated by dividing the current value
of the Fund's total assets less the sum of all of its liabilities and the
aggregate liquidation preference of its outstanding shares of Preferred
Stock, by the total number of shares of the Common Stock outstanding.
In determining net asset value, securities listed on an exchange or on
the National Association of Securities Dealers Automated Quotation System are
valued on the basis of the last reported sale prior to the time the valuation
is made or, if no sale is reported for such day, at their electronically-
reported bid price for exchange-listed securities and at the average of their
electronically-reported bid and asked prices for Nasdaq securities.
Quotations are taken from the market where the security is primarily traded.
Other over-the-counter securities for which market quotations are readily
available are valued at their electronically-reported bid price or, if there
is no such price, then at their representative bid price. Securities for
which market quotations are not readily available are valued at their fair
value under procedures established and supervised by the Fund's Board of
Directors. Notwithstanding the above, bonds and other fixed income
securities may be valued by reference to other securities with comparable
ratings, interest rates and maturities, using established independent pricing
services.
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, 1996, together
with the report of Ernst & Young LLP thereon, and the unaudited financial
statements included in the Semi-Annual Report to the Fund's Stockholders for
the six months ended June 30, 1997 are incorporated herein by reference.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements
Included in Part A:
- Selected Per Share Data and Ratios for the six months ended
June 30, 1997 (unaudited), the eight years ended December
31, 1996 and the period March 2, 1988 (commencement of
operations) to December 31, 1988.
Incorporated by reference in Part B:
- Schedule of Investments at June 30, 1997 (unaudited)*
- Statement of Assets and Liabilities at June 30, 1997 (unaudited)*
- Statement of Operations for the six months ended June 30, 1997
(unaudited)*
- Statement of Changes in Net Assets for the six months ended June
30, 1997 (unaudited) and for the year ended December 31, 1996*
- Selected Per Share Data and Ratios for the six-months ended June
30, 1997 (unaudited), the eight years ended December 31, 1996 and
the period March 2, 1988 (commencement of operations) to December
31, 1988.*
- Notes to Financial Statements (unaudited)*
- Schedule of Investments at December 31, 1996**
- Statement of Assets and Liabilities at December 31, 1996**
- Statement of Operations for the year ended December 31, 1996**
- Statement of Changes in Net Assets for the years ended December
31, 1996 and 1995**
- Statement of Cash Flows for the year ended December 31, 1996**
- Selected Per Share Data and Ratios for the eight years ended
December 31, 1996 and the period March 2, 1988 (commencement of
operations) to December 31, 1988.**
- Notes to Financial Statements**
- Report of Independent Accountants**
_______________
* Incorporated by reference to the Registrant's 1997 Semi-Annual Report to
Stockholders for the six months ended June 30, 1997 (the "1997 Semi-
Annual Report"), filed with the Securities and Exchange Commission (the
"Commission") pursuant to Rule 30b2-1 under the Investment Company Act
of 1940, as amended (the "1940 Act").
** Incorporated by reference to the Registrant's 1996 Annual Report to
Stockholders for the year ended December 31, 1996, filed with the
Commission pursuant to Rule 30b2-1 under the 1940 Act.
2. Exhibits
(a)(1) Articles of Amendment and Restatement to the Articles of
Incorporation.(1)
(2) Articles of Correction to the Articles of
Incorporation.(1)
(3) Form of Articles Supplementary of the Registrant to be
filed with the Maryland State Department of Assessments
and Taxation.
(b) Amended and Restated By-laws of the Registrant.(2)
(c) Not applicable.
(d)(1) Form of specimen certificate for % Cumulative
Preferred Stock.
(2) Portions of the Articles Supplementary of the Registrant
defining the rights of holders of % Cumulative
Preferred Stock.(3)
(e) Amended and Restated Distribution Reinvestment and Cash
Purchase Plan.
(f) Not applicable.
(g)(1) Form of Investment Advisory Agreement between the
Registrant and Royce & Associates, Inc. ("Royce").(1)
(g)(2) Form of Letter Agreement dated August , 1997 by and
--
between the Registrant and Royce.*
(h) Form of Underwriting Agreement.
(i) Not applicable.
(j) Custodian Contract with State Street Bank and Trust Company.
(k)(1) Registrar, Transfer Agent and Dividend Paying Agency
Agreement between the Registrant and State Street Bank
and Trust Company ("State Street").
(k)(2) Form of Registrar, Transfer Agent and Paying Agency
Agreement between the Registrant and State Street.*
(l) Opinion and Consent of Stradley Ronon Steven & Young, LLP,
counsel to the Registrant.*
(m) Not applicable.
(n)(1) Consent of Ernst & Young LLP, independent auditors for
the Registrant.
(2) Consent of KPMG Peat Marwick LLP, independent auditors.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Financial Data Schedule.*
_______________
(1) Incorporated by reference to Amendment No. 8 to the Registrant's
Registration Statement on Form N-2, filed with the Commission on
November 21, 1996 (File No. 811-5397) (the "1940 Act Registration
Statement").
(2) Incorporated by reference to the Registrant's Annual Report on Form N-
SAR, filed with the Commission on February 28, 1997.
(3) Reference is made to (i) Article IV, Article VI and Article VIII of the
Registrant's Articles of Amendment and Restatement to the Articles of
Incorporation, previously filed as Exhibit (a) to the 1940 Act
Registration Statement; (ii) Article I and Article IV of the
Registrant's Amended and Restated By-laws, previously filed as Exhibit
(b) to the 1940 Act Registration Statement; and (iii) Article II of the
Registrant's Articles Supplementary, filed as Exhibit (a)(3) to this
Registration Statement.
* To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Exhibit (h)(1) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
Registration fees . . . . . . . . . . . . . . . . . . . . . . $ 6,061
Listing fees . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Printing expenses (other than stock certificates) . . . . . . 35,000
Accounting fees and expenses . . . . . . . . . . . . . . . . 12,500
Legal fees and expenses . . . . . . . . . . . . . . . . . . . 90,000
Rating Agency fees . . . . . . . . . . . . . . . . . . . . . 20,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 16,439
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $190,000
--------
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of July 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
<S> <C>
Common Stock ($.01 par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,818
Preferred Stock ($.01 par value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
</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 Amendment and Restatement to the
Articles of Incorporation, previously filed as Exhibit (a) to the Common
Stock Registration Statement, Article V of the Registrant's Amended and
Restated By-laws, previously filed as an Exhibit to the Registrant's Annual
Report on Form N-SAR for the year ended December 31, 1996, the form of
Investment Advisory Agreement, previously filed as Exhibit (g) to the 1940
Act Registration Statement, and the form of Underwriting Agreement,
filed as Exhibit (h) to this Registration Statement, each provide
for indemnification.
The Investment Advisory Agreement between the Registrant and Royce
obligates the Registrant 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 Registrant. Royce is
not entitled to indemnification in respect of any liability to the Registrant
or its security holders to which it would otherwise be subject by reason of
its willful misfeasance, bad faith or reckless disregard.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions or otherwise, the Registrant has been advised that, in
the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent or such claim is to be paid under insurance
policies, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant, its officers and directors, 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 Registrant's stockholders and third persons
based on or alleging negligent acts, misstatements or omissions by the
insureds and the costs and expenses of defending those claims, up to a limit
of $10,000,000, with a deductible amount of $150,000.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to Schedules D and F to 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 Global 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 Global Trust, Inc.
(Records relating to its functions as Custodian, Registrar and
Transfer Agent and
Dividend Paying Agent for the Registrant)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 25th day of August, 1997.
ROYCE GLOBAL TRUST, INC.
(Registrant)
By: /s/ Charles M. Royce
---------------------------------
Charles M. Royce
President
Each person whose signature appears below hereby authorizes Charles M.
Royce, Howard J. Kashner or John E. Denneen, or any of them, as attorney-in-
fact, to sign on his behalf, individually and in each capacity stated below,
any amendments to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
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:
Name Title Date
---- ----- ----
/s/ Charles M. Royce Director, President and Treasurer August 25, 1997
- --------------------- (Principal Executive, Financial
Charles M. Royce and Accounting Officer)
/s/ Richard M. Galkin Director August 25, 1997
- ---------------------
Richard M. Galkin
/s/ Stephen L. Isaacs Director August 25, 1997
- ---------------------
Stephen L. Isaacs
/s/ David L. Meister Director August 25, 1997
- ---------------------
David L. Meister
EXHIBIT INDEX
---------------
Exhibit
Number
- ------
(a)(3) Form of Articles Supplementary
(d)(1) Form of specimen certificate for % Cumulative Preferred Stock
(e) Amended and Restated Distribution Reinvestment and Cash Purchase Plan
(h) Form of Underwriting Agreement
(j) Custodian Contract
(k) Form of Registrar, Transfer Agent and Dividend Paying Agency
Agreement
(n)(1) Consent of Ernst & Young LLP
(n)(2) Consent of KPMG Peat Marwick LLP
Exhibit 2(a)(3)
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
______% CUMULATIVE PREFERRED STOCK OF
ROYCE GLOBAL TRUST, INC.
ROYCE GLOBAL 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 FOURTH of the Charter of the Corporation, the
Board of Directors has reclassified 5,000,000 authorized and unissued shares
of Common Stock of the Corporation, par value $.01 per share, as shares of
preferred stock, par value $.01 per share, of the Corporation designated as
the "______% Cumulative Preferred Stock" (the "Cumulative Preferred Stock")
and has provided for the issuance of shares of such series.
SECOND: The preferences, voting powers, rights, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of shares of the Cumulative Preferred Stock of the Corporation, as
set by the Board of Directors, are as follows:
ARTICLE I
DEFINITIONS
-------------
Unless the context or use indicates another or different meaning or
intent, the following terms when used in these Articles Supplementary shall
have the meanings set forth below, whether such terms are used in the
singular or plural and regardless of their tense:
"Accountant's Confirmation"* means a letter from an Independent
-------------------------
Accountant delivered to Moody's with respect to certain Basic Maintenance
Reports substantially to the effect that:
(i) the Independent Accountant has read the Basic Maintenance
Report for the current Quarterly Valuation Date and a randomly selected
Basic Maintenance Report prepared by the Corporation during the quarter
ending on such Quarterly Valuation Date (the "Reports");
(ii) with respect to the issue size compliance, issuer
diversification and industry diversification calculations, such
calculations and the resulting Market Value of Moody's Eligible Assets
and Portfolio Calculation are numerically correct;
(iii) with respect to the calculation of the Basic Maintenance
Amount, such calculation has been compared with the definition of Basic
Maintenance Amount in these Articles Supplementary and is calculated in
accordance with such definition and the results of such calculation have
been recalculated and are numerically correct;
(iv) with respect to the excess or deficiency of the Portfolio
Calculation when compared to the Basic Maintenance Amount calculated for
Moody's, the results of the calculation set forth in the Reports have
been recalculated and are numerically correct;
(v) with respect to the Moody's and S&P ratings on corporate
bonds, convertible corporate bonds and preferred stock, issuer name,
issue size and coupon or dividend rate listed in the Reports, that
information has been traced and agrees with the information listed in
the applicable guides of the respective rating agencies (in the event
such information does not agree or such information is not listed in the
applicable guides of the respective rating agencies, the Independent
Accountant will inquire of the rating agencies what such information is,
and provide a listing in its letter of such differences, if any);
(vi) with respect to the lower of two bid prices (or alternative
permissible factors used in calculating the Market Value as provided by
these Articles Supplementary) provided by the custodian of the
Corporation's assets for purposes of valuing securities in the
portfolio, the Independent Accountant has traced the price used in the
Reports to the lower of the two bid prices listed in the report provided
by such custodian and verified that such information agrees (in the
event such information does not agree, the Independent Accountant will
provide a listing in its letter of such differences); and
(vii) with respect to the description of each security included in
the Reports, the description of Moody's Eligible Assets has been
compared to the definition of Moody's Eligible Assets contained in these
Articles Supplementary, and the description as appearing in the Reports
agrees with the definition of Moody's Eligible Assets as described in
these Articles Supplementary.
Each such letter may state: such Independent Accountant has made no
independent verification of the accuracy of the description of the investment
securities listed in the Reports or the Market Value of those securities nor
have they performed any procedures other than those specifically outlined
above for the purposes of issuing such letter; unless otherwise stated in the
letter, the procedures specified therein were limited to a comparison of
numbers or a verification of specified computations applicable to numbers
appearing in the Reports and the schedule(s) thereto; the foregoing
procedures do not constitute an examination in accordance with generally
accepted auditing standards and the Reports discussed in the letter do not
extend to any of the Corporation's financial statements taken as a whole;
such Independent Accountant does not express an opinion as to whether such
procedures would enable such Independent Accountant to determine that the
methods followed in the preparation of the Reports would correctly determine
the Market Value or Discounted Value of the investment portfolio;
accordingly, such Independent Accountant expresses no opinion as to the
information set forth in the Reports or in the schedule(s) thereto and make
no representation as to the sufficiency of the procedures performed for the
purposes of these Articles Supplementary.
Such letter shall also state that the Independent Accountant is a
"independent accountant" with respect to the Corporation within the meaning
of the Securities Act of 1933, as amended, and the related published rules
and regulations thereunder.
"Adviser" means Royce & Associates, Inc., a New York corporation.
-------
"Asset Coverage" means, asset coverage, as defined in Section 18(h) of
--------------
the 1940 Act, of at least 225%, or such higher percentage as may be required
under the 1940 Act, with respect to all outstanding senior securities of the
Corporation which are stock, including all outstanding shares of Cumulative
Preferred Stock.
"Asset Coverage Cure Date" means, with respect to the failure by the
------------------------
Corporation to maintain the Asset Coverage (as required by paragraph 5(a)(i)
of Article II hereof) as of the last Business Day of each March, June,
September and December of each year, 60 days following such Business Day.
"Basic Maintenance Amount"* means, as of any Valuation Date, the dollar
------------------------
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by
the Liquidation Preference; (B) to the extent not included in (A), the
aggregate amount of cash dividends (whether or not earned or declared) that
will have accumulated for each outstanding share of Cumulative Preferred
Stock from the most recent Dividend Payment Date to which dividends have been
paid or duly provided for (or, in the event the Basic Maintenance Amount is
calculated on a date prior to the initial Dividend Payment Date with respect
to the Cumulative Preferred Stock, then from the Date of Original Issue)
through the Valuation Date plus all dividends to accumulate on the Cumulative
Preferred Stock then outstanding during the 70 days following such Valuation
Date; (C) the Corporation's other liabilities due and payable as of such
Valuation Date (except that dividends and other distributions payable by the
Corporation by the issuance of Common Stock shall not be included as a
liability) and such liabilities projected to become due and payable by the
Corporation during the 90 days following such Valuation Date (excluding
liabilities for investments to be purchased and for dividends and other
distributions not declared as of such Valuation Date; (D) any current
liabilities of the Corporation as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(C) (including, without limitation, and
immediately upon determination, any amounts due and payable by the
Corporation pursuant to reverse repurchase agreements and any payables for
assets purchased as of such Valuation Date) less (ii) (A) the Discounted
Value of any of the Corporation's assets and/or (B) the face value of any of
the Corporation's assets if, in the case of both (ii)(A) and (ii)(B), such
assets are either cash or securities which mature prior to or on the date of
redemption or repurchase of Cumulative Preferred Stock or payment of another
liability and are either U.S. Government Obligations or securities which have
a rating assigned by Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P
of at least AAA, SP-1+ or A-1+, in both cases irrevocably held by the
Corporation's custodian bank in a segregated account or deposited by the
Corporation with the Paying Agent for the payment of the amounts needed to
redeem or repurchase Cumulative Preferred Stock subject to redemption or
repurchase or any of (i)(B) through (i)(D) and provided that in the event the
Corporation has repurchased Cumulative Preferred Stock at a price of less
than the Liquidation Preference thereof and irrevocably segregated or
deposited assets as described above with its custodian bank or the Paying
Agent for the payment of the repurchase price the Corporation may deduct 100%
of the Liquidation Preference of such Cumulative Preferred Stock 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), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
"Common Stock" means the Common Stock, par value $.01 per share, of the
------------
Corporation.
"Corporation" shall mean Royce Global Trust, Inc., a Maryland
-----------
corporation.
"Cumulative Preferred Stock" means the _____% Cumulative Preferred
--------------------------
Stock, par value $.01 per share, of the Corporation.
"Date of Original Issue" shall have the meaning set forth in paragraph
----------------------
1(a) of Article II hereof.
"Deposit Securities" means cash, Short-Term Money Market Instruments and
------------------
U.S. Government Obligations. Except for determining whether the Corporation
has a Portfolio Calculation equal to or greater than the Basic Maintenance
Amount, each Deposit Security shall be deemed to have a value equal to its
principal or face amount payable at maturity plus any interest payable
thereon after delivery of such Deposit Security but only if payable on or
prior to the applicable payment date in advance of which the relevant deposit
is made.
"Discounted Value"* means, with respect to a Moody's Eligible Asset, the
----------------
quotient of (A) in the case of non-convertible fixed income securities, the
- -------- --
lower of the principal amount and the Market Value thereof or (B) in the case
of any other Moody's Eligible Asset, the Market Value thereof, divided by the
------ -----
applicable Moody's Discount Factor.
"Dividend Payment Date" with respect to the Cumulative Preferred Stock,
---------------------
means any date on which dividends are payable thereon pursuant to the
provisions of paragraph 1(a) of Article II hereof.
"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.
"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;
(b) as to any common or preferred stock which is a Moody's Eligible
Asset, (i) if the stock is traded on a national securities exchange or quoted
on the NASDAQ System, the last sales price reported on the Valuation Date or
(ii) if there was no reported sales price on the Valuation Date, the lower of
two bid prices for such stock provided by two recognized securities dealers
with a minimum capitalization of $25,000,000 (or otherwise approved for such
purpose by Moody's) or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
Moody's then-current rating of the Cumulative Preferred Stock) to the
custodian of the Corporation's assets, at least one of which shall be
provided in writing or by telecopy, telex, other electronic transcription,
computer obtained quotation reducible to written form or similar means, and
in turn provided to the Corporation by any such means by such custodian, or,
if two bid prices cannot be obtained, such Moody's Eligible Asset shall have
a Market Value of zero;
(c) the product of (i) as to U.S. Government Obligations, Short Term
Money Market Instruments (other than demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements) and commercial
paper, the face amount or aggregate principal amount of such U.S. Government
Obligations or Short Term Money Market Instruments, as the case may be, and
(ii) the lower of the bid prices for the same kind of securities or
instruments, as the case may be, having, as nearly as practicable, comparable
interest rates and maturities provided by two recognized securities dealers
having minimum capitalization of $25,000,000 (or otherwise approved for such
purpose by Moody's) or by one such securities dealer and any other source
(provided that the utilization of such source would not adversely affect
Moody's then-current rating of the Cumulative Preferred Stock) to the
custodian of the Corporation's assets, at least one of which shall be
provided in writing or by telecopy, telex, other electronic transcription,
computer obtained quotation reducible to written form or similar means, and
in turn provided to the Corporation by any such means by such custodian, or,
if two bid prices cannot be obtained, such Moody's Eligible Asset will have a
Market Value of zero;
(d) as to cash, demand deposits, federal funds, bankers' acceptances
and next Business Day's repurchase agreements included in Short Term Money
Market Instruments, the face value thereof.
"Moody's" means Moody's Investors Service, Inc., or its successor.
-------
"Moody's Discount Factor"* means, with respect to a Moody's Eligible
-----------------------
Asset specified below, the following applicable number:
<TABLE>
<CAPTION>
Moody's
Type of Moody's Eligible Asset: Discount Factor:
<S> <C>
Moody's Short Term Money Market Instruments
(other than U.S. Government Obligations set forth below) and other commercial paper:
Demand or time deposits,
certificates of deposit and bankers' acceptances includible in Moody's Short Term Money
Market Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270 days or less . . . . . . . . . . . . . . . . . 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25
Repurchase obligations includible in Moody's
Short Term Money Market Instruments if term is less than 30 days and counterparty is
rated at least A2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.00
Other repurchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount Factor applicable to
underlying assets
Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Preferred stocks:
Auction rate preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.50
Other preferred stocks issued by issuers
in the financial and industrial industries . . . . . . . . . . . . . . . . . . . . 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
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 type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.80
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.97
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.27
Convertible corporate bonds with senior debt
securities rated A issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.85
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.02
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.97
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.32
Convertible corporate bonds with senior debt
securities rated Baa issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.48
Convertible corporate bonds with senior debt
securities rated Ba issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.19
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.14
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.49
Convertible corporate bonds with senior debt
securities rated B1 or B2 issued by the following type of issuers:
Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.29
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.24
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.59
</TABLE>
"Moody's Eligible Assets"* means:
-----------------------
(i) cash (including, for this purpose, receivables for
investments sold to a counterparty whose senior debt securities are
rated at least Baa3 by Moody's or a counterparty approved by Moody's and
payable within five Business Days following such Valuation Date and
dividends and interest receivable within 70 days on investments);
(ii) Short-Term Money Market Instruments;
(iii) commercial paper that is not includible as a Short-Term
Money Market Instrument having on the Valuation Date a rating from
Moody's of at least P-1 and maturing within 270 days;
(iv) preferred stocks (A) which either (1) are issued by issuers
whose senior debt securities are rated at least Baa1 by Moody's or (2)
are rated at least "baa3" by Moody's (or in the event an issuer's senior
debt securities or preferred stock is not rated by Moody's, which either
(1) are issued by an issuer whose senior debt securities are rated at
least A by S&P or (2) are rated at least A by S&P and for this purpose
have been assigned a Moody's equivalent rating of at least "baa3"), (B)
of issuers which have (or, in the case of issuers which are special
purpose corporations, whose parent companies have) common stock listed
on the New York Stock Exchange or the American Stock Exchange, (C) which
have a minimum issue size (when taken together with other of the
issuer's issues of similar tenor) of $50,000,000, (D) which have paid
cash dividends consistently during the preceding three-year period (or,
in the case of new issues without a dividend history, are rated at least
"a1" by Moody's or, if not rated by Moody's, are rated at least AA by
S&P), (E) which pay cumulative cash dividends in U.S. dollars, (F) which
are not convertible into any other class of stock and do not have
warrants attached, (G) which are not issued by issuers in the
transportation industry and (H) in the case of auction rate preferred
stocks, which are rated at least "aa" by Moody's, or if not rated by
Moody's, AAA by S&P or are otherwise approved in writing by Moody's and
have never had a failed auction; provided, however, that for this
purpose the aggregate Market Value of the Company's holdings of any
issue of preferredstock shall not be less than $500,000nor more than
$5,000,000;
(v) common stocks (A) (i) which are traded in the United States
on a national securities exchange or in the over-the-counter market,
(ii) which, if cash dividend paying, pay cash dividends in U.S. dollars,
and (iii) which may be sold without restriction by the Corporation;
provided, however, that (1) common stock which, while a Moody's
-------- -------
Eligible Asset owned by the Corporation, ceases paying any regular cash
dividend will no longer be considered a Moody's Eligible Asset until 71
days after the date of the announcement of such cessation, unless the
issuer of the common stock has senior debt securities rated at least A3
by Moody's and (2) the aggregate Market Value of the Corporation's
holdings of the common stock of any issuer shall not exceed 4% in the
case of utility common stock and 6% in the case of non-utility common
stock of the number of outstanding shares times the Market Value of such
common stocks, and (B) which are securities denominated in any currency
other than the U.S. dollar or securities of issuers formed under the laws
of jurisdictions other than the United States, its states, commonwealths,
territories and possessions, including the District of Columbia, for
which there are dollar-denominated American Depository Receipts ("ADRs")
which are traded in the United States on a national securities exchange
or in the over-the-counter market and are issued by banks formed under
the laws of the United States, its states, commonwealths, territories and
possessions, including the District of Columbia; provided, however, that
-------- -------
the aggregate Market Value of the Corporation's holdings of securities
denominated in currencies other than the U.S. dollar and ADRs in excess of
(i) 6% of the aggregate market value of the outstanding shares of common
stock 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, France, Germany, Italy, Japan, the Netherlands, New Zealand,
Spain, Sweden and the United Kingdom, shall not be a Moody's Eligible
Asset;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which may be sold without restriction
by the Corporation and are rated at least B3 (Caa subordinate) by
Moody's (or, in the event the bond is not rated by Moody's, the bond is
rated at least BB- by S&P and which for this purpose is assigned a
Moody's equivalent rating of one full rating category lower), with such
rating confirmed on each Valuation Date, (B) which have a minimum issue
size of at least (x) $100,000,000 if rated at least Baa3 or (y)
$50,000,000 if rated B or Ba3, (C) which are U.S. dollar denominated and
pay interest in cash in U.S. dollars, (D) which are not convertible or
exchangeable into equity of the issuing corporation and have a maturity
of not more than 30 years, (E) for which, if rated below Baa3, the
aggregate Market Value of the Corporation's holdings do not exceed 10%
of the aggregate Market Value of any individual issue of corporate bonds
calculated at the time of original issuance, (F) the cash flow from
which must be controlled by an indenture trustee and (G) which are not
issued in connection with a reorganization under any bankruptcy law;
(viii) convertible corporate bonds (A) which are issued by issuers
whose senior debt securities are rated at least B2 by Moody's (or, in
the event an issuer's senior debt securities are not rated by Moody's,
which are issued by issuers whose senior debt securities are rated at
least BB by S&P and which for this purpose is assigned a Moody's
equivalent rating of one full rating category lower), (B) which are
convertible into common stocks which are traded on the New York Stock
Exchange or the American Stock Exchange or are quoted on the NASDAQ
National Market System and (C) which, if cash dividend paying, pay cash
dividends in U.S. dollars; provided, however, that once convertible
corporate bonds have been converted into common stock, the common stock
issued upon conversion must satisfy the criteria set forth in clause (v)
above and other relevant criteria set forth in this definition in order
to be a Moody's Eligible Asset;
provided, however, that the Corporation's investment in preferred stock,
- -------- -------
common stock, corporate bonds and convertible corporate bonds described
above must be within the following diversification requirements (utilizing
Moody's Industry and Sub-industry Categories) in order to be included in
Moody's Eligible Assets:
Issuer:
- ------
<TABLE>
<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>
Utility Utility
Non-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 $50,000,000 to $100,000,000 are
limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for
the related Moody's rating category and each lower Moody's rating
category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate bonds, which are
diversified independently from the rating level.
(6) In the case of utility common stock, utility preferred stock, utility
bonds and utility convertible bonds, the definition of industry refers
to sub-industries (electric, water, hydro power, gas, diversified).
Investments in other sub-industries are eligible only to the extent that
the combined sum represents a percentage position of the Moody's
Eligible Assets less than or equal to the percentage limits in the
diversification tables above.
(7) Such percentage shall be 15% in the case of utilities regulated by
California, New York and Texas.
; and provided, further, that the Corporation's investments in auction rate
-------- -------
preferred stocks described in clause (iv) above shall be included in Moody's
Eligible Assets only to the extent that the aggregate Market Value of such
stocks does not exceed 10% of the aggregate Market Value of all of the
Corporation's investments meeting the criteria set forth in clauses (i)
through (viii) above less the aggregate Market Value of those investments
excluded from Moody's Eligible Assets pursuant to the immediately preceding
proviso; and
(ix) no assets which are subject to any lien or irrevocably
deposited by the Corporation for the payment of amounts needed to meet
the obligations described in clauses (i)(A) through (i)(E) of the
definition of "Basic Maintenance Amount" may be includible in Moody's
Eligible Assets.
"Moody's Industry and Sub-Industry Categories"* means as set forth
--------------------------------------------
below:
Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
Manufacturing, Arms, Ammunition
Automobile: Automotive Equipment, Auto-Manufacturing, Auto Parts
Manufacturing, Personal Use Trailers, Motor Homes, Dealers
Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
Agency, Factoring, Receivables
Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and
Liquors, Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar,
Canned Foods, Corn Refiners, Dairy Products, Meat Products, Poultry
Products, Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood,
Frozen Food, Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil
Buildings and Real Estate: Brick, Cement, Climate Controls,
Contracting, Engineering, Construction, Hardware, Forest Products
(building-related only), Plumbing, Roofing, Wallboard, Real Estate, Real
Estate Development, REITs, Land Development
Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial
Gases, Sulphur, Plastics, Plastic Products, Abrasives, Coatings, Paints,
Varnish, Fabricating
Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
Glass, Metal, Paper, Plastic, Wood, or Fiberglass
Personal and Non Durable Consumer Products (Manufacturing Only): Soaps,
Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies
Diversified/Conglomerate Manufacturing
Diversified/Conglomerate Service
Diversified Natural Resources, Precious Metals and Minerals:
Fabricating, Distribution, 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, Tvs, Tape Machines, Speakers, Printers,
Drivers, Technology
Finance: Investment Brokerage, Leasing, Syndication, Securities
Farming and Agriculture: Livestock, Grains, Produce; Agricultural
Chemicals, Agricultural Equipment, Fertilizers
Grocery: Grocery Stores, Convenience Food Stores
Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
Supplies, Medical Equipment
Home and Office Furnishings, Housewares, and Durable Consumer Products:
Carpets, Floor Coverings, Furniture, Cooking, Ranges
Hotels, Motels, Inns and Gaming
Insurance: Life, Property and Casualty, Broker, Agent, Surety
Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
Billiards, Musical Instruments, Fishing, Photo Equipment, Records,
Tapes, Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy
Manufacturing, Motion Picture Production Theaters, Motion Picture
Distribution
Machinery (Non-Agriculture, Non-Construction, Non-Electronic):
Industrial, Machine Tools, Steam Generators
Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead,
Uranium, Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore
Production, Refractories, Steel Mill Machinery, Mini-Mills, Fabricating,
Distribution and Sales
Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling
Personal, Food and Miscellaneous Services
Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper
Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
Textbooks, Radio, T.V., Cable Broadcasting Equipment
Cargo Transport: Rail, Shipping, Railroads, Rail-Car Builders, Ship
Builders, Containers, Container Builders, Parts, Overnight Mail,
Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
Transport
Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
Catalog, Showroom
Telecommunications: Local, Long Distance, Independent, Telephone,
Telegraph, Satellite, Equipment, Research, Cellular
Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
Leather Shoes
Personal Transportation: Air, Bus, Rail, Car Rental
Utilities: Electric, Water, Hydro Power, Gas, Diversified
Sovereigns: Semi-sovereigns, Canadian Provinces, Supra-national
agencies
"1940 Act" means the Investment Company Act of 1940, as amended.
--------
"Notice of Redemption" has the meaning set forth in paragraph 3(c)(i) of
--------------------
Article II hereof.
"Officers' Certificate" means a certificate signed by any two of the
---------------------
President, a Vice President, the Treasurer or the Secretary of the Corporation
or by any one of the foregoing and an Assistant Treasurer or Assistant
Secretary of the Corporation.
"Paying Agent" means State Street Bank and Trust Company and its
------------
successors or any other paying agent appointed by the Corporation.
"Portfolio Calculation"* means the aggregate Discounted Value of all
---------------------
Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $.01 per share,
---------------
of the Corporation, and includes the Cumulative Preferred Stock.
"Quarterly Valuation Date"* means the last Valuation Date in March,
------------------------
June, September and December of each year, commencing _____, 1997.
"Redemption Price" has the meaning set forth in paragraph 3(a) of
----------------
Article II hereof.
"Short-Term Money Market Instruments" means the following types of
-----------------------------------
instruments if, on the date of purchase or other acquisition thereof by the
Corporation (or, in the case of an instrument specified by clauses (i) and
(ii) below, on the Valuation Date), the remaining terms to maturity thereof
are not in excess of 90 days:
(i) U.S. Government Obligations;
(ii) commercial paper that is rated at the time of purchase or
acquisition and the Valuation Date at least P-1 by Moody's and is issued
by an issuer (or guaranteed or supported by a person or entity other
than the issuer) whose long-term unsecured debt obligations are rated at
least Aa by Moody's;
(iii) demand or time deposits in, or certificates of deposit of,
or banker's acceptances issued by (A) a depository institution or trust
company incorporated under the laws of the United States of America or
any state thereof or the District of Columbia or (B) a United States
branch office or agency of a foreign depository institution (provided
that such branch office or agency is subject to banking regulation under
the laws of the United States, any state thereof or the District of
Columbia) if, in each case, the commercial paper, if any, and the long-
term unsecured debt obligations (other than such obligations the ratings
of which are based on the credit of a person or entity other than such
depository institution or trust company) of such depository institution
or trust company at the time of purchase or acquisition and the
Valuation Date, have (1) credit ratings from Moody's of at least P-1 in
the case of commercial paper and (2) credit ratings from Moody's of at
least Aa in the case of long-term unsecured debt obligations; provided,
however, that in the case of any such investment that matures in no more
than one Business Day from the date of purchase or other acquisition by
the Corporation, all of the foregoing requirements shall be applicable
except that the required long-term unsecured debt credit rating of such
depository institution or trust company from Moody's shall be at least
A2; and provided, further, however, that the foregoing credit rating
requirements shall be deemed to be met with respect to a depository
institution or trust company if (1) such depository institution or trust
company is the principal depository institution in a holding company
system, (2) the commercial paper, if any, of such depository institution
or trust company is not rated below P-1 by Moody's and (3) the holding
company shall meet all of the foregoing credit rating requirements
(including the preceding proviso in the case of investments that mature
in no more than one Business Day from the date of purchase or other
acquisition by the Corporation);
(iv) repurchase obligations with respect to any U.S. Government
Obligation entered into with a depository institution, trust company or
securities dealer (acting as principal) which is rated (A) at least Aa3
if the maturity is three months or less, (B) at least A1 if the maturity
is two months or less and (C) at least A2 if the maturity is one month
or less; and
(v) Eurodollar demand or time deposits in, or certificates of
deposit of, the head office or the London branch office of a depository
institution or trust company meeting the credit rating requirements of
commercial paper and long-term unsecured debt obligations specified in
clause (iii) above, provided that the interest receivable by the
Corporation shall be payable in U.S. dollars and shall not be subject to
any withholding or similar taxes.
"S&P" means Standard & Poor's Ratings Services or its successors.
---
"U.S. Government Obligations" means direct non-callable obligations of
---------------------------
the United States, provided that such direct obligations are entitled to the
full faith and credit of the United States and that any such obligations,
other than United States Treasury Bills and U.S. Treasury Securities Strips,
provide for the periodic payment of interest and the full payment of
principal at maturity.
"Valuation Date"* means every Friday or, if such day is not a Business
--------------
Day, the immediately preceding Business Day.
"Voting Period" shall have the meaning set forth in paragraph 4(b) of
-------------
Article II hereof.
Those of the foregoing definitions which are marked with an asterisk
have been adopted by the Board of Directors of the Corporation in order to
obtain a "aaa" rating from Moody's on the shares of Cumulative Preferred
Stock on their Date of Original Issue; and the Board of Directors of the
Corporation shall have the authority, without stockholder approval, to amend,
alter or repeal from time to time the foregoing definitions and the
restrictions and guidelines set forth thereunder if Moody's advises the
Corporation in writing that such amendment, alteration or repeal will not
adversely affect their then current rating on the Cumulative Preferred Stock.
Furthermore, if the Board of Directors determines not to continue to comply
with the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof
as provided in paragraph 7 of Article II hereof, then such definitions marked
with an asterisk, unless the context otherwise requires, shall have no
meaning for these Articles Supplementary.
ARTICLE II
CUMULATIVE PREFERRED STOCK
----------------------------------
1. Dividends.
---------
(a) Holders of shares of Cumulative Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends at the annual rate of
_____% per share (computed on the basis of a 360-day year consisting of
twelve 30-day months) of the initial Liquidation Preference of $25.00 per
share on the Cumulative Preferred Stock and no more, payable quarterly on
March 23, June 23, September 23 and December 23 in each year (each, a
"Dividend Payment Date"), commencing December 23, 1997 (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 the shares of Cumulative Preferred
Stock, any dividends on the shares of Cumulative Preferred Stock shall be
declared and paid pro rata on all outstanding shares of Cumulative Preferred
Stock. No holders of shares of Cumulative Preferred Stock shall be entitled
to any dividends, whether payable in cash, property or stock, in excess of
full cumulative dividends as provided in this paragraph 1(b)(i) on shares of
Cumulative Preferred Stock. No interest or sum of money in lieu of interest
shall be payable in respect of any dividend payments on any shares of
Cumulative Preferred Stock that may be in arrears.
(ii) For so long as shares of Cumulative Preferred Stock are
outstanding, the Corporation shall not declare, pay or set apart for payment
any dividend or other distribution (other than a dividend or distribution
paid in shares of, or options, warrants or rights to subscribe for or
purchase shares of Common Stock or other stock, if any, ranking junior to the
Cumulative Preferred Stock as to dividends or upon liquidation) in respect of
the Common Stock or any other stock of the Corporation ranking junior to or
on parity with the Cumulative Preferred Stock as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire
for consideration any shares of Common Stock or any other stock of the
Corporation ranking junior to the Cumulative Preferred Stock as to dividends
or upon liquidation (except by conversion into or exchange for stock of the
Corporation ranking junior to or on parity with the Cumulative Preferred
Stock as to dividends and upon liquidation), unless, in each case, (A)
immediately thereafter, the Corporation shall have a Portfolio Calculation at
least equal to the Basic Maintenance Amount and the Corporation shall
maintain the Asset Coverage, (B) full cumulative dividends on all shares of
Cumulative Preferred Stock due on or prior to the date of the transaction
have been declared and paid (or shall have been declared and sufficient funds
for the payment thereof deposited with the Paying Agent) and (C) the
Corporation has redeemed the full number of shares of Cumulative Preferred
Stock required to be redeemed by any provision contained herein for mandatory
redemption.
(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.
2. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of Cumulative Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to stockholders, after
claims of creditors but before any distribution or payment shall be made in
respect of the Common Stock or any other stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to liquidation payments, a
liquidation distribution in the amount of $25.00 per share plus an amount
equal to all unpaid dividends thereon accumulated to and including the date
fixed for such distribution or payment (whether or not earned or declared by
the Corporation, but excluding interest thereon) (the "Liquidation
Preference"), and such holders shall be entitled to no further participation
in any distribution or payment in connection with any such liquidation,
dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, the assets of the
Corporation available for distribution among the holders of all outstanding
shares of Cumulative Preferred Stock, and any other outstanding class or
series of Preferred Stock of the Corporation ranking on a parity with the
Cumulative Preferred Stock as to payment upon liquidation, shall be
insufficient to permit the payment in full to such holders of Cumulative
Preferred Stock of the Liquidation Preference and the amounts due upon
liquidation with respect to such other Preferred Stock, then such available
assets shall be distributed among the holders of shares of Cumulative
Preferred Stock and such other Preferred Stock ratably in proportion to the
respective preferential amounts to which they are entitled. Unless and until
the Liquidation Preference has been paid in full to the holders of shares of
Cumulative Preferred Stock, no dividends or distributions shall be made to
holders of the Common Stock or any other stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to liquidation.
3. Redemption.
----------
Shares of the Cumulative Preferred Stock shall be redeemed 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 equal to the minimum number of shares the redemption of which, if such
redemption had occurred immediately prior to the opening of business on such
Cure Date, would have resulted in the Asset Coverage having been satisfied or
the Corporation having a Portfolio Calculation equal to or greater than the
Basic Maintenance Amount, as the case may be, immediately prior to the
opening of business on such Cure Date or, if the Asset Coverage or a
Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
as the case may be, cannot be so restored, all of the shares of Cumulative
Preferred Stock, at a price equal to $25.00 per share plus accumulated but
unpaid dividends thereon (whether or not earned or declared by the
Corporation) through the date of redemption (the "Redemption Price"). In the
event that shares of Cumulative Preferred Stock are redeemed pursuant to
paragraph 5(b) of Article II hereof, the Corporation may, but shall not be
required to, redeem a sufficient number of shares of Cumulative Preferred
Stock pursuant to this paragraph 3(a) in order that the "asset coverage" of a
class of senior security which is stock, as defined in Section 18(h) of the
1940 Act, of the remaining outstanding shares of Cumulative Preferred Stock
and any other Preferred Stock after redemption is up to 250%.
(b) Optional Redemptions.
--------------------
Prior to September 1, 2002, the Corporation may, at its option, redeem
shares of Cumulative Preferred Stock at the Redemption Price per share only
if and to the extent that any such redemption is necessary, in the judgment
of the Corporation, to maintain the Corporation's status as a regulated
investment company under Subchapter M of the Code. Commencing September 1,
2002, 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 redemption on the redemption date. The
Corporation may direct the Paying Agent with respect to the investment of any
Deposit Securities so deposited, provided that the proceeds of any such
investment will be available at the opening of business on such redemption
date. Upon the date of such deposit (unless the Corporation shall default in
making payment of the Redemption Price), all rights of the holders of the
shares of Cumulative Preferred Stock so called for redemption shall cease and
terminate except the right of the holders thereof to receive the Redemption
Price thereof, and such shares shall no longer be deemed outstanding for any
purpose. The Corporation shall be entitled to receive, promptly after the
date fixed for redemption, any cash in excess of the aggregate Redemption
Price of the shares of Cumulative Preferred Stock called for redemption on
such date and any remaining Deposit Securities. Any assets so deposited that
are unclaimed at the end of two years from such redemption date shall, to the
extent permitted by law, be repaid to the Corporation, after which the
holders of the shares of Cumulative Preferred Stock so called for redemption
shall look only to the Corporation for payment thereof. The Corporation
shall be entitled to receive, from time to time after the date fixed for
redemption, any interest on the Deposit Securities so deposited.
(iii) On or after the redemption date, each holder of shares of
Cumulative Preferred Stock that are subject to redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated
in the Notice of Redemption and shall then be entitled to receive the cash
Redemption Price, without interest.
(iv) In the case of any redemption of less than all of the shares of
Cumulative Preferred Stock pursuant to these Articles Supplementary, such
redemption shall be made pro rata from each holder of shares of Cumulative
Preferred Stock in accordance with the respective number of shares held by
each such holder on the record date for such redemption.
(v) Notwithstanding the other provisions of this paragraph 3, the
Corporation shall not redeem shares of Cumulative Preferred Stock unless all
accumulated and unpaid dividends on all outstanding shares of Cumulative
Preferred Stock for all applicable past Dividend Periods (whether or not
earned or declared by the Corporation) shall have been or are
contemporaneously paid or declared and Deposit Securities for the payment of
such dividends shall have been deposited with the Paying Agent as set forth
in paragraph 1(c) of Article II hereof.
(vi) If the Corporation shall not have funds legally available for the
redemption of, or is otherwise unable to redeem, all the shares of the
Cumulative Preferred Stock to be redeemed on any redemption date, the
Corporation shall redeem on such redemption date the number of shares of
Cumulative Preferred Stock as it shall have legally available funds, or is
otherwise able, to redeem ratably from each holder whose shares are to be
redeemed, and the remainder of the shares of the Cumulative Preferred Stock
required to be redeemed shall be redeemed on the earliest practicable date on
which the Corporation shall have funds legally available for the redemption
of, or is otherwise able to redeem, such shares.
4. Voting Rights.
-------------
(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. Notwithstanding the foregoing, and
except as otherwise required by the 1940 Act, (i) the holders of outstanding
shares of Cumulative Preferred Stock shall be entitled as a class, to the
exclusion of the holders of all other securities, including other Preferred
Stock and classes of capital stock of the Corporation, to vote on matters
affecting the Cumulative Preferred Stock that do not adversely affect other
securities, including other Preferred Stock and classes of capital stock, and
(ii) holders of other outstanding shares of Preferred Stock shall be
entitled, as a class to the exclusion of the holders of Cumulative Preferred
Stock, to vote on matters affecting such other Preferred Stock that do not
adversely affect the holders of the Cumulative Preferred Stock.
(b) Right to Elect Majority of Board of Directors.
---------------------------------------------
During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting
Period"), the number of directors constituting the Board of Directors shall
be automatically increased by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock,
would constitute a majority of the Board of Directors as so increased by such
smallest number; and the holders of shares of Preferred Stock shall be
entitled, voting separately as one class (to the exclusion of the holders of
all other securities and classes of capital stock of the Corporation), to
elect such smallest number of additional directors, together with the two
directors that such holders are in any event entitled to elect. A Voting
Period shall commence:
(i) if at any time accumulated dividends (whether or not earned
or declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding shares of Cumulative
Preferred Stock equal to at least two full years' dividends shall be due
and unpaid and sufficient Deposit Securities shall not have been
deposited with the Paying Agent for the payment of such accumulated
dividends; or
(ii) if at any time holders of any other shares of Preferred Stock
are entitled to elect a majority of the directors of the Corporation
under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 4(b) shall cease, subject always, however, to the reverting of
such voting rights in the holders of Preferred Stock upon the further
occurrence of any of the events described in this paragraph 4(b).
(c) Right to Vote with Respect to Certain Other Matters.
---------------------------------------------------
So long as any shares of Cumulative Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the holders of two-
thirds of the shares of Cumulative Preferred Stock outstanding at the time,
voting separately as one class, amend, alter or repeal the provisions of the
Charter, whether by merger, consolidation or otherwise, so as to materially
adversely affect any of the contract rights expressly set forth in the
Charter of holders of shares of Cumulative Preferred Stock. The Corporation
shall notify Moody's ten Business Days prior to any such vote described
above. Unless a higher percentage is provided for under the Charter, the
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock, including Cumulative Preferred Stock, voting together as a
single class, will be required to approve any plan of reorganization
adversely affecting such shares or any action requiring a vote of security
holders under Section 13(a) of the 1940 Act. For purposes of the preceding
sentence, the phrase "vote of the holders of a majority of the outstanding
shares of Preferred Stock" shall have the meaning set forth in the 1940 Act.
The class vote of holders of shares of Preferred Stock, including Cumulative
Preferred Stock, described above will be in addition to a separate vote of
the requisite percentage of shares of Common Stock and shares of Preferred
Stock, including Cumulative Preferred Stock, voting together as a single
class, necessary to authorize the action in question. An increase in the
number of authorized shares of Preferred Stock pursuant to the Charter or the
issuance of additional shares of any series of Preferred Stock (including
Cumulative Preferred Stock) pursuant to the Charter shall not in and of
itself be considered to adversely affect the contract rights of the holders
of Cumulative Preferred Stock.
(d) Voting Procedures.
-----------------
(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock to elect additional directors as
described in paragraph 4(b) above, the Corporation shall call a special
meeting of such holders and instruct the Paying Agent to mail a notice of
such special meeting to such holders, such meeting to be held not less than
10 nor more than 20 days after the date of mailing of such notice. If the
Corporation fails to send such notice to the Paying Agent or if the
Corporation does not call such a special meeting, it may be called by any
such holder on like notice. The record date for determining the holders
entitled to notice of and to vote at such special meeting shall be the close
of business on the fifth Business Day preceding the day on which such notice
is mailed. At any such special meeting and at each meeting held during a
Voting Period, such holders of Preferred Stock, voting together as a class
(to the exclusion of the holders of all other securities and classes of
capital stock of the Corporation), shall be entitled to elect the number of
directors prescribed in paragraph 4(b) above. At any such meeting or
adjournment thereof in the absence of a quorum, a majority of such holders
present in person or by proxy shall have the power to adjourn the meeting
without notice, other than by an announcement at the meeting, to a date not
more than 120 days after the original record date.
(ii) For purposes of determining any rights of the holders of
Cumulative Preferred Stock to vote on any matter or the number of shares
required to constitute a quorum, whether such right is created by these
Articles Supplementary, by the other provisions of the Charter, by statute or
otherwise, a share of Cumulative Preferred Stock which is not outstanding
shall not be counted.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Preferred Stock,
including Cumulative Preferred Stock, to elect directors shall continue,
notwithstanding the election at such meeting by such holders of the number of
directors that they are entitled to elect, and the persons so elected by such
holders, together with the two incumbent directors elected by the holders of
Preferred Stock, including Cumulative Preferred Stock, and the remaining
incumbent directors elected by the holders of the Common Stock and Preferred
Stock, shall constitute the duly elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional directors elected by the holders of Preferred
Stock, including Cumulative Preferred Stock, pursuant to paragraph 4(b) above
shall terminate, the remaining directors shall constitute the directors of
the Corporation and the voting rights of such holders of Preferred Stock,
including Cumulative Preferred Stock, to elect additional directors pursuant
to paragraph 4(b) above shall cease, subject to the provisions of the last
sentence of paragraph 4(b).
(e) Exclusive Remedy.
----------------
Unless otherwise required by law, the holders of shares of Cumulative
Preferred Stock shall not have any rights or preferences other than those
specifically set forth herein. The holders of shares of Cumulative Preferred
Stock shall have no preemptive rights or rights to cumulative voting. In the
event that the Corporation fails to pay any dividends on the shares of
Cumulative Preferred Stock, the exclusive remedy of the holders shall be the
right to vote for directors pursuant to the provisions of this paragraph 4.
(f) Notification to Moody's.
-----------------------
In the event a vote of holders of Cumulative Preferred Stock is required
pursuant to the provisions of Section 13(a) of the 1940 Act, as long as the
Cumulative Preferred Stock is rated by Moody's, the Corporation shall, not
later than ten Business Days prior to the date on which such vote is to be
taken, notify Moody's that such vote is to be taken and the nature of the
action with respect to which such vote is to be taken and, not later than ten
Business Days after the date on which such vote is taken, notify Moody's of
the result of such vote.
5. Coverage Tests.
---------------
(a) Determination of Compliance.
---------------------------
For so long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation shall make the following determinations:
(i) Asset Coverage. The Corporation shall maintain, as of the last
--------------
Business Day of each March, June, September and December of each year in which
any shares of Cumulative Preferred Stock are outstanding, the Asset Coverage.
(ii) Basic Maintenance Amount Requirement.
------------------------------------
(A) For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall maintain, on each Valuation Date, a
Portfolio Calculation at least equal to the Basic Maintenance Amount, each as
of such Valuation Date. Upon any failure to maintain the required Portfolio
Calculation, the Corporation shall use its best efforts to reattain a
Portfolio Calculation at least equal to the Basic Maintenance Amount on or
prior to the Basic Maintenance Amount Cure Date, by altering the composition
of its portfolio or otherwise.
(B) The Corporation shall prepare a Basic Maintenance Report relating
to each Valuation Date. On or before 5:00 P.M., New York City time, on the
third Business Day after the first Valuation Date following the Date of
Original Issue of the Cumulative Preferred Stock and after each (A) Quarterly
Valuation Date, (B) Valuation Date on which the Corporation fails to satisfy
the requirements of paragraph 5(a)(ii)(A) above, (C) Basic Maintenance Amount
Cure Date following a Valuation Date on which the Corporation fails to
satisfy the requirements of paragraph 5(a)(ii)(A) above and (D) Valuation
Date and any immediately succeeding Business Day on which the Portfolio
Calculation exceeds the Basic Maintenance Amount by 5% or less, the
Corporation shall complete and deliver to Moody's a Basic Maintenance Report,
which will be deemed to have been delivered to Moody's if Moody's receives a
copy or telecopy, telex or other electronic transcription setting forth at
least the Portfolio Calculation and the Basic Maintenance Amount each as of
the relevant Valuation Date and on the same day the Corporation mails to
Moody's for delivery on the next Business Day the full Basic Maintenance
Report. The Corporation also shall provide Moody's with a Basic Maintenance
Report relating to any other Valuation Date on Moody's specific request. A
failure by the Corporation to deliver a Basic Maintenance Report under this
paragraph 5(a)(ii)(B) shall be deemed to be delivery of a Basic Maintenance
Report indicating a Portfolio Calculation less than the Basic Maintenance
Amount, as of the relevant Valuation Date.
(C) Within ten Business Days after the date of delivery to Moody's of a
Basic Maintenance Report in accordance with paragraph 5(a)(ii)(B) above
relating to a Quarterly Valuation Date, the Corporation shall deliver to
Moody's an Accountant's Confirmation relating to such Basic Maintenance
Report and any other Basic Maintenance Report, randomly selected by the
Independent Accountants, that was prepared by the Corporation during the
quarter ending on such Quarterly Valuation Date. Also, within ten Business
Days after the date of delivery to Moody's of a Basic Maintenance Report in
accordance with paragraph 5(a)(ii)(B) above relating to a Valuation Date on
which the Corporation fails to satisfy the requirements of paragraph
5(a)(ii)(A) and any Basic Maintenance Amount Cure Date, the Corporation shall
deliver to Moody's an Accountant's Confirmation relating to such Basic
Maintenance Report. If any Accountant's Confirmation delivered pursuant to
this paragraph 5(a)(ii)(C) shows that an error was made in the Basic
Maintenance Report for such Quarterly Valuation Date, or shows that a lower
Portfolio Calculation was determined by the Independent Accountants, the
calculation or determination made by such Independent Accountants shall be
final and conclusive and shall be binding on the Corporation, and the
Corporation shall accordingly amend the Basic Maintenance Report and deliver
the amended Basic Maintenance Report to Moody's promptly following Moody's
receipt of such Accountant's Confirmation.
(D) In the event the Portfolio Calculation shown in any Basic
Maintenance Report prepared pursuant to paragraph 5(a)(ii)(B) above is less
than the applicable Basic Maintenance Amount, the Corporation shall have
until the Basic Maintenance Amount Cure Date to achieve a Portfolio
Calculation at least equal to the Basic Maintenance Amount, and upon such
achievement (and not later than such Basic Maintenance Amount Cure Date) the
Corporation shall inform Moody's of such achievement in writing by delivery
of a revised Basic Maintenance Report showing a Portfolio Calculation at
least equal to the Basic Maintenance Amount as of the date of such revised
Basic Maintenance Report, together with an Officers' Certificate to such
effect.
(E) On or before 5:00 P.M., New York City time, on the first Business
Day after shares of Common Stock are repurchased by the Corporation, the
Corporation shall complete and deliver to Moody's a Basic Maintenance Report
as of the close of business on such date that Common Stock is repurchased. A
Basic Maintenance Report delivered as provided in paragraph 5(a)(ii)(B) above
also shall be deemed to have been delivered pursuant to this paragraph
5(a)(ii)(E).
(b) Failure to Meet Asset Coverage.
------------------------------
If the Asset Coverage is not satisfied as provided in paragraph 5(a)(i)
hereof and such failure is not cured as of the related Asset Coverage Cure
Date, the Corporation shall give a Notice of Redemption as described in
paragraph 3 of Article II hereof with respect to the redemption of a
sufficient number of shares of Cumulative Preferred Stock to enable it to
meet the requirements of paragraph 5(a)(i) above, and, at the Corporation's
discretion, such additional number of shares of Cumulative Preferred Stock in
order that the "asset coverage" of a class of senior security which is stock,
as defined in Section 18(h) of the 1940 Act, of the remaining outstanding
shares of Cumulative Preferred Stock and any other Preferred Stock is up to
250%, and deposit with the Paying Agent Deposit Securities having an initial
combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, as contemplated by paragraph 3(a)
of Article II hereof.
(c) Failure to Maintain a Portfolio Calculation At Least
Equal to the Basic Maintenance Amount.
----------------------------------------------------
If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A)
above and such failure is not cured by the related Basic Maintenance Amount
Cure Date, the Corporation shall give a Notice of Redemption as described in
paragraph 3 of Article II hereof with respect to the redemption of a
sufficient number of shares of Cumulative Preferred Stock to enable it to
meet the requirements of paragraph 5(a)(ii)(A) above, and, at the
Corporation's discretion, such additional number of shares of Cumulative
Preferred Stock in order that the Portfolio Calculation exceeds the Basic
Maintenance Amount of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock by up to 10%, and deposit with
the Paying Agent Deposit Securities having an initial combined value
sufficient to effect the redemption of the shares of Cumulative Preferred
Stock to be redeemed, as contemplated by paragraph 3(a) of Article II hereof.
(d) Status of Shares Called for Redemption.
--------------------------------------
For purposes of determining whether the requirements of paragraphs
5(a)(i) and 5(a)(ii)(A) hereof are satisfied, (i) no share of the Cumulative
Preferred Stock shall be deemed to be outstanding for purposes of any
computation if, prior to or concurrently with such determination, sufficient
Deposit Securities to pay the full Redemption Price for such share shall have
been deposited in trust with the Paying Agent and the requisite Notice of
Redemption shall have been given, and (ii) such Deposit Securities deposited
with the Paying Agent shall not be included in determining whether the
requirements of paragraphs 5(a)(i) and 5(a)(ii)(A) hereof are satisfied.
6. Certain Other Restrictions.
--------------------------
(a) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation will not, and will cause the Adviser not to, (i) knowingly
and willfully purchase or sell a portfolio security for the specific purpose
of causing, and with the actual knowledge that the effect of such purchase or
sale will be to cause, the Portfolio Calculation as of the date of the
purchase or sale to be less than the Basic Maintenance Amount as of such
date, (ii) in the event that, as of the immediately preceding Valuation Date,
the Portfolio Calculation exceeded the Basic Maintenance Amount by 5% or
less, alter the composition of the Corporation's portfolio securities in a
manner reasonably expected to reduce the Portfolio Calculation, unless the
Corporation shall have confirmed that, after giving effect to such
alteration, the Portfolio Calculation exceeded the Basic Maintenance Amount
or (iii) declare or pay any dividend or other distribution on any shares of
Common Stock or repurchase any shares of Common Stock, unless the Corporation
shall have confirmed that, after giving effect to such declaration, other
distribution or repurchase, the Corporation continues to satisfy the
requirements of paragraph 5(a)(ii)(A) of Article II hereof.
(b) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation shall not (a) acquire or otherwise invest in (i) future
contracts or (ii) options on futures contracts, (b) engage in reverse
repurchase agreements, (c) engage in short sales, (d) overdraw any bank
account, (e) write options on portfolio securities other than call options on
securities held in the Corporation's portfolio or that the Corporation has an
immediate right to acquire through conversion or exchange of securities held
in its portfolio, or (f) borrow money, except for the purpose of clearing
and/or settling transactions in portfolio securities (which borrowings shall
under any circumstances be limited to the lesser of $10,000,000 and an amount
equal to 5% of the Market Value of the Corporation's assets at the time of
such borrowings and which borrowings shall be repaid within 60 days and not
be extended or renewed), unless in any such case, the Corporation shall have
received written confirmation from Moody's that such investment activity will
not adversely affect Moody's then current rating of the Cumulative Preferred
Stock. Furthermore, for so long as the Cumulative Preferred Stock is rated by
Moody's, unless the Corporation shall have received the written confirmation
from Moody's referred to in the preceding sentence, the Corporation may
engage in the lending of its portfolio securities only in an amount of up to
5% of the Corporation's total assets, provided that the Corporation receives
cash collateral for such loaned securities which is maintained at all times
in an amount equal to at least 100% of the current market value of the loaned
securities and, if invested, is invested only in money market mutual funds
meeting the requirements of Rule 2a-7 under the 1940 Act that maintain a
constant $1.00 per share net asset value. In determining the Portfolio
Calculation, the Corporation shall use the Moody's Discount Factor applicable
to the loaned securities rather than the Moody's Discount Factor applicable
to the collateral.
(c) For so long as the Cumulative Preferred Stock is rated by Moody's,
the Corporation shall not consolidate the Corporation with, merge the
Corporation into, sell or otherwise transfer all or substantially all of the
Corporation's assets to another entity or adopt a plan of liquidation of the
Corporation, in each case without providing prior written notification to
Moody's.
7. Termination of Rating Agency Provisions.
---------------------------------------
(a) The Board of Directors may determine that it is not in the best
interests of the Corporation to continue to comply with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
in which case the Corporation will no longer be required to comply with any
of the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof
with respect to Moody's, provided that (i) the Corporation has given the
Paying Agent, Moody's and holders of the Cumulative Preferred Stock at least
20 calendar days written notice of such termination of compliance, (ii) the
Corporation is in compliance with the provisions of paragraphs 5(a)(i),
5(a)(ii), 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 American
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.
----------------------------------------------------
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 shares of the Cumulative Preferred Stock or any
other capital stock of the Corporation or, if the Corporation has not
previously terminated compliance with the provisions hereof with respect to
Moody's pursuant to paragraph 7 of Article II hereof, adversely affect the
then current rating on the Cumulative Preferred Stock by Moody's.
IN WITNESS WHEREOF, ROYCE GLOBAL 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
___________________, 1997.
ROYCE GLOBAL TRUST, INC.
By
---------------------------
Name: Charles M. Royce
Title: President
Attest:
- -----------------
John E. Denneen
Secretary
EXHIBIT 2(d)(1)
SPECIMEN
CERTIFICATE
Certificate Number ___ Number of Shares ___
CUSIP # _______
ROYCE GLOBAL TRUST, INC.
Incorporated under the laws of the State of Maryland
Transferable in New York, NY
% Cumulative Preferred Stock
Liquidation Preference $25.00 Per Share
This certifies that __________ is the registered holder of _________
shares of fully paid and non-assessable % Cumulative Preferred Stock,
par value $.01 per share, liquidation preference $25.00 per share, of Royce
Global Trust, Inc., transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of the duly authorized officers of the Corporation.
DATED:
Countersigned and Registered:
The Bank of New York _________________________
(New York) Transfer Agent Charles M. Royce
By: President
_________________________ _________________________
Authorized Signatory John E. Denneen
Secretary
(SEAL)
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE ISSUED AND WILL BE
SUBJECT TO ALL OF THE PROVISIONS OF THE CHARTER AND BY-LAWS OF THE
CORPORATION, EACH AS FROM TIME TO TIME AMENDED, TO ALL OF WHICH THE HOLDER BY
ACCEPTANCE HEREOF ASSENTS. THE TRANSFER OF THE SHARES OF CUMULATIVE
PREFERRED STOCK REPRESENTED HEREBY IS SUBJECT TO THE RESTRICTIONS CONTAINED
IN THE CORPORATION'S CHARTER. THE CORPORATION WILL FURNISH INFORMATION ABOUT
SUCH RESTRICTIONS TO ANY STOCKHOLDER, WITHOUT CHARGE, UPON REQUEST TO THE
SECRETARY OF THE CORPORATION.
ROYCE GLOBAL TRUST, INC.
A full statement of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of stock which the Corporation is authorized to issue and
the differences in the relative rights and preferences between the shares of
each class and series to the extent that they have been set, and the
authority of the Board of Directors to set the relative rights and
preferences of subsequent classes and series, will be furnished by the
Corporation to any stockholder, without charge, upon request to the Secretary
of the Corporation at its principal office.
The following abbreviations, when used in the inscription on the face of
this certificate, will be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM--as tenants in common UNIF GIFT MIN ACT--_____ Custodian ______
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with under Uniform Gifts to
right of survivorship Minors Act _________
and not as tenants in (State)
common
</TABLE>
Additional abbreviations also may be used though not in the above list.
For value received, _________________________ hereby sell, assign and
transfer unto
Please insert social security or other identifying number of assignee
- --------------------------------------------
/ /
- -------------------------------------------
- --------------------------------------------------------------------------
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
shares
- --------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated:____________________
------------------------------------------------
NOTICE: The Signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any change
whatsoever.
EXHIBIT 2(e)
DISTRIBUTION REINVESTMENT AND CASH PURCHASE PLAN OF
ROYCE GLOBAL TRUST, INC.
WHAT IS THE DISTRIBUTION REINVESTMENT
AND CASH PURCHASE PLAN?
The Distribution Reinvestment and Cash Purchase Plan offers stockholders
of Royce Global Trust, Inc. a prompt and simple way to reinvest net
investment income dividends and capital gains distributions in shares of
common stock of the Fund. It is the Fund's present policy, which may be
changed by the Board of Directors, to distribute substantially all of its net
investment income and net realized capital gains, if any, to its stockholders
at least annually.
The Plan also allows you to make optional cash investments in shares of
common stock of the Fund through the Plan Agent and to deposit common stock
certificates with the Plan Agent for safekeeping.
State Street Bank and Trust Company ("State Street") acts as Plan Agent
for stockholders in administering the Plan. The complete terms and
conditions of the Plan accompany this outline.
WHO CAN PARTICIPATE IN THE PLAN?
If your shares of common stock of the Fund are registered in your own
name, you will automatically participate in the Plan, unless you have
indicated that you do not wish to participate and instead wish to receive
dividends and capital gains distributions in cash.
WHAT DOES THE PLAN OFFER?
The Plan has two components: reinvestment of dividends and capital gains
distributions, and an optional cash purchase feature.
REINVESTMENT OF NET INVESTMENT INCOME
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
By participating in the Plan, your dividends and capital gains
distributions will be promptly paid to you in additional shares of the common
stock of the Fund, thereby increasing your holdings in the Fund. If the Fund
declares a dividend or capital gains distribution, you will automatically
receive shares of the Fund's common stock. The number of shares to be issued
to you will be determined by dividing the total amount of the distribution
payable to you by the lower of (i) the last reported sale price of a share of
the Fund's common stock on the valuation date, which will normally be the
first business day following the record date, or (ii) the net asset value of
the shares on such date, provided that the Fund will not issue new shares at
a discount of more than 5% from the last reported sale price on such date.
VOLUNTARY CASH PURCHASE
Plan participants have the option of making investments in shares of
common stock of the Fund through the Plan Agent. You may invest $100 or more
monthly. The Plan Agent will purchase shares for you on the Nasdaq National
Market or otherwise on the open market on or about the 15th of each month.
If you hold shares that are registered in your own name, you should contact
the Plan Agent directly. Please send your check, made payable to Royce
Global Trust, Inc., to the following address: State Street Bank and Trust
Company, c/o Royce Global Trust, Inc. PO Box 8200, Boston, MA 02266-8200.
Your cash (which does not earn interest) will be held by the Plan Agent until
the following month's investment date. You may withdraw a voluntary cash
payment by written notice, if the notice is received by State Street Bank not
less than forty-eight hours before the reinvestment date.
HOW DOES THE CUSTODY OF SHARES WORK?
All shares that are issued to you in payment of distributions or that
are purchased by you through voluntary cash purchases are held in the name of
the Plan Agent or its nominee and the shares are added to your balance in the
Plan. You also have the option of sending your common stock certificates to
State Street, as described in Paragraph 10 of the Plan, and the shares will
be included in your balance in the Plan and held in the same manner as noted
above. State Street will send a confirmation statement to you shortly after
any activity in your account. You may contact State Street directly by
calling 1 (800) 426-5523 between 9:00 a.m. and 5:00 p.m., Monday through
Friday.
IS THERE A COST TO PARTICIPATE?
There is no charge payable by participants for receiving dividends and
capital gains distributions, since the Plan Agent's fees and expenses are
paid by the Fund.
For purchases from voluntary cash payments, participants must pay a
service fee of $0.75 for each investment and a pro rata share of the
brokerage commissions. These amounts will be deducted from amounts to be
invested.
MAY I WITHDRAW FROM THE PLAN?
You may withdraw from the Plan without penalty at any time by written
notice to the Plan Agent. Your withdrawal will be effective as specified in
Paragraph 14 of the Plan. Upon withdrawal, you will receive subsequent
dividends and capital gains distributions in cash instead of shares.
To withdraw from the Plan or to sell shares held by the Plan Agent, you
must send written instructions signed by all registered owners to State
Street. If you withdraw, at your option you will either receive without
charge a certificate issued in your name for all full shares, or, if you
request, the Plan Agent will sell all of the shares in your Plan account
(including any other Fund shares deposited by you) through a broker selected
by it and send you the proceeds, less a service fee of $2.50 and less
brokerage commissions. If you elect to sell your full shares, you must send
written instructions signed by all registered owners with SIGNATURES
GUARANTEED if the net proceeds will exceed $10,000. A signature guarantee
verifies the authenticity of your signature and may be obtained from banks,
brokerage firms and any other guarantor that the Plan Agent deems acceptable.
The Plan Agent will convert any fractional shares you hold at the time of
your withdrawal to cash at the current market price and send you a check for
the proceeds.
If at any time you wish to re-enroll in the Plan, simply send written
instructions signed by all registered owners to the Plan Agent.
HOW DO PARTICIPATING STOCKHOLDERS
BENEFIT?
- You will build holdings in the Fund easily and automatically, at no
brokerage cost for distributions in the Fund shares or at reduced cost in the
case of voluntary cash purchases.
- You will receive a detailed account statement from the Plan Agent,
showing total dividends and distributions, additional cash payments, date of
investment, shares acquired and price per share, and total shares of record
held by you and by the Plan Agent for you. You will be able to vote all
shares held for you by the Plan Agent at stockholder meetings.
- As long as you participate in the Plan, the Plan Agent, will hold the
shares it has acquired for you in safekeeping, in non- certificated form.
This convenience provides added protection against loss, theft, or
inadvertent destruction of certificates.
WHOM SHOULD I CONTACT FOR ADDITIONAL
INFORMATION?
Please address all notices, correspondence, questions, or other
communications regarding the Plan to:
State Street Bank and Trust Company
c/o Royce Global Trust, Inc.
P.O. Box 8200
Boston, MA 02110
1 (800) 426-5523
Either Royce Global Trust, Inc. or State Street may amend or terminate
the Plan. Participants will be sent written notice at least 30 days before
the effective date of any amendment. In case of termination, participants
will be sent written notice of the termination at least 30 days before the
record date of any dividend or capital gains distribution by the Fund.
DISTRIBUTION REINVESTMENT AND
CASH PURCHASE PLAN OF
ROYCE GLOBAL TRUST, INC.
Royce Global Trust, Inc., a Maryland corporation (the "Fund"), hereby
adopts the following plan (the "Plan") with respect to net investment income
dividends and capital gains distributions declared by its Board of Directors
on shares of its Common Stock and to voluntary cash purchases of shares of
its Common Stock:
1. Unless a stockholder specifically elects to receive cash as set
forth below, all net investment income dividends and all capital gains
distributions hereafter declared by the Board of Directors shall be payable
in shares of the Common Stock of the Fund.
2. Such net investment income dividends and capital gains distributions
shall be payable on such date or dates as may be fixed from time to time by
the Board of Directors to stockholders of record at the close of business on
the record date(s) established by the Board of Directors for the net
investment income dividend and/or capital gains distribution involved.
3. Unless a stockholder specifically elects otherwise, such stockholder
will receive all net investment income dividends and/or capital gains
distributions in full and fractional shares of the Fund's Common Stock, and
no action shall be required on such stockholder's part to receive a
distribution in stock.
4. The number of shares to be issued to a stockholder shall be
determined by dividing the total dollar amount of the distribution payable to
such stockholder by the lower of (i) the last reported sale price per share
of the Fund's Common Stock at the close of regular trading on the Nasdaq
National Market on the valuation date fixed by the Board of Directors for
such distribution, or (ii) the net asset value per share of such shares on
the valuation date, provided that the Fund will not issue new shares at a
discount of more than 5% from the last reported sale price on such date.
5. A stockholder may, however, elect to receive his or its net
investment income dividends and capital gains distributions in cash. To
exercise this option, such stockholder shall notify State Street Bank and
Trust Company ("State Street"), the Plan Agent and the Fund's custodian,
transfer agent and registrar, in writing so that such notice is received by
State Street no later than 10 days prior to the record date fixed by the
Board of Directors for the net investment income dividend and/or capital
gains distribution involved.
6. State Street will set up an account for shares acquired pursuant to
the Plan for each stockholder who has not so elected to receive dividends and
distributions in cash ("Participant"). State Street may hold each
Participant's shares, together with the shares of other Participants, in
non-certificated form in State Street's name or that of its nominee. Upon
request by a Participant, received in writing no later than 10 days prior to
the record date, State Street will, instead of crediting shares to and/or
carrying shares in a Participant's account, issue, without charge to the
Participant, a certificate registered in the Participant's name for the
number of whole shares payable to the Participant and a check for any
fractional share.
7. A Participant has the option of sending additional funds, in any
amount of at least $100 for the purchase on the open market of shares of the
Common Stock of the Fund for his account. Such voluntary payments will be
invested by State Street on or about the 15th of the month, and in no event
more than 30 days after such date, except where necessary to comply with
provisions of federal securities law. Funds received less than 5 business
days prior to an investment date, will be held by State Street until the next
investment date. A Participant may withdraw his entire voluntary cash
payment by written notice received by State Street not less than 48 hours
before such payment is to be invested.
8. Investments of voluntary cash payments may be made by State Street
on any securities exchange where the Fund's Common Stock is traded, in the
over-the-counter market or in negotiated transactions and may be on such
terms as to price, delivery and otherwise as State Street shall determine.
Participant funds held by State Street uninvested will not bear interest, and
State Street shall have no liability in connection with any inability to
purchase shares within 45 days after receipt of funds or with the timing of
any purchases effected. State Street shall have no responsibility as to the
value of the Common Stock of the Fund acquired for the Participant's account
and may commingle funds of Participants for the purpose of cash investments.
The average price (including brokerage commissions) of all shares purchased
by State Street shall be the price per share allocable to the Participant in
connection with the cash investment.
9. State Street will confirm to each Participant each acquisition made
pursuant to the Plan as soon as practicable but not later than 10 business
days after the date thereof. Although each Participant may from time to time
have an undivided fractional interest (computed to three decimal places) in a
share of Common Stock of the Fund, no certificates for a fractional share
will be issued. However, dividends and distributions on fractional shares
will be credited to each Participant's account. In the event of termination
of a Participant's account under the Plan, State Street will adjust for any
such undivided fractional interest in cash at the market value of the Fund's
shares at the time of termination.
10. A Participant may deposit certificates for shares of Common Stock
of the Fund with State Street for safekeeping. The deposited shares will be
credited to the Participant's account and will be treated in all respects in
the same manner as shares issued to or purchased for the Participant's
account. All certificates should be sent with written instructions to deposit
the certificates in the Participant's Plan Account. They need not be
endorsed and should be sent by registered or certified mail, return receipt
requested, to:
State Street Bank and Trust Company
c/o Royce Global Trust, Inc.
P.O. Box 8200
Boston, MA 02110
11. State Street will forward to each Participant any Fund related proxy
solicitation materials and each Fund report or other communication to
stockholders, and will vote any shares held by it under the Plan in
accordance with the instructions set forth on proxies returned by
Participants to the Fund.
12. In the event that the Fund makes available to its Common
Stockholders rights to purchase additional shares or other securities, the
shares held by State Street for each Participant under the Plan will be added
to any other shares held by the Participant in certificated form in
calculating the number of rights to be issued to the Participant.
13. State Street's service fee, if any, for administering the Plan, will
be paid for by the Fund. Participants will be charged a $0.75 service fee
for each voluntary cash investment and pro rata share of brokerage
commissions on all open market purchases.
14. Each Participant may terminate his or its account under the Plan by
so notifying State Street in writing. Such termination will be effective
immediately if the Participant's notice is received by State Street not less
than 10 days prior to any dividend or distribution record date; otherwise,
such termination will be effective only with respect to any subsequent
dividend or distribution. The Plan may be terminated by the Fund or by State
Street upon notice in writing mailed to each Participant at least 30 days
prior to any record date for the payment of any dividend or distribution by
the Fund. Upon any termination, State Street will cause a certificate or
certificates to be issued for the full shares held for each Participant under
the Plan and a cash adjustment for any fractional share to be delivered to
the Participant without charge to the Participant. If a Participant elects
by his or its written notice to State Street in advance of termination to
have State Street sell part or all of his or its shares and remit the
proceeds to the Participant, State Street is authorized to deduct a $2.50
transaction fee plus brokerage commission from the proceeds.
15. These terms and conditions may be amended or supplemented by State
Street or the Fund at any time but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to
each Participant appropriate written notice at least 30 days prior to the
effective date thereof. The amendment or supplement shall be deemed to be
accepted by each Participant unless, prior to the effective date thereof,
State Street receives written notice of the termination of his or its account
under the Plan. Any such amendment may include an appointment by State
Street in its place and stead of a successor agent under these terms and
conditions, with full power and authority to perform all or any of the acts
to be performed by State Street under these terms and conditions. Upon any
such appointment of any agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor agent,
for each Participant's account, all dividends and distributions payable on
shares of the Fund held in the Participant's name or under the Plan for
retention or application by such successor agent as provided in these terms
and conditions.
15. State Street will at all times act in good faith and use its best
efforts within reasonable limits to ensure its full and timely performance of
all services to be performed by it under this Plan and to comply with
applicable law, but assumes no responsibility and shall not be liable for
loss or damage due to errors unless such error is caused by State Street's
negligence, bad faith, or willful misconduct or that of its employees or
agents.
16. These terms and conditions shall be governed by the laws of the
State of New York.
December, 1996
EXHIBIT 2(h)
800,000 Shares
ROYCE GLOBAL TRUST, INC.
___% Cumulative Preferred Stock
Liquidation Preference $25.00 Per Share
UNDERWRITING AGREEMENT
----------------------
________, 1997
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Royce Global Trust, Inc., a Maryland corporation (the "Fund"),
proposes, upon the terms and conditions set forth herein, to issue and sell
an aggregate of 800,000 shares (the "Shares") of its ___% cumulative
preferred stock, liquidation preference $25.00 per share, $.01 par value per
share (the "Cumulative Preferred Stock"), to you, the Underwriter named in
Schedule I hereto (the "Underwriter"). The Cumulative Preferred Stock 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 Cumulative
Preferred Stock (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 Underwriter in connection with the purchase of the Shares
by the Underwriter.
The Fund has entered into an investment advisory agreement dated as
of October 31, 1996 with the Adviser, a custodian contract dated as of
_______ with State Street Bank and Trust Company, a Massachusetts
corporation, a registrar, transfer agency and service agreement dated as of
________ with State Street Bank and Trust Company with respect to the Fund's
Common Stock and a registrar, transfer agency and paying agency agreement to
be dated as of _______, 1997 with State Street Bank and Trust Company with
respect to the Cumulative Preferred Stock. Such agreements are hereinafter
referred to as the "Investment Advisory Agreement", the "Custodian Contract",
the "Transfer Agency Agreement" and the "Paying Agency Agreement",
respectively. Collectively, the Investment Advisory Agreement, the
Administration Agreement, the Custodian Contract, the Transfer Agency
Agreement and the Paying Agency Agreement are hereinafter referred to as 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 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. ______) under
the 1933 Act and the 1940 Act (the "registration statement"), including a
prospectus relating to the Shares, and has filed the registration statement
and prospectus in accordance with the 1933 Act and 1940 Act. 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 ______, 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 the 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.
The Fund has furnished the Underwriter 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. The Fund hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell
to the Underwriter and, upon the basis of the representations, warranties and
agreements of the Fund and the Adviser herein contained and subject to all
the terms and conditions set forth herein, the Underwriter agrees to purchase
from the Fund, at a purchase price of $25.00 per Share, the number of Shares
set forth opposite the name of the Underwriter in Schedule I hereto.
3. Terms of Public Offering. The Fund and the Adviser have been
advised by the Underwriter that the Underwriter proposes to make a public
offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in the Underwriter's 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
Underwriter of and payment for the Shares shall be made at the office of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017, at
10:00 A.M., New York City time, on _________ (the "Closing Date"). The place
of closing for the Shares and the Closing Date may be varied by agreement
between the Underwriter and the Fund.
Certificates for the Shares shall be registered in such names and
in such denominations as the Underwriter shall request prior to 9:30 A.M.,
New York City time, on the second business day preceding the Closing Date.
Such certificates shall be made available to the Underwriter in New York City
for inspection and packaging not later than 9:30 A.M., New York City time, on
the business day next preceding the Closing Date. The certificates
evidencing the Shares shall be delivered to the Underwriter on the Closing
Date against payment of the purchase price therefor in immediately available
funds.
5. Agreements of the Fund and the Adviser. The Fund and the
Adviser, jointly and severally, agree with the Underwriter as follows:
(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 the Underwriter promptly and, if
requested by the Underwriter, will confirm such advice in writing when the
Registration Statement or such post-effective amendment has become effective.
(b) The Fund will advise the Underwriter promptly and, if
requested by the Underwriter, 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 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, properties, 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 1933 Act, the 1940 Act 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 1933 Act, the 1940 Act, 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 the Underwriter, 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 the Underwriter, without
charge, such number of conformed copies of the registration statement as
originally filed and of each amendment thereto, but without exhibits, as the
Underwriter 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 the
Underwriter shall not previously have been advised or to which the
Underwriter shall reasonably object after being so advised or (ii) so long
as, in the opinion of counsel for the Underwriter, a Prospectus is required
by the 1933 Act to be delivered in connection with sales by the Underwriter
or any dealer, file any information, documents or reports pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"), without
delivering a copy of such information, documents or reports to the
Underwriter prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Fund has delivered to the Underwriter, without charge, in such quantities as
the Underwriter has 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 Underwriter 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 Underwriter a prospectus is required by the 1933 Act to be
delivered in connection with sales by the Underwriter or any dealer, the Fund
will expeditiously deliver to the Underwriter and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as the Underwriter 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 Underwriter 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 the Underwriter or any 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 Underwriter 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 1933 Act, the 1940 Act, 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 Underwriter and dealers, without charge, a
reasonable number of copies thereof. In the event that the Fund and the
Underwriter agree that the Registration Statement or the Prospectus should be
amended or supplemented, the Fund, if requested by the Underwriter, 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 the Underwriter (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 American Stock Exchange (the "AMEX") other than reports on Form N-SAR,
and (ii) from time to time such other information concerning the Fund as the
Underwriter may reasonably request.
(i) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than by notice given
by the Underwriter terminating this Agreement pursuant to Section 11 or
Section 12 hereof) or if this Agreement shall be terminated by the
Underwriter because of any failure or refusal on the part of the Fund or the
Adviser to comply with the terms or fulfill any of the conditions of this
Agreement, the Fund and the Adviser, jointly and severally, agree to
reimburse the Underwriter for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Underwriter)
incurred by the Underwriter in connection herewith.
(j) 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.
(k) 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 the Underwriter of the time and manner
of such filing.
(l) 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 the Underwriter.
(m) 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.
(n) The Fund will use its best efforts to cause the Cumulative
Preferred Stock, prior to the Closing Date, to be assigned a rating of 'aaa'
by Moody's Investors Service, Inc. (the "Rating Agency").
(o) 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 to the
Underwriter 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 1933 Act, the 1940 Act 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 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 1933 Act, the 1940 Act 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 the Underwriter
furnished to the Fund in writing by or on behalf of the Underwriter expressly
for use therein.
(c) All the outstanding shares of Common Stock of the Fund have
been duly authorized and validly issued, are fully paid and nonassessable and
are free of any preemptive or similar rights; the Shares have been duly
authorized and, when issued and delivered to the Underwriter 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); and the
capital stock of the Fund conforms to the description thereof in the
Registration Statement and the Prospectus (and any amendment or supplement to
either of them).
(d) 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 properties 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 properties 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, properties, net
assets or results of operations of the Fund; and the Fund has no
subsidiaries.
(e) 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 properties 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 1933 Act, the 1940 Act or the Rules and Regulations.
(f) The Fund is not in violation of its articles of incorporation,
as amended, or bylaws (the "Bylaws"), or of any law, ordinance,
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
properties may be bound.
(g) 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 (A) 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 such as may have been obtained prior to the date hereof and
such as may be required for compliance with the state securities or blue sky
laws of various jurisdictions which have been or will be effected in
accordance with this Agreement) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the articles
of incorporation, as amended, including the Articles Supplementary (together,
the "Charter"), or Bylaws, of the Fund or (B) 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 properties may be bound, or violates or will
violate any statute, law, regulation or judgment, injunction, order or decree
applicable to the Fund or any of its properties, 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.
(h) 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 1933 Act, the 1940 Act and
the Rules and Regulations.
(i) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement
and the Prospectus (and 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.
(j) 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.
(k) 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, properties, net assets or results of operations of the
Fund taken as a whole, whether or not arising in the ordinary course of
business.
(l) The Fund has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) 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 1933 Act, the 1940 Act or the Rules and Regulations.
(m) The Fund has such permits, licenses, franchises and
authorizations of governmental or regulatory authorities ("permits") as are
necessary to own its properties 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
described in the Prospectus (and any amendment or supplement thereto), none
of such permits contains any restriction that is materially burdensome to the
Fund.
(n) 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.
(o) 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.
(p) 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.
(q) No holder of any security of the Fund has any right to require
registration of shares of common stock, 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.
(r) 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 1933 Act, the
1940 Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this Agreement.
(s) 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.
(t) 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 1933 Act and the 1940 Act. 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 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").
(u) 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.
(v) 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.
(w) 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.
(x) The Shares have been, or prior to the Closing Date will be,
assigned a rating of 'aaa' by the Rating Agency.
(y) 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 the Underwriter.
(aa) The Shares have been, or prior to the Closing Date will be,
duly approved for listing upon notice of issuance on the AMEX.
7. Representations and Warranties of the Adviser. The Adviser
represents and warrants to the Underwriter as follows:
(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 properties 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 properties 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, properties, 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 properties 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, properties, 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 (A) 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 or conflicts or will conflict with or
constitutes or will constitute a breach of or a default under, the
certificate of incorporation or bylaws, or other organizational documents, of
the Adviser or (B) 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
properties may be bound, or violates or will violate any statute, law,
regulation or judgment, injunction, order or decree applicable to the Adviser
or any of its properties 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 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 1933 Act, the 1940
Act, 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, properties, 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 properties 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 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 each of the Underwriter and each person,
if any, who controls the Underwriter 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, joint and several (including
reasonable costs of investigation) 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 the
Underwriter furnished in writing to the Fund by or on behalf of the
Underwriter 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 the Underwriter (or
to the benefit of any person controlling the Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by the 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 Underwriter 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 the
Underwriter or any person controlling the Underwriter in respect of which
indemnity may be sought against the Fund or the Adviser, the Underwriter or
such controlling person 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. The Underwriter
or any such controlling person 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 the Underwriter or such controlling person 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, or
(iii) the named parties to any such action, suit or proceeding (including any
impleaded parties) include both the Underwriter or such controlling person
and the Fund or the Adviser and the Underwriter or such controlling person
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 the Underwriter or such controlling person). 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 the Underwriter and
controlling persons, which firm shall be designated in writing by the
Underwriter, 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 its
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 the Underwriter, to
the extent provided in the preceding paragraph, and any such controlling
person from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
(c) The Underwriter agrees 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 the
Underwriter, but only with respect to information relating to the Underwriter
furnished in writing by or on behalf of the Underwriter 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 any such 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 the
Underwriter pursuant to this paragraph (c), the Underwriter shall have the
rights and duties given to the Fund and the Adviser by paragraph (b) above
(except that if the Fund or the Adviser shall have assumed the defense
thereof the 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 the 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 Underwriter
by paragraph (b) above. The foregoing indemnity agreement shall be in
addition to any liability which the Underwriter 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, 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 Underwriter 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 Underwriter 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 Underwriter 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 Underwriter,
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 Underwriter 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 Underwriter 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 Underwriter agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by a pro rata allocation 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) above 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, the Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price of the Shares underwritten by
it and distributed to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(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 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 the
Underwriter or any person controlling the Underwriter, the Fund, the Adviser,
their directors or officers, 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 the Underwriter or
any person controlling the 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 Underwriter's Obligations. The obligation of the
Underwriter 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 the Underwriter, 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 the 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 the Underwriter's
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, properties, net assets, or results of operations of the
Fund or the Adviser not contemplated by the Prospectus, which in the
Underwriter's opinion would materially, adversely affect the market for the
Shares, or (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 Underwriter and its counsel, requires the making
of any addition to or change in the Prospectus in order to state a material
fact required by the 1933 Act, the 1940 Act or the Rules and Regulations or
any other law to be stated therein or necessary in order to make the
statements therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in the Underwriter's
opinion, materially adversely affect the market for the Shares.
(c) The Underwriter shall have received on the Closing Date an
opinion of Brown & Wood LLP, special counsel for the Fund, dated the Closing
Date and addressed to the Underwriter, to the effect that:
(i) the Fund is qualified to do business and 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) 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;
(iv) at the time the Registration Statement became effective, the
Registration Statement (other than the financial statements and other
financial or statistical information included therein, as to which no
opinion need be rendered) complied as to form in all material respects
with the requirements of the 1933 Act, the 1940 Act and the Rules and
Regulations;
(v) to such counsel's knowledge, (A) there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments of the Fund required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than
those described or referred to therein or filed as exhibits thereto, (B)
the descriptions thereof are correct in all material respects, (C)
references thereto are correct, and (D) no default exists in the due
performance or observance by the Fund of any material obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument so described,
referred to or filed as an exhibit to the Registration Statement;
(vi) no consent, approval, authorization or order of any court or
governmental authority or agency is required in connection with the
performance by the Fund of its obligations hereunder, except such as has
been obtained under the 1933 Act, the 1940 Act and the Rules and
Regulations or such as may be required under state securities laws; and
to such counsel's knowledge, the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein
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 Bylaws
of the Fund, or, to such counsel's knowledge, any Federal or New York
law or administrative regulation, or administrative or court decree;
(vii) each of the Investment Advisory Agreement and the Custodian
Contract has been duly authorized and approved by the Fund, each
complies as to form in all material respects with all applicable
provisions of the 1940 Act and the 1940 Act Rules and Regulations, and
each has been duly executed by the Fund;
(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 1933 Act, the 1940 Act 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 Bylaws
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 giving their opinion Brown & Wood LLP shall additionally state that
nothing has come to their attention that would lead them to believe that
the Registration Statement 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 Underwriter or as of the Closing Date,
included an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that such counsel need not express any belief with respect to the
financial statements and other financial and statistical information
included in the Registration Statement and the Prospectus (and any
amendment or supplement to either of the foregoing). In giving their
opinion, Brown & Wood LLP (i) may state that they express no opinion as
to the laws of any jurisdiction other than the laws of the State of New
York and the Federal laws of the United States of America, (ii) may rely
as to matters involving the laws of the State of Maryland upon the
opinion of Stradley Ronon Stevens & Young, LLP referred to in (e) below,
and (iii) may rely, as to matters of fact, upon the representations and
warranties made by the Fund and the Adviser herein and on certificates
and written statements of officers and employees of and accountants for
the Fund and the Adviser and of public officials. Except as otherwise
specifically provided herein, when giving their opinions to 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 Fund's Charter and Bylaws
and a review of the minute books of the Fund and have made no other
investigation or inquiry.
(d) The Underwriter shall have received on the Closing Date an
opinion of Stradley Ronon Stevens & Young, LLP, counsel to the Fund, dated
the Closing Date and addressed to the Underwriter, 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 properties and
conduct its business as described in the Registration Statement and in
the Prospectus;
(iii) the authorized capital stock of the Fund conforms as to legal
matters in all material respects to the description thereof in the
Registration Statement under the captions "Description of Cumulative
Preferred Stock" and "Description of Capital Stock";
(iv) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of the
Shares will not be subject to preemptive or other similar rights
pursuant to the Charter or Bylaws of the Fund or the Maryland General
Corporation Law; the form of certificate used to evidence the Shares is
in due and proper form and complies with all provisions of applicable
Maryland law;
(v) the Fund has full corporate power to enter into each Fund
Agreement; each Fund Agreement has been duly and validly authorized,
executed and delivered by the Fund;
(vi) to such counsel's knowledge, the execution and delivery of
this Agreement and the consummation of the transactions contemplated
herein will not conflict with or constitute a breach of the Charter or
the Bylaws of the Fund, or any Maryland law (other than Maryland
securities laws) or regulation, or, to their knowledge, any order of any
Maryland court, governmental instrumentality or arbitrator; and
(vii) all descriptions in the Prospectus of Maryland statutes and
regulations or legal or governmental proceedings, if any, under the laws
of the State of Maryland are accurate in all material respects.
In giving their opinion, Stradley Ronon Stevens & Young, 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", Stradley Ronon Stevens & Young, LLP have
relied solely upon an inquiry of the attorneys of that firm who have worked
on matters for the Fund, on certificates or written statements of officers of
the Fund and, where appropriate, a review of the Registration Statement,
Prospectus, exhibits to the Registration Statement, the Fund's Charter and
Bylaws and have made no other investigation or inquiry.
(e) The Underwriter shall have received on the Closing Date an
opinion of either (i) Howard J. Kashner, Esq., General Counsel for the
Adviser, or (ii) John E. Denneen, Esq., Associate General Counsel for the
Adviser, dated the Closing Date and addressed to the Underwriter, 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 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 the
Investment Advisory Agreement constitutes a valid and binding obligation
of the Adviser, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights generally and to general
equitable principles (except as to those provisions relating to
indemnity or contribution for liabilities arising under such agreement,
as to which no opinion need be expressed); and, to 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 any law, order, rule or regulation applicable to
the Adviser of any jurisdiction, court, Federal or state regulatory
body, administrative agency or other governmental body, stock exchange
or securities association having jurisdiction over the Adviser or its
properties or operations;
(iv) to his knowledge, the description of the Adviser in the
Registration Statement and in the Prospectus (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 giving his opinion, such counsel, (i) may state that he expresses no
opinion as to the laws of any jurisdiction other than the laws of the State
of New York and the federal laws of the United States of America, and (ii)
may rely, as to matters of fact, upon the representations and warranties made
by the Fund and the Adviser herein and on certificates and written statements
of officers and employees of and accountants for the Fund and the Adviser and
of public officials.
(f) The Underwriter shall have received on the Closing Date an
opinion of Simpson Thacher & Bartlett, counsel for the Underwriter, dated the
Closing Date and addressed to the Underwriter, with respect to such matters
as the Underwriter may reasonably request.
(g) The Underwriter shall have received letters addressed to the
Underwriter and dated the date hereof and the Closing Date from Ernst & Young
LLP, independent certified public accountants, substantially in the forms
heretofore approved by the Underwriter.
(h) (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, the Underwriter, may be
pending before or, to the knowledge of the Fund, the Adviser or the
Underwriter or in the reasonable view of counsel to the Underwriter, shall be
threatened or contemplated by 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 Underwriter; (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, properties, 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 the Underwriter 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
the Underwriter), to the effect set forth in this Section 9(h) and in Section
9(i) hereof.
(i) 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.
(j) The Fund shall have delivered and the Underwriter shall have
received evidence satisfactory to the Underwriter that the shares of
Cumulative Preferred Stock 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 of Cumulative Preferred Stock by the Rating
Agency.
(k) The Shares shall have been listed or approved for listing upon
notice of issuance on the American Stock Exchange.
(l) The Fund and the Adviser shall have furnished or caused to be
furnished to the Underwriter such further certificates and documents as the
Underwriter 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 the Underwriter and the Underwriter's
counsel.
Any certificate or document signed by any officer of the Fund or
the Adviser and delivered to the Underwriter, or to counsel for the
Underwriter, shall be deemed a representation and warranty by the Fund or the
Adviser to the Underwriter as to the statements made therein.
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: (i) the preparation, printing or reproduction,
and filing with the Commission of the registration statement (including
financial statements and exhibits thereto), each Prepricing Prospectus, the
1940 Act Notification, the Prospectus and each amendment or supplement to any
of them (including, without limitation, the filing fees prescribed by the
1933 Act, the 1940 Act and the Rules and Regulations); (ii) 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; (iii) 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; (iv) 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; (v) the registration of the Shares under the 1934 Act
and the listing of the Shares on the American Stock Exchange; (vi) the
reasonable fees (not to exceed $2,000), expenses and disbursements of counsel
for the Underwriter relating to the preparation, reproduction, and delivery
of the preliminary blue sky memorandum; (vii) fees paid to the Rating Agency;
(viii) the transportation and other expenses incurred by or on behalf of Fund
representatives in connection with presentations to prospective purchasers of
the Shares; and (ix) 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. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) 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 such time as this Agreement shall have become effective,
it may be terminated by the Fund, by notifying the Underwriter, or by the
Underwriter, by notifying the Fund. Any notice under this Section 11 may be
given by telegram, telecopy or telephone but shall be subsequently confirmed
by letter.
12. Termination of Agreement. This Agreement shall be subject to
termination in the Underwriter's absolute discretion, without liability on
the part of the Underwriter to the Fund or the Adviser, by notice to the Fund
or the Adviser, if prior to the Closing Date (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, or (iii) 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 the
Underwriter's 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 Underwriter. Notice of such termination may be given to
the Fund by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
13. Information Furnished by the Underwriter. The statements set
forth in (the last paragraph on the cover page, the stabilization legend 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 Underwriter as such information is referred to in Sections 6(b) and 8
hereof.
14. Miscellaneous. 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 the
Underwriter, to Smith Barney Inc., 388 Greenwich Street, New York, New York
10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
Underwriter, the Fund, the Adviser, their directors and officers, 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 the
Underwriter of any of the Shares in his status as such purchaser.
15. Applicable Law; Counterparts. 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.
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.
(End of Text)
Please confirm that the foregoing correctly sets forth the
agreement among the Fund, the Adviser and the Underwriter.
Very truly yours,
ROYCE GLOBAL TRUST, INC.
By: ____________________________
ROYCE & ASSOCIATES, INC.
By: ___________________________
Confirmed as of the date first
above mentioned.
SMITH BARNEY INC.
By: _________________________________
Managing Director
SCHEDULE I
ROYCE GLOBAL TRUST, INC.
Number of
Underwriter Shares
------------- ---------
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
EXHIBIT 2(j)
CUSTODIAN CONTRACT
Between
ROYCE GLOBAL TRUST, INC.
and
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN CONTRACT
This Contract between Royce Global Trust, Inc., a corporation organized
and existing under the laws of Maryland, having its principal place of
business at 1414 Avenue of the America, New York, New York 10019 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of its assets,
including securities which it desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside
the United States ("foreign securities") pursuant to the provisions of the
Articles of Incorporation. The Fund agrees to deliver to the Custodian all
securities and cash owned by it, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock, $ par value,
("Shares") of the Fund as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of the Fund held or
received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 4),
the Custodian shall from time to time employ one or more sub-custodians
located in the United States, but only in accordance with an applicable vote
by the Board of Directors of the Fund, and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of
any actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities and other assets the foreign
banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in
the United States including all domestic securities owned by the Fund,
other than (a) securities which are maintained pursuant to Section 2.10
in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies (each, a "U.S. Securities System") and (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the Provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for Securities of the Fund:
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in
any such case, the cash or other consideration is to be delivered
to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article l; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to
the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except as
may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, that only against receipt of adequate collateral as agreed
upon from time to time by the Custodian and the Fund, which may be
in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be credited to
the Custodian's account in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian will not be held
liable or responsible for the delivery of securities owned by the
Fund prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions be the
Fund;
14) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
signed by an officer and certified by the Secretary or an Assistant
Secretary, specifying the securities of the Fund to be delivered,
setting forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Fund or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment of a nominee
to be used in common with other registered investment companies having
the same investment adviser as the Fund, or in the name or nominee name
of any agent appointed pursuant to Section 2.9 or in the name or nominee
name of any sub-custodian appointed pursuant to Article 1. All
securities accepted by the Custodian on behalf of the Fund under the
terms of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Fund,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Fund, other than cash maintained by the Fund in a
bank account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940. Funds held by the Custodian for the
Fund may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as
it may in its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each such
bank or trust company and the funds to be deposited with each such bank
or trust company shall be approved by vote of a majority of the Board of
Directors of the Fund. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to United States registered securities held hereunder to
which the Fund shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to United States bearer domestic
securities if, on the date of payment by the issuer, such securities are
held by the Custodian or its agent thereof and shall credit such income,
as collected, to the Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities
held hereunder. Income due the Fund on United States securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund.
The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data
as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Fund is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures cuntracts for the account of the
Fund but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Company Act of 1940, as amended,
to act as a custodian and has been designated by the Custodian as
its agent for this purpose) registered in the name of the Fund or
in the name of a nominee of the Custodian referred to in Section
2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.10 hereof; (c) in the
case of a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer which is a member of
NASD, (i) against delivery of the securities either in certificate
form or through an entry crediting the Custodian's account at the
Federal Reserve Bank with such securities or (ii) against delivery
of the receipt evidencing purchase by the Fund of securities owned
by the Custodian along with written evidence of the agreement by
the Custodian to repurchase such securities from the Fund or
(e) for transfer to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions as defined in Article 4;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the Fund whether or
not such expenses are to be in whole or part capitalized or treated
as deferred expenses;
4) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
5) For payment of the amount of dividends received in respect of
securities sold short;
6) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee of the Fund signed
by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring
such purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of the Fund is made by the Custodian in advance of receipt of
the securities purchased in the absence of specific written instructions
from the Fund to so pay in advance, the Custodian shall be absolutely
liable to the Fund for such securities to the same extent as if the
securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain domestic securities owned by the Fund in a
clearing agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which acts as
a securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep domestic securities of the Fund in a U.S.
Securities System provided that such securities are represented in
an account ("Account") of the Custodian in the U.S. Securities
System which shall not include any assets of the Custodian other
than assets held as a fiduciary, custodian or otherwise for
customers:
2) The records of the Custodian with respect to domestic securities of
the Fund which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Fund;
3) The Custodian shall pay for domestic securities purchased for the
account of the Fund upon (i) receipt of advice from the U.S.
Securities System that such securities have been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account of
the Fund. The Custodian shall transfer domestic securities sold for
the account of the Fund upon (i) receipt of advice from the U.S.
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the U.S.
Securities System of transfers of domestic securities for the
account of the Fund shall identify the Fund, be maintained for the
Fund by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund confirmation of
each transfer to or from the account of the Fund in the form of a
written advice or notice and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transactions in the
U.S. Securities System for the account of the Fund;
4) The Custodian shall provide the Fund with any report obtained by
the Custodian on the U.S. Securities System's accounting system,
internal accounting control and procedures for safeguarding
domestic securities deposited in the U.S. Securities System;
5) The Custodian shall have received the initial certificate required
by Article 12 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the U.S. Securities System by reason
of any negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce effectively
such rights as it may have against the U.S. Securities System; at
the election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claim against the
U.S. Securities System or any other person which the Custodian may
have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or
damage.
2.11 Fund,Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Fund. The Custodian shall transfer securities sold
for the account of the Fund upon the making of an entry on the
records of the Custodian to reflect such transfer and receipt of
payment for the second of the Fund:
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written
advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transaction in the
U.S. Securities System for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or
government securities in connection with options purchased, sold or
written by the Fund or commodity futures contracts or options thereon
purchased or sold by the Fund, (iii) for the purposes of compliance by
the Fund with the procedures required by Investment Company Act Release
No. 10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated accounts
by registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Fund held by it and
in connection with transfers of such securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Fund or a nominee of the Fund, all proxies, without
indication of the manner in which such proxies are to be voted, and
shall promptly deliver to the Fund such proxies, all proxy soliciting
materials and all notices relating to such securities
2.15 Communications Relating to Fund Securities. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund and the maturity of futures contracts purchased or
sold by the Fund) received by the Custodian from issuers of the domestic
securities being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all written
information received by the Custodian from issuers of the domestic
securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Fund desires to
take action with respect to any tender offer, exchange offer or any
other similar transaction, the Fund shall notify the Custodian at least
three business days prior to the date on which the Custodian is to take
such action.
2.16 Reports to Fund by Independent Public Accountants. The Custodian shall
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including domestic
securities deposited and/or maintained in a U.S. Securities System,
relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope, and in sufficient detail, as
may reasonably be required by the Fund, to provide reasonable assurance
that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 4 of this
Contract, together with a certified resolution of the Fund's Board of
Directors, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(l) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions. The
Custodian shall identify on its booKs as belonging to the Fund, the
foreign securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Funds shall be
maintained in a clearing agency which acts as a securities depository or
in a book-entry system for the central handling of securities located
outside of the United States (each a "Foreign Securities System") only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof (Foreign
Securities Systems and U.S. Securities Systems are collectively
referred to herein as the "Securities Systems"). Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
Foreign Sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the Fund's assets will
not be subject to any right, charge, security interest, lien or claim of
any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership of the Fund's assets will be
freely transferable without the payment of money or value other than for
custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of the Custodian,
including to the extent permitted under applicable law the independent
public accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions under
its agreement with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement with
the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by foreign sub-custodians,
including but not limited to an identification of entities having
possession of the Fund's securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of the Fund indicating, as to securities acquired for the Fund,
the identity of the entity having physical possession of such
securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to
a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of
such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and each Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to State
Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase or
sale of foreign exchange or of contracts for foreign exchange, or in the
event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may
arise from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of such Funds assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any loss of the assets of the Fund or in the case of
any foreign sub-custodian not the subject of an exemptive order from the
Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders' equity has declined
below $200 million (in each case computed in accordance with generally
accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Funds assets are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment
Company Act of 1940 meeting the qualification set forth in Section 26(a)
of said Act. The appointment of any such branch as a sub-custodian
shall be governed by paragraph 1 of this Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the tax
law of jurisdictions other than those mentioned in the above sentence,
including responsibility for withholding and other taxes, assessments or
other governmental charges, certifications and governmental reporting.
The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to
any claim for exemption or refund under the tax law of jurisdictions for
which the Fund has provided such information.
4. Proper Instructions
Proper Instructions as used herein means a writing signed or initialled
by one or more person or persons as the Board of Directors shall have from
time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific statement
of the purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to
have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to
be confirmed in writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of Directors of
the Fund accompanied by a detailed description of procedures approved by the
Board of Directors, Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Board of Directors and the Custodian are satisfied that such procedures
afford adequate safeguards for the Fund's assets. For purposes of this
Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three-party agreement which requires a segregated
asset account in accordance with Section 2.12.
5. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under
this Contract, provided that all such payments shall be accounted
for to the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and
other dealings with the securities and property of the Fund except
as otherwise directed by the Board of Directors of the Fund.
6. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed
by it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Directors of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be considered as
in full force and effect until receipt by the Custodian of written notice to
the contrary.
7. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Directors of the Fund to
keep the books of account of the Fund and/or compute the net asset value per
share of the outstanding shares of the Fund or, if directed in writing to do
so by the Fund, shall itself keep such books of account and/or compute such
net asset value per share. If so directed, the Custodian shall also
calculate weekly the net income of the Fund as described in the Fund's
currently effective prospectus and shall advise the Fund and the Transfer
Agent weekly of the total amounts of such net income and, if instructed in
writing by an officer of the Fund to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per share and the weekly income of
the Fund shall be made at the time or times described from time to time in
the Fund's currently effective prospectus.
8. Records
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet
the obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by the Fund and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
9. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund may from
time to time request, to obtain from year to year favorable opinions from the
Fund's independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-2, and Form N-SAR or
other annual reports to the Securities and Exchange Commission and with
respect to any other requirements of such Commission.
10. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
11. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by:it or
delivered by it pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the proper party
or parties, including any futures commission merchant acting pursuant to the
terms of a three-party futures or options agreement. The Custodian shall be
held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without
liability to the Fund for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or
agent, the Custodian shall be without liability to the Fund for any loss,
liability, claim or expense resulting from or caused by; (i) events or
circumstances beyond the reasonable control of the Custodian or any
sub-custodian or Securities System or any agent or nominee of any of the
foregoing, including, without limitation, nationalization or expropriation,
imposition of currency controls or restrictions, the interruption, suspension
or restriction of trading on or the closure of any securities market, power
or other mechanical or technological failures or interruptions, computer
viruses or communications disruptions, acts of war or terrorism, riots,
revolutions, work stoppages, natural disasters or other similar events or
acts; (ii) errors by the Fund or the Investment Advisor in their instructions
to the Custodian provided such instructions have been in accordance with this
Contract; (iii) the insolvency of or acts or omissions by a Securities
System; (iv) any delay or failure of any broker, agent or intermediary,
central bank or other commercially prevalent payment or clearing system to
deliver to the Custodian's sub-custodian or agent securities purchased or in
the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge or
registering or transferring securities in the name of the Custodian, the
Fund, the Custodian's sub-custodians, nominees or agents or any consequential
losses arising out of such delay or failure to transfer such securities
including non-receipt of bonus, dividends and rights and other accretions or
benefits; (vi) delays or inability to perform its duties due to any disorder
in market infrastructure with respect to any particular security or
Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of
competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may,
in the opinion of the Custodian, result in the Custodian or its nominee
assigned to the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to requiring the
Custodian to take such action, shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of this Contract, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct, any property at any time held for the account of the Fund
shall be security therefor and should the Fund-fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement.
12. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not
sooner than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not act under Section 2.10 hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Directors of the Fund has approved the
initial use of a particular Securities System, as required by Rule 17f-4
under the Investment Company Act of 1940, as amended and that the Custodian
shall not act under Section 2.11 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors has approved the initial use of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or
any provision of the Articles of Incorporation, and further provided, that
the Fund may at any time by action of its Board of Directors (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the Custodian by
the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian
such compensation as may be due as of the date of such termination and shall
likewise reimburse the Custodian for its costs, expenses and disbursements.
13. Successor Custodian
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer
such securities. funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having
an aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian and all instruments held by the
Custodian relative thereto and all other property held by it under this
Contract and to transfer to an account of such successor custodian all of the
Fund's securities held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or
of the Board of Directors to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services during such period as
the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
14. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and the
Fund, may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall
be annexed hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state regulations or
any provision of the Articles of Incorporation of the Fund.
No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
15. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
16. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund and the Custodian relating to the custody of
the Fund's assets.
17. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto all/each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
18. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply
with the rule, the Custodian needs the Fund to indicate whether it authorizes
the Custodian to provide the Fund's name, address, and share position to
requesting companies whose securities the Fund owns. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either
"yes" or "no" below, the Custodian is required by the rule to treat the Fund
as consenting to disclosure of this information for all securities owned by
the Fund or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's
name and address for any purpose other than corporate communications. Please
indicate below whether the Fund consents or objects by checking one of the
alternatives below.
YES ( ) The Custodian is authorized to release the Fund's name,
address, and share positions.
NO ( ) The Custodian is not authorized to release the Fund's name,
address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 31st day of December, 1996.
ATTEST ROYCE GLOBAL TRUST, INC.
_______________________ _______________________________
ATTEST STATE STREET BANK AND TRUST COMPANY
_______________________ By ______________________________
Executive Vice President
Schedule A
---------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Directors of Royce Global
Trust, Inc. for use as sub-custodians for the Fund's securities and other
assets:
(Insert banks and securities depositories)
Certified:
_________________________
Fund's Authorized Officer
Date:_____________________
Schedule A
---------
<TABLE>
<CAPTION>
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1997
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
<S> <C> <C>
Argentina Citibank, N.A. Caja de Valores S.A.
Australia Westpac Banking Austraclear Limited;
Corporation
Reserve Bank lnformation and
Transfer System (RITS)
Austria GiroCredit Bank Otesterreichische
Aktiengesellschaft Kontrollbank AG
der Sparkassen (Wertpapiersammelbank Division)
Bangladesh Standard Chartered Bank None
Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de Virements
de Titres S.A. (CIK);
Banque Nationale de Belgique
Botswana Barclays Bank of Botswana Limited None
Brazil Citibank, N.A. Bolsa de Valores de Sao Paulo
(Bovespa); (Bovespa);
Banco Central do Brasil,
Systema Especial de Liquida ao
e Custodia (SELIC)
Canada Canada Trustco The Canadian Depository
Mortgage Company for Securities Limited (CDS)
Chile Citibank, N.A. None
People's Republic of China The Hong Kong and Shanghai Shanghai Securities Central
Banking Corporation Limited, Clearing and Registration
Shanghai and Shenzhen branches Corporation (SSCCRC);
Shenzhen Securities Central
Clearing Co., Ltd. (SSCC)
Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
Cyprus Barclays Bank PLC None
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni Stredisko Cennych Papiru (SCP);
Banka A.S.
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen -
The Danish Securities
Center (VP)
Ecuador Citibank, N.A. None
Egypt National Bank of Egypt None
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1997
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Finland Merita Bank Limited The Central Share Register of
Finland
France Banque Paribas Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobili res (SICOVAM);
Banque de France,
Saturne System
Germany Dresdner Bank A.G. The Deutscher Kassenverein AG
Ghana Barclays Bank of Ghana Limited None
Greece S.A. National Bank of The Central Securities Depository
Greece S.A. (Apothetirion Titlon A.E.)
Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
Hungary Citibank Budapest Rt. The Central Depository and Clearing
House (Budapest) Ltd.
(KELER Ltd.)
India Deutsche Bank AG None
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank None
Ireland Bank of Ireland None;
The Central Bank of Ireland,
The Gilt Settlement Office (GSO)
Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
Italy Banque Paribas Monte Titoli S.p.A.;
Banca d'Italia
Ivory Coast Soci t G n rale de Banques None
en C te d'Ivoire
Japan The Daiwa Bank, Limited Japan Securities Depository Center
(JASDEC);
Bank of Japan Net System
The Fuji Bank, Limited Japan Securities Depository Center
(JASDEC);
Bank of Japan Net System
Japan The Sumitomo Trust Japan Securities Depostiory Center (JASDEC);
& Banking Co., Ltd.
Bank of Japan Net System
Jordan The British Bank of the Middle East None
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1997
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Kenya Barclays Bank of Kenya Limited None
Republic of Korea SEOULBANK Korea Securities Depository (KSD)
Malaysia Standard Chartered Bank Malaysian Central Depository Sdn.
Malaysia Berhad Bhd. (MCD)
Mauritius The HongKong and Shanghai None
Banking Corporation Limited
Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Dep sito de
Valores);
Banco de M xico
Morocco Banque Commerciale du Maroc None
Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
New Zealand ANZ Banking Group New Zealand Central Securities
(New Zealand) Limited Depository Limited (NZCSD)
Norway Christiania Bank og Verdipapirsentralen -
Kreditkasse The Norwegian Registry
of Securities (VPS)
Pakistan Deutsche Bank AG None
Peru Citibank, N.A. Caja de Valores (CAVAL)
Philippines Standard Chartered Bank None
Poland Citibank Poland S.A. The National Depository
of Securities (Centrum
Krajowy Depozytu
Papierow Wartos'ciowych)
Portugal Banco Comercial Portugues Central de Valores
Mobili rios (Central)
Russia Credit Suisse, Zurich via None
-Credit Suisse (Moscow) Limited
Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limited (CDP)
Slovak Republic eskoslovensk Obchadn Stredisko cenn ch
papierov (SCP);
National Bank of Slovakia
South Africa Standard Bank of The Central Depository Limited
South Africa Limited
Spain Banco Santander, S.A. Servicio de Compensacion y
Liquidacion de Valores (SCLV);
Banco de Espana,
Anotaciones en Cuenta
STATE STREET BANK AND TRUST COMPANY
GLOBAL CUSTODY NETWORK
FOR MUTUAL FUND CLIENTS
1997
COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
Sri Lanka The Hongkong and Shanghai The Central Depository
Banking Corporation Limited System (Pvt) Limited
Swaziland Barclays Bank of Swaziland Limited None
Sweden Skandinaviska Enskilda Vardepapperscentralen VPC AB -
Banken The Swedish Central Securities
Depository
Switzerland Union Bank of Switzerland Schweizerische Effekten -
Giro AG (SEGA)
Taiwan-R.O.C. Central Trust of China The Taiwan Securities
Central Depository
Company, Ltd. (TSCD)
Thailand Standard Chartered Bank Thailand Securities Depository
Company Limited (TSD)
Turkey Citibank, N.A. Takas ve Saklama Bankasi A.S.
(TAKASBANK)
Central Bank of Turkey
United Kingdom State Street Bank and None;
Trust Company
The Bank of England,
The Central Gilts Office (CGO);
The Central Moneymarkets Office
(CMO)
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
Zambia Barclays Bank of Zambia Limited Lusaka Central Depository (LCD)
Zimbabwe Barclays Bank of Zirnbabwe Lirnited None
</TABLE>
Euroclear (The Euroclear System)/ State Street London Limited
Cedel (Cedel Bank soci t anonyme)/ State Street London Limited
EXHIBIT 1
SUBCUSTODIAN AGREEMENT
----------------------
AGREEMENT made this _____ day of _________________, 19__, between State
Street Bank and Trust Company, a Massachusetts trust company (hereinafter
referred to as the "Custodian"), having its principal place of business at
225 Franklin Street, Boston, MA, and (hereinafter referred to as the
"Subcustodian"), a organized under the laws of and having an office at
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended,
and employee benefit plans subject to the U.S. Employee Retirement Income
Security Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Account (the "Account") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Account and to hold and
maintain all Property in the Account in accordance with the terms and
conditions herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained. the Custodian and the Subcustodian agree as follows:
I. The Account
A. Establishment of the Account. Custodian hereby requests that
Subcustodian establish for each client of the Custodian an Account which
shall be composed of:
1. A Custody Account for any and all Securities (as hereinafter
defined) from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined)
from time to time received by Subcustodian therefor.
B. Use of the Account. The Account shall be used exclusively to hold,
acquire, transfer or otherwise care for, on behalf of Custodian as custodian
and the customers of Custodian and not for Custodian's own interest,
Securities and such Cash or cash equivalents as are transferred to
Subcustodian or as are received in payment of any transfer of, or as payment
on, or interest on. or dividend from, any such Securities (herein
collectively called "Cash").
C. Transfer of Property in the Account. Beneficial ownership of the
Securities and Cash in the Account shall be freely transferable without
payment of money or value other than for safe custody and administration.
D. Ownership and Segregation of Property in the Account. The ownership
of the property in the Account, whether Securities, Cash or both, and whether
any such property is held by Subcustodian in an Eligible Depository, shall be
clearly recorded on Subcustodian's books as belonging to Custodian on behalf
of Custodian's customers, and not for Custodian's own interest and, to the
extent that Securities are physically held in the Account, such Securities
shall also be physically segregated from the general assets of Subcustodian,
the assets of Custodian in its individual capacity and the assets of
Subcustodian's other customers. In addition, Subcustodian shall maintain
such other records as may be necessary to identify the property hereunder as
belonging to each Account.
E. Registration of Securities in the Account. Securities which are
eligible for deposit in a depository as provided for in Paragraph m may be
maintained with the depository in an account for Subcustodian's customers.
Securities which are not held in a depository and that are ordinarily held in
registered form will be registered in the name of Subcustodian or in the name
of Subcustodian's nominee, unless alternate Instructions are furnished by
Custodian.
II. Services to Be Provided By the Subcustodian
The services Subcustodian will provide to Custodian and the manner in
which suchservices will beperformed willbe asset forth belowin thisAgreement.
A. Services Performed Pursuant to Instructions. All transactions
involving the Securities and Cash in the Account shall be executed solely in
accordance with Custodian's Instructions as that term is defined in
Paragraph VI hereof, except those described in paragraph B below.
B. Services to Be Performed Without Instructions. Subcustodian will,
unless it receives Instructions from Custodian to the contrary:
1. Collect Cash. Promptly collect and receive all dividends,
income, principal, proceeds from transfer and other payments with respect to
property held in the Account, and present for payment all Securities held in
the Account which are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment upon
presentations and credit Cash receipts therefrom to the Deposit Account.
2. Exchange Securities. Promptly exchange Securities where the
exchange is purely ministerial including, without limitation, the exchange of
temporary Securities for those in definitive form and the exchange of
warrants, or other documents of entitlement to Securities, for the Securities
themselves.
3. Sale of Rights and Fractional Interests. Whenever notification
of a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend or stock split is received for the Account and such
rights entitlement or fractional interest bears an expiration date,
Subcustodian will promptly endeavor to obtain Custodian's Instructions, but
should these not be received in time for Subcustodian to take timely action,
Subcustodian is authorized to sell such rights entitlement or fractional
interest and to credit the Account.
4. Execute Certificates. Execute in Custodian's name for the
Account, whenever Subcustodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income from the
Securities held in the account.
5. Pay Taxes and Receive Refunds. To pay or cause to be paid from
the Account any and all taxes and levies in the nature of taxes imposed on
the property in the Account by any governmental authority, and to take all
steps necessary to obtain all tax exemptions, privileges or other benefits,
including reclaiming and recovering any foreign withholding tax, relating to
the Account and to execute any declaration, affidavits, or certificates of
ownership which may be necessary in connection therewith.
6. Prevent Losses. Take such steps as may be reasonably necessary
to secure or otherwise prevent the loss of, entitlements attached to or
otherwise relating to property held in the Account.
C. Additional Services.
1. Transmission of Notices of Corporate Action. By such means as will
permit Custodian to take timely action with respect thereto, Subcustodian
will promptly notify Custodian upon receiving notices or reports, or
otherwise becoming aware, of corporate action affecting Securities held in
the Account (including, but not limited to, calls for redemption, mergers,
consolidations, reorganizations, recapitalizations, tender offers, rights
offerings, exchanges, subscriptions and other offerings) and dividend,
interest and other income payments relating to
2. Communications Regarding the Exercise of Entitlements. Upon request
by Custodian, Subcustodian will promptly deliver, or cause any Eligible
Depository authorized and acting hereunder to deliver, to Custodian all
notices, proxies, proxy soliciting materials and other communications that
call for voting or the exercise of rights or other specific action (including
material relative to legal proceedings intended to be transmitted to security
holders) relating to Securities held in the Account to the extent received by
Subcustodian or said Eligible Depository, such proxies or any voting
instruments to be executed by the registered holder of the Securities, but
without indicating the manner in which such Securities are to be voted.
3. Monitor Financial Service. In furtherance of its obligations under
this Agreement, Subcustodian will monitor a leading financial service with
respect to announcements and other information respecting property held in
the Account, including announcements and other information with respect to
corporate actions and dividend, interest a~nd other income payments.
III. Use of Securities Depository
Subcustodian may, with the prior written approval of Custodian, maintain all
or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a
country other than the United States of America and is supervised or
regulated by a government agency or regulatory authority in the foreign
jurisdiction having authority over such depositories or agencies, and which
operates (a) the central system for handling of designated securities or
equivalent book entries in _________________, or (b) a transnational system
for the central handling of securities or equivalent book entries (herein
called "Eligible Depository"), provided however, that, while so maintained,
such Securities shall be subject only to the directions of Subcustodian, and
that Subcustodian duties, obligations and responsibilities with regard to
such Securities shall be the same as if such Securities were held by
Subcustodian on its premises.
IV. Claims Against Property in the Account
The property in the account shall not be subject to any right, charge,
security interest, lien or claim of any kind (collectively "Charges") in
favor of Subcustodian or any Eligible Depository or any creditor of
Subcustodian or of any Eligible Depository except a claim for payment for
such property's safe custody or administration in accordance with the terms
of this Agreement. Subcustodian will immediately notify Custodian of any
attempt by any party to assert any Charge against the property held in the
Account and shall take all lawful actions to protect such property from such
Charges until Custodian has had a reasonable time to respond to such notice.
V. Subcustodian's Warranty
Subcustodian represents and warrants that:
A. It is a branch of a "qualified U.S. bank" or an "eligible foreign
custodian" as those terms are defined in Rule 17f-5 of the Investment Company
Act of 1940, a copy of which is attached hereto as Attachment A (the "Rule"),
and Subcustodian shall immediately notify Custodian, in writing or by other
authorized means, in the event that there appears to be a substantial
likelihood that Subcustodian will cease to qualify under the Rule as
currently in effect or as hereafter amended, or
B. It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify
under the terms of the Rule, and Subcustodian shall immediately notify
Custodian, in writing or by other authorized means, if for any reason it is
no longer covered by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of this
section, Custodian may terminate this Agreement immediately without prior
notice to Subcustodian.
VI. Definitions
A. Instructions. The term "Instructions" means:
1. instructions in writing signed by authorized individuals
designated as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be
agreed upon by Custodian and Subcustodian, which Subcustodian believes in
good faith to have been given by Custodian or which are transmitted with
proper testing or authentication pursuant to terms and conditions which
Custodian may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission
in respect of any Instruction except in the case of willful default,
negligence, fraud, bad faith, willful misconduct, or reckless disregard of
duties on the part of Subcustodian. Subcustodian in executing all
Instructions will take relevant action in accordance with accepted industry
practice and local settlement practice.
B. Account. The term "Account" means collectively the Custody Account,
and the Deposit Account.
C. Securities. The term "Securities" includes, without limitation,
stocks, shares, bonds, debentures, debt securities (convertible or
non-convertible), notes, or other obligations or securities and any
certificates, receipts, futures contracts, foreign exchange contracts,
options, warrants, scrip or other instruments representing rights to receive,
purchase or subscribe for the same, or evidencing or representing any other
rights or interests therein, or in any property or assets.
VII. Miscellaneous Provisions
A. Statements Regarding the Account. Subcustodian will supply
Custodian with such statements regarding the Account as Custodian may
request, including the identity and location of any Eligible Depository
authorized and acting hereunder. In addition, Subcustodian will supply
Custodian an advice or notification of any transfers of Securities to or from
the Account indicating, as to Securities acquired for the Account, if
applicable, the Eligible Depository having physical possession of such
Securities.
B. Examination of Books and Records. Subcustodian agrees that its
books and records relating to the Account and Subcustodian's actions under
this Agreement shall be open to the physical, on-premises inspection and
audit at reasonable times by officers of, auditors employed by or other
representatives of Custodian including (to the extent permitted under the law
of _________________ the independent public accountants for any customer of
Custodian whose property is being held hereunder and such books and records
shall be retained for such period as shall be agreed upon by Custodian and
Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports
of any Eligible Depository authorized and acting hereunder.
C. Standard of Care. In holding, maintaining, servicing and disposing
of Property under this Agreement, and in fulfilling any other obligations
hereunder, Subcustodian shall exercise the same standard of care that it
exercises over its own assets, provided that Subcustodian shall exercise at
least the degree of care and maintain adequate insurance as expected of a
prudent professional Subcustodian for hire and shall assume the burden of
proving that it has exercised such care in its maintenance of Property held
by Subcustodian in its Account. The maintenance of the Property in an
Eligible Depository shall not affect Subcustodian's standard of care, and
Subcustodian will remain as fully responsible for any loss or damage to such
securities as if it had itself retained physical possession of them.
Subcustodian shall also indemnify and hold harmless Custodian and each of
Custodian's customers from and against any loss, damage, cost, expense,
liability or claim (including reasonable attorney's fees) arising out of or
in connection with the improper or negligent performance or the
nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the
law of _________________, or any other law, applicable to Subcustodian in
connection with its duties hereunder, including (but not limited to) the
payment of all transfer taxes or other taxes and compliance with any currency
restrictions and securities laws in connection with its duties as
Subcustodian.
D. Loss of Cash or Securities. Subcustodian agrees that, in the even
of any loss of Securities or Cash in the Account, Subcustodian will use its
best efforts to ascertain the circumstances relating to such loss and will
promptly report the same to Custodian and shall use every legal means
available to it to effect the quickest possible recovery.
E. Compensation of Subcustodian. Custodian agrees to pay to
Subcustodian from time to time such compensation for its services and such
out-of-pocket or incidental expenses of Subcustodian pursuant to this
Agreement as may be mutually agreed upon in writing from time to time.
F. Operating Requirements. The Subcustodian agrees to follow such
Operating Requirements as the Custodian may establish from time to time. A
copy of the current Operating Requirements is attached as Attachment B to
this Agreement.
G. Termination. This Agreement may be terminated by Subcustodian or
Custodian on 60 days' written notice to the other party, sent by registered
mail, provided that any such notice, whether given-by Subcustodian or
Custodian, shall be followed within 60 days by Instructions specifying the
names of the persons to whom Subcustodian shall deliver the Securities in the
Account and to whom the Cash in the account shall be paid. If within 60 days
following the giving of such notice of termination, Subcustodian does not
receive such Instructions, Subcustodian shall continue to hold such
Securities and Cash subject to this Agreement until such Instructions are
given. The obligations of the parties under this Agreement shall survive the
termination of this Agreement.
H. Notices. Unless otherwise specified in this Agreement, all notices
and communications with respect to matters contemplated by this Agreement
shall be in writing, and delivered by mail, postage prepaid, telex, SWIFT, or
other mutually agreed telecommunication methods to the following addresses
(or to such other address as either party hereto may from time to time
designate by notice duly given in accordance with this paragraph):
To Subcustodian:
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, MA 02105
I. Confidentiality. Subcustodian and Custodian shall each use its best
efforts to maintain the confidentiality of the property in the Account and
the beneficial owners thereof, subject, however, to the provisions of any
laws, requiring disclosure. In addition, Subcustodian shall safeguard any
test keys, identification codes or other security devices which Custodian
shall make-available to it. The Subcustodian further agrees it will not
disclose the existence of this Agreement or any current business relationship
unless compelled by applicable law or regulation or unless it has secured the
Custodian's written consent.
J. Assignment. This Agreement shall not be assignable by either party
but shall bind any successor in interest of Custodian and Subcustodian
respectively.
K. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of . To the extent inconsistent with this Agreement
or Custodian's Operating Requirements as attached hereto, Subcustodian's
rules and conditions regarding accounts generally or custody accounts
specifically shall not apply.
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By:_________________
Date:_______________
AGREED TO BY SUBCUSTODIAN
____________________
By:_________________
Date:_______________
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
AGREEMENT between Royce Global Trust, Inc. (the "Customer") and State
Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets
of the Customer pursuant to a certain Custodian Agreement (the "Custodian
Agreement") dated as of , 199 ;
WHEREAS, State Street has developed and utilizes proprietary accounting
and other systems, including State Street's proprietary Multicurrency
HORIZON/R/ Accounting System, in its role as custodian of the Customer, and
maintains certain Customer-related data ("Customer Data") in databases under
the control and ownership of State Street (the "Data Access Services"): and
WHEREAS, State Street makes available to the Customer certain Data
Access Services solely for the benefit of the Customer, and intends to
provide additional services, consistent with the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other .good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Agreement,
State Street hereby agrees to provide the Customer with access to State
Street's Multicurrency HORIZONR Accounting System and the other information
systems (collectively, the "System") as described in Attachment A, on a
remote basis for the purpose of obtaining reports, solely on computer
hardware, system software and telecommunication links, as listed in
Attachment B (the "Designated Configuration") of the Customer, or certain
third parties approved by State Street that serve as investment advisors or
investment managers (the "Investment Advisor") or independent auditors (the
"Independent Auditors") of the Customer and solely with respect to the
Customer or on any designated substitute or back-up equipment configuration
with State Street's written consent, such consent not to be unreasonably
withheld.
b. Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subJect to the terms and conditions of this
Agreement and data access operating standards and procedures as may be issued
by State Street from time to time. The ability of the Customer to originate
electronic instructions to State Street on behalf of the Customer in order to
(i) effect the transfer or movement of cash or securities held under custody
by State Street or (ii) transmit accounting or other information (such
transactions are referred to herein as "Client Originated Electronic
Financial Instructions"), and (iii) access data for the purpose of reporting
and analysis, shall be deemed to be Data Access Services for purposes of this
Agreement.
c. Additional Services. State Street may from time to time agree to
make available to the Customer additional Systems that are not described in
the attachments to this Agreement. In the absence of any other written
agreement concerning such additional systems, the term "System" shall
include, and this Agreement shall govern, the Customer's access to and use of
any additional System made available by State Street and/or accessed by the
Customer.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Agreement, the Customer will have
access, through the Data Access Services, to Customer Data and to functions
of State Street's proprietary systems; provided, however that in no event
will the Customer have direct access to any third party systems-level
software that retrieves data for, stores data from, or otherwise supports the
System.
3. LIM1TATION ON SCOPE OF USE
a. Designated Equipment: Designated Location. The System and the Data
Access Services shall be used and accessed solely on and through the
Designated Configuration at the offices of the Customer or the Investment
Advisor or Independent Auditor located in New York, New York ("Designated
Location").
b. Designated Configuration: Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer
agree that each will engage or retain the services of trained personnel to
enable both parties to perform their respective obligations under this
Agreement. State Street agrees to use commercially reasonable efforts to
maintain the System so that it remains serviceable, provided, however, that
State Street does not guarantee or assure uninterrupted remote access use of
the System.
c. Scope of Use. The Customer will use the System and the Data Access
Services only for the processing of securities transactions, the keeping of
books of account for the Customer and accessing data for purposes of
reporting and analysis. The Customer shall not, and shall cause its
employees and agents not to (i) permit any third party to use the System or
the Data Access Services, (ii) sell, rent, license or otherwise use the
System or the Data Access Services in the operation of a service bureau or
for any purpose other than as expressly authorized under this Agreement,
(iii) use the System or the Data Access Services for any fund, trust or other
investment vehicle without the prior written consent of State Street,
(iv) allow access to the System or the Data Access Services through terminals
or any other computer or telecommunications facilities located outside the
Designated Locations, (v) allow or cause any information (other than
portfolio holdings, valuations of portfolio holdings, and other information
reasonably necessary for the management or distribution of the assets of the
Customer) transmitted from State Street's databases, including data from
third party sources, available through use of the System or the Data Access
Services to be redistributed or retransmitted to another computer, terminal
or other device for other than use for or on behalf of the Customer or
(vi) modify the System in any way, including without limitation, developing
any software for or attaching any devices or computer programs to any
equipment, system, software or database which forms a part of or is resident
on the Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a
planned System shutdown, the Customer's access to services performed by the
System or to Data Access Services at the Designated Location may be
transferred to a different location only upon the prior written consent of
State Street. In the event of an emergency or System shutdown, the Customer
may use any back-up site included in the Designated Configuration or any
other back-up site agreed to by State Street, which agreement will not be
unreasonably withheld. The Customer may secure from State Street the right
to access the System or the Data Access Services through computer and
telecommunications facilities or devices complying with the Designated
Configuration at additional locations only upon the prior written consent of
State Street and on terms to be mutually agreed upon by the parties.
e. Title. Title and all ownership and proprietary rights to the
System, including any enhancements or modifications thereto, whether or not
made by State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
the Customer shall not modify, enhance or otherwise create derivative works
based upon the System, nor shall the Customer reverse engineer, decompile or
otherwise attempt to secure the source code for all or any part of the
System.
g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and
to access the Data Access Services. The Customer shall have access only to
the Customer Data and authorized transactions agreed upon from time to time
by State Street and, upon notice from State Street, the Customer shall
discontinue remote use of the System and access to Data Access Services for
any security reasons cited by State Street; provided, that, in such event,
State Street shall, for a period not less than 180 days (or such other
shorter period specified by the Customer) after such discontinuance, assume
responsibility to provide accounting services under the terms of the
Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use
of the System and the Data Access Services by the Customer and the Investment
Advisor to ensure compliance with this Agreement. The on-site inspections
shall be upon prior written notice to Customer and the Investment Advisor and
at reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Customer's or the Investment Advisor's
business.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen
formats, report formats, interactive design techniques, documentation and
other information made available to the Customer by State Street as part of
the Data Access Services and through the use of the System constitute
copyrighted, trade secret, or other proprietary information of substantial
value to State Street. Any and all such information provided by State Street
to the Customer shall be deemed proprietary and confidential information of
State Street (hereinafter "Proprietary Information"). The Customer agrees
that it will hold such Proprietary Information in the strictest confidence
and secure and protect it in a manner consistent with its own procedures for
the protection of its own confidential information and to take appropriate
action by instruction or agreement with its employees who are permitted
access to the Proprietary Information to satisfy its obligations hereunder.
The Customer further acknowledges that State Street shall not be required to
provide the Investment Advisor or the Investment Auditor with access to the
System unless it has first received from the Investment Advisor and the
Investment Auditor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C and/or Attachment C-1 to this
Agreement. The Customer shall use all commercially reasonable efforts to
assist State Street in identifying and preventing any unauthorized use,
copying or disclosure of the Proprietary Information or any portions thereof
or any of the logic, formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer
shall advise State Street immediately in the event the Customer learns or has
reason to believe that any person to whom the Customer has given access to
the Proprietary Information, or any portion thereof, has violated or intends
to violate the terms of this Agreement, and the Customer will, at its
expense, co-operate with State Street in seeking injunctive or other
equitable relief in the name of the Customer or State Street against any such
person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of
any Proprietary Information, or of any information which at law or equity
ought to remain confidential, will immediately give rise to continuing
irreparable injury to State Street inadequately compensable in damages at
law. In addition, State Street shall be entitled to obtain immediate
injunctive relief against the breach or threatened breach of any of the
foregoing undertakings, in addition to any other legal remedies which may be
available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Agreement.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer
agrees any liability of State Street to the Customer or any third party
arising out of State Street's provision of Data Access Services or the System
under this Agreement shall be limited to the amount paid by the Customer for
the preceding 24 months for such services. In no event shall State Street be
liable to the Customer or any other party for any special, indirect, punitive
or consequential damages even if advised of the possibility of such damages.
No action, regardless of form, arising out of this Agreement may be brought
by the Customer more than two years after the Customer has knowledge that the
cause of action has arisen.
b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE
STREET. IN NO EVENT WILL STATE STREET BE LIABLE TO THE CUSTOMER OR ANY OTHER
PARTY FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES WHICH MAY ARISE FROM THE
CUSTOMER'S ACCESS TO THE SYSTEM OR USE OF INFORMATION OBTAINED THEREBY.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer,
the Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System
and the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or
damages due to delay or nonperformance under this Agreement arising out of
any cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the
other party, or the Customer as a result of work stoppage, power or other
mechanical failure, computer virus, natural disaster, governmental action, or
communication disruption.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from any
loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from (i) the negligence or willful
misconduct in the use by the Customer of the Data Access Services or the
System, including any loss incurred by State Street resulting from a security
breach at the Designated Location or committed by the Customer's employees or
agents or the Investment Advisor or the Independent Auditor and (ii) any loss
resulting from incorrect Client Originated Electronic Financial Instructions.
State Street shall be entitled to rely on the validity and authenticity of
Client Originated Electronic Financial Instructions without undertaking any
further inquiry as long as such instruction is undertaken in conformity with
security procedures established by State Street from time to time.
7. FEES
Fees and charges for the use of the System and the Data Access Services
and related payment terms shall be as set forth in the Custody Fee Schedule
in effect from time to time between the parties (the "Fee Schedule"). Any
tariffs, duties or taxes imposed or levied by any government or governmental
agency by reason of the transactions contemplated by this Agreement,
including, without limitation, federal, state and local taxes, use, value
added and personal property taxes (other than income, franchise or similar
taxes which may be imposed or assessed against State Street) shall be borne
by the Customer. Any claimed exemption from such tariffs, duties or taxes
shall be supported by proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
State Street training facility or at the Designated Location, to the
Customer's personnel in connection with the use of the System on the
Designated Configuration. The Customer agrees that it will set aside, during
regular business hours or at other times agreed upon by both parties,
suff1cient time to enable all operators of the System and the Data Access
Services, designated by the Customer. to receive the training offered by
State Street pursuant to this Agreement.
b. Installation and Conversion. State Street shall be responsible for
the technical installation and conversion ("Installation and Conversion") of
the Designated Configuration. The Customer shall have the following
responsibilities in connection with Installation and Conversion of the
System:
(i) The Customer shall be solely responsible for the timely acquisition
and maintenance of the hardware and software that attach to the
Designated Configuration in order to use the Data Access Services at
the Designated Location.
(ii) State Street and the Customer each agree that they will assign
qualified personnel to actively participate during the
Installation and Conversion phase of the System implementation
to enable both parties to perform their respective obligations
under this Agreement.
9. SUPPORT
During the term of this Agreement, State Street agrees to provide the
support services set out in Attachment D to this Agreement.
10. TERM OF AGREEMENT
a. Term of Agreement. This Agreement shall become effective on the
date of its execution by State Street and shall remain in full force and
effect until terminated as herein provided.
b. Termination of Agreement. Either party may terminate this Agreement
(i) for any reason by giving the other party at least one-hundred and eighty
days' prior written notice in the case of notice of termination by State
Street to the Customer or thirty days ' notice in the case of notice from the
Customer to State Street of termination; or (ii) immediately for failure of
the other party to comply with any material term and condition of the
Agreement by giving the other party written notice of termination. In the
event the Customer shall cease doing business, shall become subject to
proceedings under the bankruptcy laws (other than a petition for
reorganization or similar proceeding) or shall be adjudicated bankrupt, this
Agreement and the rights granted hereunder shall, at the option of State
Street, immediately terminate with notice to the Customer. This Agreement
shall in any event terminate as to any Customer within 90 days after the
termination of the Custodian Agreement applicable to such Customer.
c. Termination of the Right to Use. Upon termination of this Agreement
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Customer shall immediately cease use of the
System and the Data Access Services. Immediately upon termination of this
Agreement for any reason, the Customer shall return to State Street all
copies of documentation and other Proprietary Information in its possession;
provided, however, that in the event that either party terminates this
Agreement or the Custodian Agreement for any reason other than the Customer's
breach, State Street shall provide the Data Access Services for a period of
time and at a price to be agreed upon by the parties.
11. MISCELLANEOUS
a. Assignment: Successors. This Agreement and the rights and
obligations of the Customer and State Street hereunder shall not be assigned
by either party without the prior written consent of the other party, except
that State Street may assign this Agreement to a successor of all or a
substantial portion of its business, or to a party controlling, controlled
by, or under common control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
c. Entire Agreement. This Agreement and the attachments hereto
constitute the entire understanding of the parties hereto with respect to the
Data Access Services and the use of the System and supersedes any and all
prior or contemporaneous representations or agreements, whether oral or
written, between the parties as such may relate to the Data Access Services
or the System, and cannot be modified or altered except in a writing duly
executed by the parties. This Agreement is not intended to supersede or
modify the duties and liabilities of the parties hereto under the Custodian
Agreement or any other agreement between the parties hereto except to the
extent that any such agreement specifically refers to the Data Access
Services or the System. No single waiver or any right hereunder shall be
deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, unlawful, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way
be affected or impaired.
e. Governing Law. This Agreement shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts
without regard to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
effective as of the date hereof.
STATE STREET BANK AND TRUST COMPANY
By: ____________________________
Executive Vice President
Title: _________________________
Date: __________________________
ROYCE GLOBAL TRUST, INC.
By: ____________________________
Executive Vice President
Title: _________________________
Date: __________________________
ATTACHMENT A
Multicurrency HORIZON/R/ Accounting System
System Product Description
I. The Multicurrency HORIZON/R/ Accounting System is designed to provide
lot level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general
ledger entries; 2) calculation of daily income and expense; 3) reconciliation
of daily activity with the trial balance, and 4) appropriate automated
feeding mechanisms to (i) domestic and international settlement systems, (ii)
daily, weeKly and monthly evaluation services, (iii) portfolio performance
and analytic services, (iv) customer's internal computing systems and (v)
various State Street provided information services products.
II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide customer access to
the following information maintained on The Multicurrency HORIZON/R/
Accounting System: 1) cash transactions and balances; 2) purchases and sales;
3) income receivables; 4) tax refund receivables; 5) daily priced positions;
6) open trades; 7) settlement status; 8) foreign exchange transactions; 9)
trade history; and 10) daily, weekly and monthly evaluation services.
Attachment B
Advisor
QUEST ADVISORY
CORPORATION
(INSERT GRAPHICS)
Software is installed for access.
Click on icon for access.
Royce Global Trust, Inc.
DIAL UP ACCESS
CONFIGURATION
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as
Investment Advisor to Royce Global Trust, Inc. (the "Customer") it will have
access to State Street Bank and Trust Company's ("State Street")
Multicurrency HORIZON Accounting System and other information systems
(collectively, the "System").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by
State Street as part of the Data Access Services provided to the Customer and
through the use of the System constitute copyrighted, trade secret, or other
proprietary information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with
its employees who are permitted access to the Proprietary Information to
satisfy its obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is
not authorized. It will not intentionally adversely affect the integrity of
the System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned
shall immediately cease use of the System and the Data Access Services.
Immediately upon notice by State Street for any reason, the Undersigned shall
return to State Street all copies of documentation and other Proprietary
Information in its possession.
QUEST ADVISORY CORPORATION
By: ________________________________________________
Title: _____________________________________________
Date: ______________________________________________
ATTACHMENT C-1
Undertaking
The undersigned understands that in the course of its employment as
Independent Auditor to Royce Global Trust, Inc. (the "Customer") it will
have access to State Street Bank and Trust Company's ("State Street")
Multicurrency HORIZON Accounting System and other information systems
(collectively, the "System").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by
State Street as part of the Data Access Services provided to the Customer and
through the use of the System constitute copyrighted, trade secret, or other
proprietary information of substantial value to State Street. Any and all
such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with
its employees who are permitted access to the Proprietary Information to
satisfy its obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is
not authorized. It will not intentionally adversely affect the integrity of
the System through the introduction of unauthorized code or data or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned
shall immediately cease use of the System and the Data Access Services.
Immediately upon notice by State Street for any reason, the Undersigned shall
return to State Street all copies of documentation and other Proprietary
Information in its possession.
Independent Auditor
By: ______________________________________________
Title: ___________________________________________
Date: ____________________________________________
ATTACHMENT D
Support
During the term of this Agreement, State Street agrees to provide the
following ongoing support services:
a. Telephone Support. The Customer Designated Persons may contact
State Street's HORIZON Help Desk and Customer Assistance Center between the
hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for the
purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer
shall provide to State Street a list of persons, not to exceed five in
number, who shall be permitted to contact State Street for assistance (such
persons being referred to as the Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The
total amount of technical support provided by State Street shall not exceed
10 resource days per year. State Street shall provide such additional
technical support as is expressly set forth in the fee schedule in effect
from time to time between the parties (the "Fee Schedule"). Technical
support, including during installation and testing, is subject to the fees
and other terms set forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the
next scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such
enhancement, State Street shall notify the Customer and shall offer the
Customer reasonable training on the enhancement. Charges for system
enhancements shall be as provided in the Fee Schedule. State Street retains
the right to charge for related systems or products that may be developed and
separately made available for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall
make a written request to State Street providing specifications for the
desired modification. Any custom modifications may be undertaken by State
Street in its sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (i) for use on any computer
equipment or telecommunication facilities which does not conform to the
Designated Configuration or (ii) in the event the Customer has modified the
System in breach of this Agreement.
TABLE OF CONTENTS
Page
----
CUSTODIAN CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1. Employment of Custodian and Property to be Held by It . . . . . . . 5
2. Duties of the Custodian with Respect to Property of the Fund Held
By the Custodian in the United States . . . . . . . . . . . . . . . 5
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . . . 6
2.3 Registration of Securities . . . . . . . . . . . . . . . . . . 8
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Availability of Federal Funds . . . . . . . . . . . . . . . . . 8
2.6 Collection of Income . . . . . . . . . . . . . . . . . . . . . 9
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . . . . 9
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.9 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . 10
2.10 Deposit of Fund Assets in U.S. Securities Systems . . . . . . . 11
2.12 Segregated Account . . . . . . . . . . . . . . . . . . . . . . 13
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . . . . 13
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.15 Communications Relating to Fund Securities . . . . . . . . . . 13
2.16 Reports to Fund by Independent Public Accountants . . . . . . . 14
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States . . . . . . . . . . . . . . . . . . . 14
3.1 Appointment of Foreign Sub-Custodians . . . . . . . . . . . . . 14
3.2 Assets to be Held . . . . . . . . . . . . . . . . . . . . . . . 14
3.3 Foreign Securities Systems . . . . . . . . . . . . . . . . . . . . . 15
3.4 Holding Securities . . . . . . . . . . . . . . . . . . . . . . 15
3.5 Agreements with Foreign Banking Institutions . . . . . . . . . 15
3.6 Access of Independent Accountants of the Fund . . . . . . . . . 15
3.7 Reports by Custodian . . . . . . . . . . . . . . . . . . . . . 16
3.8 Transactions in Foreign Custody Account . . . . . . . . . . . . 16
3.9 Liability of Foreign Sub-Custodians . . . . . . . . . . . . . . 16
3.10 Liability of Custodian . . . . . . . . . . . . . . . . . . . . 16
3.11 Reimbursement for Advances . . . . . . . . . . . . . . . . . . 17
3.12 Monitoring Responsibilities . . . . . . . . . . . . . . . . . . 17
3.13 Branches of U.S. Banks . . . . . . . . . . . . . . . . . . . . 17
3.14 Tax Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4. Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . . 18
5. Actions Permitted without Express Authority . . . . . . . . . . . . 18
6. Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . . 19
7. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income . . . . . . . . . . . 19
8. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9. Opinion of Fund's Independent Accountant . . . . . . . . . . . . . . 20
10. Compensation of Custodian . . . . . . . . . . . . . . . . . . . . . 20
11. Responsibility of Custodian . . . . . . . . . . . . . . . . . . . . 20
12. Effective Period, Termination and Amendment . . . . . . . . . . . . 22
13. Successor Custodian . . . . . . . . . . . . . . . . . . . . . . . . 22
14. Interpretive and Additional Provisions . . . . . . . . . . . . . . . 23
15. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . 23
16. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 23
17. Reproduction of Documents . . . . . . . . . . . . . . . . . . . . . 24
18. Shareholder Communications Election . . . . . . . . . . . . . . . . 24
Exhibit 1
Attachment A
Attachment B
Attachment C
Attachment C-1
Attachment D
EXHIBIT 2(k)
REGISTRAR, TRANSFER AGENCY AND DIVIDEND PAYING AGENCY AGREEMENT
between
Royce Global Trust, Inc.
and
State Street Bank and Trust Company
TABLE OF CONTENTS
---------------------
Article 1. Terms of Appointment; Duties of the Bank . . . . . . . . . 3
Article 2. Fees and Expenses . . . . . . . . . . . . . . . . . . . . 5
Article 3. Representations and Warranties of the Bank . . . . . . . . 5
Article 4. Representations and Warranties of the Fund . . . . . . . . 6
Article 5. Confidentiality, Data Access and Proprietary Information . 6
Article 6. Liabilities/Indemnification . . . . . . . . . . . . . . . 8
Article 7. Standard of Care . . . . . . . . . . . . . . . . . . . . . 9
Article 8. Covenants of the Fund and the Bank . . . . . . . . . . . . 10
Article 9. Termination of Agreement . . . . . . . . . . . . . . . . . 11
Article 10. Assignment . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 11. Amendment . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 12. Law to Apply . . . . . . . . . . . . . . . . . . . . . . . 12
Article 13. Force Majeure . . . . . . . . . . . . . . . . . . . . . . 12
Article 14. Consequential Damages . . . . . . . . . . . . . . . . . . 12
Article 15. Merger of Agreement . . . . . . . . . . . . . . . . . . . 12
Article 16. Survival . . . . . . . . . . . . . . . . . . . . . . . . . 12
Article 17. Severability . . . . . . . . . . . . . . . . . . . . . . . 12
Article 18. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 13
REGISTRAR, TRANSFER AGENCY AND DIVIDEND PAYING AGENCY AGREEMENT
- ----------------------------------------------------------------
AGREEMENT made as of December 23, 1996, by and between Royce Global
Trust, Inc. having its principal office and place of business at 1414 Avenue
of the Americas, New York, NY 10019 (the "Fund"), and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts trust company having its principal office and
place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the
"Bank").
WHEREAS, the Fund desires to appoint the Bank as its registrar, transfer
agent, dividend paying agent and agent in connection with certain other
activities to be agreed to by the parties and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints the Bank to act as, and the
Bank agrees to act as registrar, transfer agent for the Fund's authorized and
issued shares of its Common Stock ("Shares"), dividend paying agent and agent
in connection with any distribution reinvestment and Cash Purchase Plan as
set out in the prospectus of the Fund, corresponding to the date of this
Agreement.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Issue and record the appropriate number of Shares as
authorized and hold such Shares in the
appropriate Stockholder account;
(ii) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate documentation;
(iii) Prepare and transmit payments for dividends and
distributions declared by the Fund;
(iv) Prepare and transmit payments in connection with the
redemption of shares or the payment of liquidation proceeds
pursuant to instructions by the Fund;
(v) Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt by
the Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(vi) Act as agent for Stockholders pursuant to the
distribution reinvestment and cash purchase plan, as amended
from time to time.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform
all of the customary services of a registrar, transfer agent and dividend
paying agent and agent of the distribution reinvestment and Cash Purchase
Plan as described in Article I consistent with those requirements in effect
as of the date of this Agreement. The detailed definition, frequency,
limitations and associated costs (if any) set out in the attached fee
schedule, include but are not limited to: maintaining all Stockholder
accounts, preparing Stockholder meeting lists, mailing proxies, receiving and
tabulating proxies and mailing Stockholder reports to current Stockholders
withholding taxes on U.S resident and non-resident alien accounts where
applicable, preparing and filing U.S Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all registered Stockholders, preparing and mailing
confirmation forms and statements of account to Stockholders for all
confirmable transactions in Stockholder accounts and providing Stockholder
Account information.
(c) The Bank shall provide additional services on behalf of the
Fund (e.g., escheatment and rights offering services) which may be agreed
upon in writing between the Fund and the Bank.
ARTICLE 2. FEES AND EXPENSES
2.01 For the performance by the Bank pursuant to this Agreement the
Fund agrees to pay the Bank an annual maintenance fee as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket expenses
and advances identified under Section 2.02 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund
agrees to reimburse the Bank for out-of-pocket expenses, including but not
limited to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage, or advances incurred by the
Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within five days following the receipt of the respective billing notice.
Postage and the cost of materials for mailing of dividends, proxies, Fund
reports and other mailings to all Stockholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.01 It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland.
4.02 It is empowered under applicable laws and by its Articles of
Incorporation, as amended and By-Laws to enter into and perform this
Agreement.
4.03 All corporate proceedings required by said Articles of
Incorporation, as amended and By-Laws have been taken to authorize it to
enter into and perform this Agreement.
4.04 It is a closed-end, non-diversified investment company
registered under the Investment Company Act of 1940, as amended.
4.05 At all times required by applicable law with respect to all
shares of the Fund being offered for sale, a registration statement under the
Securities Act of 1933, as amended, will be effective and appropriate state
securities law filings will have been made.
4.06 It shall make all required filings under federal and state
securities laws.
ARTICLE 5. CONFIDENTIALITY, DATA ACCESS AND PROPRIETARY INFORMATION
5.01 The Fund acknowledges that the data bases, computer programs,
screen formats, report formats, interactive design techniques, and other
information furnished to the Fund by the Bank are provided solely in
connection with the services rendered under this Agreement and constitute
copyrighted secrets or proprietary information of substantial value to the
Bank. Such databases, programs, formats, designs, techniques and other
information are collectively referred to below as "Proprietary Information".
The Fund agrees that it shall treat all Proprietary Information as
proprietary to the Bank and further agrees that it shall not divulge any
Proprietary Information to any person or organization except as expressly
permitted hereunder. The Fund agrees for itself and its employees and
agents:
(a) to use such programs and databases (i) solely on the Fund
computers, or (ii) solely from equipment at the locations agreed to
between the Fund and
the Bank and (iii) in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way (other than
in the normal course of performing processing on the Funds'
computers) any part of any Proprietary Information;
(c) to refrain from obtaining unauthorized access to any programs,
data or other information not owned by the Fund, and if such access
is accidentally obtained, to respect and safeguard the same
Proprietary Information;
(d) to refrain from causing or allowing information transmitted
from the Bank's computer to the Funds' terminal to be retransmitted
to any other computer terminal or other device except as expressly
permitted by the Bank (such permission not to be unreasonably
withheld);
(e) that the Fund shall have access only to those authorized
transactions as agreed to between the Fund and the Bank; and
(f) to honor reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in Proprietary
Information at common law and under applicable statutes.
5.02 If the transactions available to the Fund include the ability
to originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event the Bank shall be
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to
time.
5.03 The Bank acknowledges that the identities of the Fund's
Stockholders and information maintained by the Bank regarding the Fund's
Stockholders constitute the valuable property of the Fund. The Bank agrees
that if it should come into possession of any list or compilation of the
identities of, or other information about the Fund's Stockholders pursuant to
this Agreement or any other agreement related to services under this
Agreement, the Bank shall hold such information in confidence and refrain
from using, disclosing or distributing such information except as required to
perform its duties under this Agreement or as may be otherwise required by
law.
ARTICLE 6. LIABILITIES/INDEMNIFICATION
6.01 The Bank shall not be responsible for, and the Fund shall
indemnifies and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions
are taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but notlimited to any previous transfer agent
registrar.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 The Bank shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or
failure or omission to act by the Bank as a result of the Bank's lack of good
faith, negligence or willful misconduct.
6.03 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under
this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund for any action taken or omitted
by it in reliance upon such instructions or upon the opinion of such counsel.
The Bank, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by telephone, in
person, machine readable input, telex, CRT data entry or other similar means
authorized by the Fund, and shall not be held to have notice of any change of
authority of any person, until receipt of written notice thereof from the
Fund. The Bank, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed
to bear the proper manual or facsimile signatures of the officers of the
Fund, and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.04 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such claim.
The party who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the defense of such
claim or to defend against said claim in its own name or in the name of the
party seeking indemnification. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the other
party may be required to indemnify it except with the other party's prior
written consent.
ARTICLE 7. STANDARD OF CARE
7.01 The Bank shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and
shall not be liable for loss or damage due to errors unless said errors are
caused by its and/or its employee's negligence, bad faith, or willful
misconduct.
ARTICLE 8. COVENANTS OF THE FUND AND THE BANK
8.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Articles of Incorporation as amended and By-Laws
of the Fund and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed
by the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to the Fund and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed
to any other person, except as may be required by law.
8.05 In cases of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to such
person.
ARTICLE 9. TERMINATION OF AGREEMENT
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material
will be borne by the Fund. Additionally, the Bank reserves the right to
charge for any other reasonable expenses associated with such termination and
under review by Boston EquiServe or a charge equivalent to the average of
three (3) month's fees.
ARTICLE 10. ASSIGNMENT
10.01 Except as provided in Section 10.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns.
10.03 The Bank may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston EquiServe
Limited Partnership, a Massachusetts limited partnership ("Boston
EquiServe"), which is duly registered as a transfer agent pursuant to Section
17A(c)(2) of the Securities Exchange Act of 1934 ("Section 17A(c)(2)"), or
(ii) a Boston EquiServe affiliate duly registered as a transfer agent
pursuant to Section 17A(c)(2), provided, however, that the Bank shall be as
fully responsible to the Fund for the acts and omissions of any subcontractor
as it is for its own acts and omissions.
ARTICLE 11. AMENDMENT
11.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution
of the Board of Directors of the Fund.
ARTICLE 12. LAW TO APPLY
12.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
ARTICLE 13. FORCE MAJEURE
13.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control or other causes reasonably beyond its control, such party shall not
be liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
ARTICLE 14. CONSEQUENTIAL DAMAGES
14.01 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement
or for any consequential damages arising out of any act or failure to act
hereunder.
ARTICLE 15. MERGER OF AGREEMENT
15.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written.
ARTICLE 16. SURVIVAL
16.01 All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Agreement.
ARTICLE 17. SEVERABILITY
17.01 If any provision or provisions of this Agreement shall be
held to be invalid, unlawful, or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired.
ARTICLE 18. COUNTERPARTS
18.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall
be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
Royce Global Trust, Inc.
By:__________________________
ATTEST:
- -------------------------
State Street Bank and Trust Company
By:____________________________
Vice President
ATTEST:
- -------------------------
EXHIBIT 2(n)(1)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the captions "Financial
Highlights", "Experts" and "Financial Statements" and to the incorporation by
reference of our report dated February 25, 1997, in this Registration
Statement (Form N-2 No. 811-5397) of Royce Global Trust, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
August 22, 1997
EXHIBIT 2(n)(1)
The Board of Directors
Royce Global Trust, Inc.
We consent to the use of our report on the statement of changes in net assets
for the year ended December 31, 1995 and the selected per share data and
ratios for each of the years in the seven-year period ended December 31, 1995
and the period March 2, 1988 (commencement of operations) to December 31,
1988 of All Seasons Global Fund, Inc. (now called Royce Global Trust, Inc.)
incorporated herein by reference and to the reference to our firm under the
heading "Experts" and "Financial Highlights" in the Registration Statement on
Form N-2.
Orlando, Florida
August 22, 1997
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Telephone (212) 839-5300
Facsimile (212) 839-5599
August 25, 1997
VIA ELECTRONIC FILING
- ------------------------------------
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Division of Investment Management
Re: Royce Global Trust, Inc.
Registration Statement on Form N-2
Relating to Shares of % Cumulative Preferred Stock
-------------------------------------------------------------------
Ladies and Gentlemen:
On behalf of Royce Global Trust, Inc. (the "Fund"), transmitted herewith
for filing with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), and the
Investment Company Act of 1940, as amended (the "Investment Company Act"), is
the Fund's Registration Statement on Form N-2, including the exhibits thereto
(the "Registration Statement"), relating to the Fund's offering of shares of
its % Cumulative Preferred Stock, with a par value of $0.01 per share and a
liquidation preference of $25.00 per share (the "Cumulative Preferred
Stock"), through Smith Barney Inc.
Prior to this filing, a wire transfer in the amount of $6,060.61 in
payment of the registration fee was made to the Commission's designated
lockbox at Mellon Bank in Pittsburgh, Pennsylvania.
To the extent the Staff determines to review this filing, in Investment
Company Act Release No. 13768 (February 15, 1991) (the "Release"), the
Division of Investment Management announced review procedures for investment
companies providing for expedited cursory or partial review of investment
company registration statements, in the discretion of the staff, if certain
conditions are met. The Release requests that information be furnished to
the staff concerning the extent to which the current filing contains
disclosure information that is similar to information contained within
filings of the same complex that previously were reviewed by the Commission.
In that regard, reference is made to (i) the Registration Statement on
Form N-2 of Royce Value Trust, Inc. (the "RVT Registration Statement") (File
No. 333-8039) relating to that fund's 8% Cumulative Preferred Stock, which
was declared effective by the Commission on August 15, 1996, (ii) the
Registration Statement on Form N-2 of Royce Micro-Cap Trust, Inc. (the "RMC
Registration Statement") (File No. 333-28615) relating to that fund's 7.75%
Cumulative Preferred Stock, which was declared effective by the Commission on
June 26, 1997, and (iii) the Fund's Proxy Statement on Schedule 14A relating
to, among other matters, the approval of a new investment advisory agreement
by the Fund's Common Stockholders, filed with the Commission in definitive
form on or about July 19, 1996 and supplemented in October 1996, each of
which contains similar information, updated for certain non-material changes,
to that set forth in the Registration Statement, with respect to the
following matters:
Prospectus (including corresponding Prospectus Summary sections)
----------------------------------------------------------------
- Cover
- Ordinary Income Equivalent Yield Tables
- Financial Highlights
- The Fund
- Use of Proceeds
- Capitalization
- Portfolio Composition
- Investment Objective and Policies
- Investment Advisory and Other Services
- Description of Cumulative Preferred Stock
- Description of Capital Stock
- Taxation
- Custodian, Transfer Agent and Dividend-Paying Agent
- Underwriting
- Legal Matters
- Experts
- Additional Information
- Glossary
Statement of Additional Information
-----------------------------------
- Principal Stockholders
- Directors and Officers
- Code of Ethics and Related Matters
- Investment Advisory and Other Services
- Brokerage Allocation and Other Practices
- Net Asset Value
- Financial Statements
Due to the Commission's prior review of the information contained in
most sections of the Registration Statement, the Fund believes that the
transmitted filing is eligible for expedited and limited review by the Staff
of the Division of Investment Management. In addition, since the
contemplated offering may be affected by changes in market conditions and
interest rates, the Fund requests expedited review by the Staff. The Fund
would appreciate such review so that the effectiveness of the Fund's
Registration Statement may be accelerated to September 25, 1997.
The Fund believes that the presentation of information in the Prospectus
and the Prospectus Summary contained therein provides a "clear, concise, and
understandable" explanation of the Fund's policies and, to the extent
possible given the relatively complex nature of the Cumulative Preferred
Stock as opposed to the Common Stock, avoids "the use of technical or legal
terms, complex language, or excessive detail" as required by Part A of
General Instructions to Form N-2.
Please direct any communications related to this filing either to the
undersigned at (212) 839-5394 or to Frank P. Bruno of this firm at (212) 839-
5540.
Very truly yours,
/s/ ROBERT J. BORZONE, JR.
Transmission
cc: Francis E. Dalton, Securities and Exchange Commission
Howard J. Kashner, Esq., Royce & Associates, Inc.
John E. Denneen, Esq., Royce & Associates, Inc.
