SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ROYCE MICRO-CAP TRUST, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A..
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date filed:
<PAGE>
Preliminary Proxy Material
ROYCE MICRO-CAP TRUST, INC.
1414 Avenue of the Americas
New York, New York 10019
1-800-221-4268
November , 1996
Dear Stockholder:
Enclosed is a Proxy Statement describing the new Investment Advisory
Agreement between the Fund and Quest Advisory Corp. to be voted on at the
Special Meeting of Stockholders.
The new Investment Advisory Agreement only changes the benchmark index,
against which the Fund's performance is measured, from the Nasdaq Composite
Index, which is heavily weighted to its many large capitalization stocks,
to the Russell 2000 Index, which we believe is more appropriate for
determining the Fund's relative performance. The new Agreement maintains
the 1% basic advisory fee, the +-0.5% performance adjustment feature and
the trailing 36 month performance period, which will be re-started on
January 1, 1997.
At its inception in December 1993, the Fund chose the Nasdaq Composite
Index for performance benchmarking because, at that time, (i) the Fund's
focus was on over-the-counter micro-cap stocks traded on Nasdaq, (ii) the
Fund's name, Royce OTC Micro Cap Fund, emphasized the Fund's focus on over-
the-counter stocks and (iii) the Nasdaq Composite was a much more widely
recognized index than the Russell 2000. Since 1993, the Fund's focus has
broadened to include exchange-listed micro-cap stocks, the Fund has changed
its name to reflect this new focus and the Russell 2000 has become a more
widely recognized index. The Russell 2000 (weighted average market cap of
$540 million) is also much more representative of the Fund's micro-cap area
of investing (weighted average market cap of $155 million) than the Nasdaq
Composite (weighted average market cap of $9.4 billion).
In order to prevent any immediate benefit to Quest from the change, the
fee paid over the first 18 months of the new Agreement will be the lower of
the fee determined based on the new terms or the fee which would have been
paid under the current Agreement.
Your vote is very important! If the Fund does not receive a sufficient
number of votes prior to the meeting date, it will have additional expenses
for proxy solicitation and the meeting may have to be postponed. Please
complete, sign and mail your proxy card as soon as possible. If you have
any question regarding the proxy material, please call Investor Information
at 1-800-221-4268.
<PAGE>
The Fund may retain an outside firm that specializes in proxy
solicitation to assist it with any necessary follow-up. If the Fund has not
received your vote as the meeting date approaches, you may receive a
telephone call from Shareholder Communications Corporation to ask for your
vote. We hope that their telephone call does not inconvenience you.
Sincerely,
CHARLES M. ROYCE
President
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
ROYCE MICRO-CAP TRUST, INC.
To the Stockholders of
ROYCE MICRO-CAP TRUST, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of ROYCE
MICRO-CAP TRUST, INC. (the "Fund") will be held at the offices of the Fund,
1414 Avenue of the Americas, New York, New York, on December 3, 1996 at
11:00 a.m. (Eastern Time) for the following purposes:
1. To approve a new Investment Advisory Agreement between the Fund
and Quest Advisory Corp.
2. To transact such other business as may come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on November 5, 1996
as the record date for the determination of those stockholders entitled to
vote at the meeting, and only holders of record at the close of business on
that day will be entitled to vote.
The Fund's Annual Report to Stockholders for the year ended December 31,
1995 and Semi-Annual Report to Stockholders for the six months ended June
30, 1996 were previously mailed to stockholders, and copies of them are
available upon request, without charge, by writing to the Fund at 1414
Avenue of the Americas, New York, New York 10019 or calling toll free at 1-
800-221-4268.
IMPORTANT
To save the Fund the expense of additional proxy solicitation, please
insert your instructions on the enclosed Proxy, date and sign it and return
it in the enclosed envelope (which requires no postage if mailed in the
United States), even if you expect to be present at the meeting. The
enclosed Proxy is solicited on behalf of the Board of Directors, is
revocable and will not affect your right to vote in person in the event
that you attend the meeting.
By order of the Board of Directors,
JOHN E. DENNEEN
Secretary
November , 1996
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS
OF
ROYCE MICRO-CAP TRUST, INC.
1414 Avenue of the Americas
New York, New York 10019
December 3, 1996
PROXY STATEMENT
Accompanying this Proxy Statement is a Notice of Special Meeting of
Stockholders and a form of Proxy for the meeting, solicited on behalf of
the directors of Royce Micro-Cap Trust, Inc. (the "Fund").
The Proxy may be revoked at any time before it is exercised by written
instructions to the Fund or by filing a new Proxy with a later date, and
any stockholder attending the meeting may vote in person, whether or not he
or she has previously filed a Proxy. The shares represented by all properly
executed Proxies received in time for the meeting will be voted. Where a
stockholder has specified a choice on the Proxy with respect to Proposal 1
in the Notice of Special Meeting, his or her shares will be voted
accordingly. If no direction is given, the stockholder's shares will be
voted in favor of the Proposal. The cost of soliciting proxies will be
borne by the Fund, which will reimburse brokerage firms, custodians,
nominees and fiduciaries for their expenses in forwarding proxy material to
the beneficial owners of the Fund's shares. Some officers and employees of
the Fund and/or Quest Advisory Corp. ("Quest"), the Fund's investment
adviser, may solicit Proxies personally and by telephone, if deemed
desirable. In addition, the Fund may, if necessary, engage Shareholder
Communications Corporation to solicit Proxies on its behalf at an estimated
cost to the Fund of $5,000 plus out-of-pocket expenses.
On November 5, 1996, the record date for the meeting, there were
11,258,010 shares of Common Stock of the Fund outstanding. The stockholders
entitled to vote are those of record on that date. Each share is entitled
to one vote on each item of business at the meeting. Stockholders vote at
the Special Meeting by casting ballots (in person or by proxy), which are
tabulated by one or two persons appointed by the Board of Directors before
the meeting, who serve as Inspectors and Judges of Election at the meeting
and who have executed an Inspectors and Judges Oath. Neither abstentions
nor broker non-votes are counted in the tabulation of such votes.
<PAGE>
The following persons were known to the Fund to be beneficial owners or
owners of record of 5% or more of its outstanding shares of Common Stock as
of the record date:
Name and Address Amount and Nature Percentage
of Owner of Ownership of Class
Charles M. Royce shares-Beneficial
1414 Avenue of the Americas (sole voting and investment %
New York, NY 10019 power)
Depository Trust Company
Cede & Co.
P.O. Box 20, shares-Record %
Bowling Green Station
New York, NY 10274
1. APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT (Proposal 1)
At the meeting, it is proposed to replace the present Investment
Advisory Agreement between the Fund and Quest with a new Investment
Advisory Agreement. The only material difference between the present and
the proposed Investment Advisory Agreements is in the securities index
against which the Fund's investment performance is measured. The present
Agreement uses the Nasdaq Composite Index (the "Nasdaq Composite"); the
proposed Agreement uses the Russell 2000 Index (the "Russell 2000").
In deciding to recommend to stockholders that they approve the proposed
Investment Advisory Agreement with Quest, the Fund's Board of Directors
considered (i) the investment performance of the Fund over various periods,
both absolutely and in relation to the records of the Nasdaq Composite and
the Russell 2000 and relative to that of other open and closed-end funds
with similar investment objectives; (ii) Quest's approach to managing the
Fund's assets; and (iii) the costs and expenses of the Fund, both
absolutely and relative to these other funds. When addressing the changes
made by the proposed Agreement, the directors considered other factors,
including (iv) the differences between the Nasdaq Composite and the Russell
2000 and the relative appropriateness of each index for the Fund; and (v)
the impact on the Fund of changing from the present to the proposed fee
arrangement.
The directors concluded, among other things, (i) that because of the
Fund's concentration in micro-cap stocks, the Russell 2000, which is
comprised of small capitalization stocks, was a more appropriate index for
the Fund than the Nasdaq Composite, which is heavily weighted to large
capitalization stocks, and (ii) that the proposed Investment Advisory
Agreement would not result in excessive compensation to Quest or be unfair
to the Fund.
<PAGE>
Present Investment Advisory Agreement
The present Investment Advisory Agreement between the Fund and Quest is
dated, and has been in effect since the Fund commenced operations on,
December 14, 1993, and was approved by vote of the Fund's then sole
stockholder prior to that date. Continuance of the present Investment
Advisory Agreement was approved by the Fund's Board of Directors on April
18, 1996, and it will remain in effect until April 30, 1997, unless it is
terminated sooner or is replaced by the proposed Agreement.
Under the present Agreement, Quest determines the composition of the
Fund's portfolio, the nature and timing of the changes in it and the manner
of implementing the 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 expenses (except
those set forth above), and Quest does not incur substantial fixed
expenses. There are no applicable state limitations on the Fund's operating
expenses.
Present Advisory Fee
As compensation for its services under the present Investment Advisory
Agreement, Quest receives a fee comprised of a basic fee (the "Basic Fee")
and an adjustment to the Basic Fee based on the investment performance of
the Fund in relation to the investment record of the Nasdaq Composite for
certain prescribed performance periods, as described below.
The Basic Fee is a monthly fee equal to 1/12 of 1% (1% on an annualized
basis) of the average of the net assets of the Fund at the end of each
month included in the applicable performance period. The performance period
is a rolling period of up to 36 months, ending with the most recent month.
The Basic Fee for each month in the performance period is subject to
increase or decrease, depending on the extent, if any, by which the
investment performance of the Fund exceeds by more than two percentage
points, or is exceeded by more than two percentage points by, the
percentage change in the investment record of the Nasdaq Composite for the
performance period. For each percentage point in excess of two that the
investment performance of the Fund exceeds the percentage change in the
investment record of the Nasdaq Composite, the Basic Fee is increased at
the rate of 1/12 of .05%. For each percentage point in excess of two that
the percentage change in the investment record of the Nasdaq Composite
exceeds the investment performance of the Fund, the Basic Fee is decreased
at the rate of 1/12 of .05%. The maximum increase or decrease in the Basic
Fee for any month may not exceed 1/12 of .5%. Accordingly, for each month,
the maximum monthly fee rate as adjusted for performance is 1/12 of 1.5%
and is payable if the investment performance of the Fund exceeds the
percentage change in the investment record of the Nasdaq Composite by 12 or
more percentage points for the performance period, and the minimum monthly
<PAGE>
fee rate as adjusted for performance is 1/12 of .5% and is payable if the
percentage change in the investment record of the Nasdaq Composite exceeds
the investment performance of the Fund by 12 or more percentage points for
the performance period.
In calculating the investment performance of the Fund and the
percentage change in the investment record of the Nasdaq Composite, all
dividends and other distributions during the performance period are treated
as having been reinvested.
For the year ended December 31, 1995, the 1% Basic Fee of $794,814 was
subject to a downward adjustment of approximately 10% ($78,903) based on
the sum of the months' separate performance calculations, with Quest
earning a fee of $715,911 or .78% of the Fund's average net assets for the
year (before giving effect to a voluntary fee waiver of $2,878). (The fee
rate is applied to the Fund's average net assets of $83,792,627 for the
rolling 24 month performance period ended December 31, 1995.)
To the extent that Quest receives a fee in excess of .75% per annum of
the Fund's average net assets, its compensation may be higher than that
paid by many other mutual funds with a similar investment objective.
Proposed Investment Advisory Agreement
It is proposed to replace the present Investment Advisory Agreement
with the new one in order to change the securities index against which the
Fund's investment performance is measured. Except for this change, the
method for determining the compensation payable by the Fund to Quest will
remain as is.
New Advisory Fee
As compensation for its services under the proposed Investment Advisory
Agreement, Quest would receive a fee comprised of a basic fee (the "Basic
Fee") and an adjustment to the Basic Fee based on the investment
performance of the Fund in relation to the investment record of the Russell
2000 for certain prescribed performance periods, as described below.
Beginning with the month of January 1997 and for each succeeding month,
the Basic Fee would, as in the present Agreement, continue to be a monthly
fee equal to 1/12 of 1% (1% on an annualized basis) of the average of the
net assets of the Fund at the end of each month included in a period
consisting of the rolling 36 months ending with such month. The performance
adjustment for each such month would be computed on the basis of a
performance period commencing on January 1, 1997 to the end of such month,
until the proposed Investment Advisory Agreement had been in effect for 36
months, when the performance period would become a rolling 36 month period
ending with such month.
The Basic Fee for each such month would be increased or decreased at
the rate of 1/12 of .05% per percentage point, depending on the extent, if
any, by which the investment performance of the Fund exceeds by more than
two percentage points, or is exceeded by more than two percentage points
by, the percentage change in the investment record of the Russell 2000 for
<PAGE>
the performance period. The maximum increase or decrease in the Basic Fee
for any month could not exceed 1/12 of .5%. Accordingly, for each month,
commencing with the month of January 1997, the maximum monthly fee rate as
adjusted for performance would be 1/12 of 1.5% and would be payable if the
investment performance of the Fund exceeded the percentage change in the
investment record of the Russell 2000 by 12 or more percentage points for
the performance period, and the minimum monthly fee rate as adjusted for
performance would be 1/12 of .5% and would be payable if the percentage
change in the investment record of the Russell 2000 exceeded the investment
performance of the Fund by 12 or more percentage points for the performance
period.
In order to avoid the impact of short-term differences between the
investment performance of the Fund and the record of the Russell 2000,
Quest will not collect any accrued portion of the Basic Fee in excess
of .5% until January 1998.
Because the Basic Fee is and would remain a function of the Fund's net
assets and not of its total assets, Quest does not now and would not
receive any fee in respect of those assets of the Fund equal to the
aggregate unpaid principal amount of any indebtedness hereafter incurred by
the Fund. However, because preferred stock is a form of equity, Quest would
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 hereafter be issued and sold by the Fund, and the proposed
Investment Advisory Agreement, unlike the present one, specifically
addresses this issue.
If the proposed Investment Advisory Agreement had been in effect for
the rolling 24 month performance period ended December 31, 1995, the 1%
Basic Fee of $794,814 would have been subject to an upward adjustment of
$173,418, and Quest would have earned a fee of $968,232 for the year ended
December 31, 1995, thereby increasing its compensation for the year by
$252,321 or 35% (before giving effect to Quest's voluntary fee waiver).
In order to avoid unfairness to the Fund, the proposed Investment
Advisory Agreement provides that, for the 18 month period from January 1,
1997 to June 30, 1998, the monthly fee payable to Quest will be the lower
of the fee calculated under such agreement or the fee that would have been
payable to Quest for the month involved under the present Investment
Advisory Agreement.
Quest is also the investment adviser of other registered investment
companies. These funds or series have assets ranging from approximately
$650,000 to $506,128,000 (as of September 30, 1996) and compensate Quest at
rates of up to 1.5% of their respective average net assets. Quest has
generally voluntarily reduced its compensation under its contracts with
these funds or series to the extent necessary to maintain expenses, other
than interest expense, at or below 1.99% of average net assets.
Appendix 1 to this Proxy Statement contains cumulative total return
data for the Fund (at net asset values), the Nasdaq Composite and the
Russell 2000 for the year ended December 31, 1994, the two years ended
<PAGE>
December 31, 1995 and the two years and nine months ended September 30,
1996.
Appendix 2 to this Proxy Statement contains certain information
about Quest's officers, directors and shareholders.
The proposed Investment Advisory Agreement between the Fund and Quest
would become effective on January 1, 1997, following its approval by the
Fund's stockholders. The text of the proposed Investment Advisory Agreement
is set forth in Exhibit A to this Proxy Statement.
Vote Required
The proposed Investment Advisory Agreement between the Fund and Quest
requires the approval of the lesser of (i) 67% of the shares of the Fund's
Common Stock present or represented at the meeting (assuming that more than
50% of such shares are present or represented) or (ii) more than 50% of the
outstanding shares of the Fund's Common Stock.
The Board of Directors recommends a vote FOR Proposal 1.
2. OTHER BUSINESS
Management knows of no business to be brought before the meeting other
than Proposal 1 in the Notice of Special Meeting. If other matters do come
before the meeting, it is intended that the shares represented by Proxies
will be voted in accordance with the judgment of the person or persons
exercising at the meeting the authority conferred by the Proxies.
<PAGE>
ADDITIONAL INFORMATION
Quest Advisory Corp., the Fund's investment adviser, is located at 1414
Avenue of the Americas, New York, New York 10019.
Mitchell Hutchins Asset Management Inc., the Fund's administrator,
is located at 1285 Avenue of the Americas, New York, New York 10019.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Fund's 1997
Annual Meeting of Stockholders must be received by the Fund by January 31,
1997, for inclusion in the Fund's Proxy Statement and form of Proxy
relating to that meeting.
PLEASE FILL IN, DATE AND SIGN THE PROXY AND RETURN IT IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE
<PAGE>
Appendix 1
Period Cumulative Total Return
Nasdaq
Fund Composite Russell 2000
January 1, 1994 to December 31, 1994 6.0% 3.2% 1.8%
January 1, 1994 to December 31, 1995 30.3% 35.4% 26.1%
January 1, 1994 to September 30, 1996 40.4% 57.9% 39.6%
The Fund's total returns are presented on a net asset value basis and
assume a continuous stockholder who fully exercised all rights issued.
Fund, Nasdaq Composite and Russell 2000 total returns are computed with all
dividends and other distributions reinvested.
<PAGE>
Appendix 2
Positions with Principal Occupations and
the Other Affiliations During the
Name and Address Fund Last Five Years
Charles M. Royce (57) Director, President, Secretary,
1414 Avenue of the President and Treasurer and sole director
Americas Treasurer and sole voting shareholder
New York, NY 10019 of Quest; Trustee, President
and Treasurer of The Royce
Fund ("TRF"), an open-end
diversified management
investment company of which
Quest is the principal
investment adviser, and its
predecessors; Director,
President and Treasurer of
the Fund since September 1993
and of Royce Value Trust,
Inc. ("RVT"), a closed-end
diversified management
investment company of which
Quest is the investment
adviser (the Fund, TRF and
RVT collectively, "The Royce
Funds"); Secretary and sole
director and sole shareholder
of Quest Distributors, Inc.
("QDI"), the distributor of
TRF's shares; and managing
general partner of Quest
Management Company ("QMC"), a
registered investment
adviser, and its predecessor.
Thomas R. Ebright (52) Director Vice President of Quest;
50 Portland Pier Trustee of TRF and one of its
Portland, ME 04101 predecessors; Director of the
Fund since September 1993 and
of RVT; Vice President since
November 1995 (President
until October 1995) of QDI;
general partner of QMC and
its predecessor until June
<PAGE>
Principal Occupations and
Positions with Other Affiliations During the
Name and Address the Fund Last Five Years
1994; President, Treasurer, a
director and principal
shareholder of Royce, Ebright
& Associates, Inc.,
investment adviser to a
series of TRF, since June
1994; director of Atlantic
Pro Sports, Inc. and of the
Strasburg Rail Road Co. since
March 1993; and President and
principal owner of Baltimore
Professional Hockey, Inc.
until May 1993.
Jack. E. Fockler, Jr. (37) Vice President Vice President of Quest
1414 Avenue of the (since August 1993) and
Americas senior associate of Quest,
New York, NY 10019 having been employed by Quest
since October 1989; Vice
President of The Royce Funds
since April 1995; and general
partner of QMC since July
1993.
W. Whitney George (38) Vice President Vice President of Quest
1414 Avenue of the (since August 1993) and
Americas senior analyst of Quest,
New York, NY 10019 having been employed by Quest
since October 1991; Vice
President of The Royce Funds
since April 1995; and general
partner of QMC and its
predecessor since January
1992.
Daniel A. O'Byrne (34) Vice President Vice President of Quest since
1414 Avenue of the May 1994, having been
Americas employed by Quest since
New York, NY 10019 October 1986; and Vice
President of The Royce Funds
since July 1994.
<PAGE>
L:\common\jcarucci\advisory.agr
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
BETWEEN
ROYCE MICRO-CAP TRUST, INC.
AND
QUEST ADVISORY CORP.
Agreement dated as of December 31, 1996, by and between
ROYCE MICRO-CAP TRUST, INC., a Maryland corporation (the "Fund"),
and QUEST ADVISORY CORP., a New York corporation (the "Adviser").
The Fund and the Adviser hereby agree as follows:
1. Duties of the Adviser. The Adviser shall, during the
term and subject to the provisions of this Agreement, (a)
determine the composition of the portfolio of the Fund, the
nature and timing of the changes therein and the manner of
implementing such changes and (b) provide the Fund with such
investment advisory, research and related services as the Fund
may, from time to time, reasonably require for the investment of
its assets. The Adviser shall perform such duties in accordance
with the applicable provisions of the Fund's Articles of
Incorporation, By-laws and stated investment objective(s),
policies and restrictions and any directions it may receive from
the Fund's Board of Directors.
2. Expenses Payable by the Fund. Except as
otherwise provided in Paragraphs 1 and 3 hereof, the Fund shall
be responsible for determining the net asset value of its shares
and for all of its other operations and shall pay all
administrative and other costs and expenses attributable to its
operations and transactions, including, without limitation,
registrar, transfer agent and custodian fees; legal,
administrative and clerical
<PAGE>
services; rent for its office space
and facilities; auditing; preparation, printing and distribution
of its proxy statements, stockholders' reports and notices;
supplies and postage; Federal and state registration fees; NASD
listing fees and expenses; Federal, state and local taxes; non-
affiliated directors' fees; interest on its borrowings; brokerage
commissions; and the cost of issue, sale and repurchase of its
shares.
3. Expenses Payable by the Adviser. The Adviser
shall furnish, without expense to the Fund, the services of those
of its executive officers and full-time employees who may be duly
elected executive officers or directors of the Fund, subject to
their individual consent to serve and to any limitations imposed
by law, and shall pay all the compensation and expenses of such
persons. For purposes of this Agreement, only a president, a
treasurer or a vice president in charge of a principal business
function shall be deemed to be an executive officer. The Adviser
shall also pay all expenses which it may incur in performing its
duties under Paragraph 1 hereof and shall reimburse the Fund for
any space leased by the Fund and occupied by the Adviser.
4. Compensation of the Adviser.
(a) The Fund agrees to pay to the Adviser, and the Adviser
agrees to accept, as compensation for the services provided by
the Adviser hereunder, a fee comprised of a basic fee (the "Basic
Fee") and an adjustment to the Basic Fee based on the investment
performance of the Fund in relation to the investment record of
the Russell 2000 Index (as the same may be constituted from time
to time, the "Index"). Such fee shall be calculated and payable
as follows:
<PAGE>
(1) Beginning with the month of January 1997 and
for each succeeding month, the Basic Fee shall be a monthly fee
equal to 1/12 of 1% (1% on an annualized basis) of the average of
the net assets of the Fund at the end of each month included in a
period consisting of the rolling thirty-six (36) months ending
with such month. (The net assets of the Fund shall be computed
by subtracting the amount of any indebtedness and other
liabilities of the Fund from the value of the total assets of the
Fund, and the liquidation preference of and any potential
redemption premium for any preferred stock of the Fund that may
hereafter be issued and outstanding shall not be treated as an
indebtedness or other liability of the Fund for this purpose.)
The performance adjustment for each such month
shall be computed on the basis of a performance period commencing
on January 1, 1997 to the end of such month, until this Agreement
has been in effect for thirty-six (36) months, when the
performance period shall become a rolling thirty-six (36) month
period ending with such month. The Basic Fee for each such month
shall be increased at the rate of 1/12 of .05% for each
percentage point in excess of two (2), rounded to the nearer
point (the higher point if exactly one-half a point), that the
investment performance of the Fund for the performance period
then ended exceeds the percentage change in the investment record
of the Index for such performance period (subject to a maximum of
twelve (12) percentage points). If, however, the investment
performance of the Fund for such performance period shall be
exceeded by the percentage change in the investment record of the
Index for such performance period, then such Basic Fee shall be
<PAGE>
decreased at the rate of 1/12 of .05% for each percentage point
in excess of two (2), rounded to the nearer point (the higher
point if exactly one-half a point), that the percentage change in
the investment record of the Index exceeds the investment
performance of the Fund for such performance period (subject to a
maximum of twelve (12) percentage points).
The maximum increase or decrease in the Basic Fee
for any month may not exceed 1/12 of .5%; the maximum monthly
fee, as adjusted, may not exceed 1/12 of 1.5%; and the minimum
monthly fee, as adjusted, may not be less than 1/12 of .5% The
Fund shall pay such Basic Fee, as so adjusted, to the Adviser at
the end of each performance period.
(2) The Advisor shall, for the year ending
December 31, 1997, defer collection of any portion of the Basic
Fee accrued in excess of .5% until January 1998.
(3) Notwithstanding the preceding provisions of
this subparagraph (a) to the contrary, for each of the eighteen
(18) months ending June 30, 1998, the Basic Fee, as so adjusted,
shall be reduced if and to the extent necessary so that such fee
does not exceed the fee that would have been payable to the
Adviser for such month under the Investment Advisory Agreement
dated as of December 14, 1993 (the "Prior Agreement") by and
between the Fund and the Adviser.
(b) The investment performance of the Fund for any period
shall be expressed as a percentage of the Fund's net asset value
per share of Common Stock at the beginning of such period and
shall mean and be the sum of: (i) the change in the Fund's net
asset value per share of Common Stock during such period;
<PAGE>
(ii) the value of the Fund's cash distributions per share of Common
Stock accumulated to the end of such period; and (iii) the value
of capital gains taxes per share of Common Stock paid or payable
on undistributed realized long-term capital gains accumulated to
the end of such period. For this purpose, the value of
distributions per share of Common Stock of realized capital
gains, of dividends per share of Common Stock paid from
investment income and the capital gains taxes per share of Common
Stock paid or payable on undistributed realized long-term capital
gains shall be treated as reinvested in shares of the Fund at the
net asset value per share of Common Stock in effect at the close
of business on the record date for the payment of such
distributions and dividends and the date on which provision is
made for such taxes, after giving effect to such distribution,
dividends and taxes. Notwithstanding any provisions of this
subparagraph (b) or of the other subparagraphs of Paragraph 4
hereof to the contrary, the investment performance of the Fund
for any period shall not include, and there shall be excluded
from the change in the Fund's net asset value per share of Common
Stock during such period and the value of the Fund's cash
distributions per share of Common Stock accumulated to the end of
such period shall be adjusted for, any increase or decrease in
the investment performance of the Fund for such period computed
as set forth in the preceding two sentences and resulting from
the Fund's issuance, sale or repurchase of any shares of any
class of the capital stock or any other securities of the Fund.
<PAGE>
(c)
The investment record of the Index for any period, expressed
as a percentage of the Index level at the beginning of such
period, shall mean and be the sum of (i) the change in the level
of the Index during such period; and (ii) the value, computed
consistently with the Index, of cash distributions made by
companies whose securities comprise the Index accumulated to the
end of such period. For this purpose, cash distributions on the
securities which comprise the Index shall be treated as
reinvested in the Index at the end of each calendar month
following the payment of the dividend.
(d) Any calculation of the investment performance of the
Fund and the investment record of the Index shall be in
accordance with any then applicable rules of the Securities and
Exchange Commission.
(e) In the event of any termination of this Agreement, the
fee provided for in this Paragraph 4 shall be calculated on the
basis of a period ending on the last day on which this Agreement
is in effect, subject to a pro rata adjustment based on the
number of days elapsed in the current period as a percentage of
the total number of days in such period.
5. Excess Brokerage Commissions. The Adviser is hereby
authorized, to the fullest extent now or hereafter permitted by
law, to cause the Fund to pay a member of a national securities
exchange, broker or dealer an amount of commission for effecting
a securities transaction in excess of the amount of commission
another member of such exchange, broker or dealer would have
charged for effecting that transaction, if the Adviser determines
in good faith that such amount of commission is reasonable in
<PAGE>
relation to the value of the brokerage and/or research services
provided by such member, broker or dealer, viewed in terms of
either that particular transaction or its over-all
responsibilities with respect to the Fund and its other accounts.
6. Limitations on the Employment of the Adviser. The
services of the Adviser to the Fund shall not be deemed
exclusive, and the Adviser may engage in any other business or
render similar or different services to others so long as its
services to the Fund hereunder are not impaired thereby, and
nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Adviser to engage in any
other business or to devote his time and attention in part to any
other business, whether of a similar or dissimilar nature. So
long as this Agreement or any extension, renewal or amendment
remains in effect, the Adviser shall be the only investment
adviser to the Fund, subject to the Adviser's right to enter into
sub-advisory agreements. The Adviser assumes no responsibility
under this Agreement other than to render the services called for
hereunder, and shall not be responsible for any action of or
directly by the Board of Directors of the Fund, or any committee
thereof, unless such action has been caused by the Adviser's
gross negligence, willful malfeasance, bad faith or reckless
disregard of its obligations and duties under this Agreement.
7. Responsibility of Dual Directors, Officers and/or
Employees. If any person who is a director, officer or employee
of the Adviser is or becomes a director, officer and/or employee
of the Fund and acts as such in any business of the Fund pursuant
to this Agreement, then such director, officer and/or employee of
<PAGE>
the Adviser shall be deemed to be acting in such capacity solely
for the Fund, and not as a director, officer and/or employee of
the Adviser or under the control or direction of the Adviser,
although paid by the Adviser.
8. Protection of the Adviser. The Adviser shall not be
liable to the Fund for any action taken or omitted to be taken by
the Adviser in connection with the performance of any of its
duties or obligations under this Agreement or otherwise as an
investment adviser of the Fund, and the Fund shall indemnify the
Adviser and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys'
fees and amounts reasonably paid in settlement) incurred by the
Adviser in or by reason of any pending, threatened or completed
action, suit, investigation or other proceeding (including an
action or suit by or in the right of the Fund or its security
holders) arising out of or otherwise based upon any action
actually or allegedly taken or omitted to be taken by the Adviser
in connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment
adviser of the Fund. Notwithstanding the preceding sentence of
this Paragraph 8 to the contrary, nothing contained herein shall
protect or be deemed to protect the Adviser against or entitle or
be deemed to entitle the Adviser to indemnification in respect
of, any liability to the Fund or its security holders to which
the Adviser would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of its reckless disregard of its duties
and obligations under this Agreement.
<PAGE>
Determinations of whether and the extent to which the
Adviser is entitled to indemnification hereunder shall be made by
reasonable and fair means, including (a) a final decision on the
merits by a court or other body before whom the action, suit or
other proceeding was brought that the Adviser was not liable by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of its duties or (b) in the absence of such a
decision, a reasonable determination, based upon a review of the
facts, that the Adviser was not liable by reason of such
misconduct by (i) the vote of a majority of a quorum of the
directors of the Fund who are neither "interested persons" of the
Fund (as defined in Section 2(a)(19) of the Investment Company
Act of 1940) nor parties to the action, suit or other proceeding
or (ii) an independent legal counsel in a written opinion.
9. Effectiveness, Duration and Termination of Agreement.
The Prior Agreement (other than the provisions of Paragraph 8
thereof, which shall remain in full force and effect) shall
terminate at the close of business on December 31, 1996. This
Agreement shall become effective on January 1, 1997, and shall
remain in effect until April 30, 1998 and thereafter shall
continue automatically for successive annual periods from May 1
to April 30, provided that such continuance is specifically
approved at least annually by (a) the vote of the Fund's
directors, including a majority of such directors who are not
parties to this Agreement or "interested persons" (as such term
is defined in Section 2(a)(19) of the Investment Company Act of
1940) of any such party, cast in person at a meeting called for
the purpose of voting on such approval, or (b) the vote of a
majority of the outstanding voting securities of the Fund and the
vote of the Fund's directors, including a majority of such
directors who are not parties to this Agreement or "interested
persons" (as so defined) of any such party. This Agreement may
be terminated at any time, without the payment of any penalty, on
sixty (60) days' written notice by the vote of a majority of the
outstanding voting securities of the Fund or by the vote of a
majority of the Fund's directors or by the Adviser, and will
automatically terminate in the event of its "assignment" (as such
term is defined for purposes of Section 15(a)(4) of the
Investment Company Act of 1940); provided, however, that the
provisions of Paragraph 8 of this Agreement shall remain in full
force and effect, and the Adviser shall remain entitled to the
benefits thereof, notwithstanding any such termination.
10. Name. The Fund may, so long as this Agreement
remains in effect, use "Royce" as part of its name. The Adviser
may, upon termination of this Agreement, require the Fund to
refrain from using the name "Royce" in any form or combination in
its name or in its business, and the Fund shall, as soon as
practicable following its receipt of any such request from the
Adviser, so refrain from using such name.
<PAGE>
11.
Notices. Any notice under this Agreement shall be
given in writing, addressed and delivered or mailed, postage
prepaid, to the other party at its principal office.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above
written.
ROYCE MICRO-CAP TRUST, INC.
By:________________________________
QUEST ADVISORY CORP.
By:________________________________
<PAGE>
PROXY ROYCE MICRO-CAP TRUST, INC. PROXY
1414 Avenue of the Americas
New York, NY 10019
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Charles M. Royce and John E.
Denneen, or either of them acting in the absence of the other, as
Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated on
the reverse, all the shares of the Fund held of record by the
undersigned on November 5, 1996, at the Special Meeting of
Stockholders to be held on December 3, 1996, or at any
adjournment thereof.
PLEASE VOTE, DATE, AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN
ENCLOSED ENVELOPE.
Please sign exactly as name appears on other side. When shares
are hold by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
<PAGE>
RYVMC
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
ROYCE MICRO-CAP
TRUST, INC.
For Against Abstain
1. APPROVAL OF NEW INVESTMENT
ADVISORY AGREEMENT.
2. THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY COME BEFORE THE MEETING.
This Proxy when properly executed will be voted in the manner directed by
the undersigned stockholder. If no direction is made, this Proxy
will
be voted for Proposal 1.
Please be sure to sign and date this Proxy. Date
Mark box at the right if comments or address changes
have been noted on the reverse.
RECORD DATE SHARES:
Shareholder sign here Co-owner sign here
<PAGE>
October 9, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Royce Micro-Cap Trust, Inc.
File No. 811-8030
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to Rule 14a-6 under
the Securities Exchange Act of 1934, as amended, are a letter to
stockholders, the Notice of Meeting and Preliminary Proxy
Statement (including exhibit) and form of proxy, to be sent to
stockholders of Royce Micro-Cap Trust, Inc. (the "Fund") in
connection with the Fund's Special Meeting scheduled to be held
on December 3, 1996. The applicable $125 filing fee was
previously sent to Mellon Bank for this Fund's account.
The Proxy Statement seeks stockholder approval of a new
Investment Advisory Agreement (the "Agreement") between the Fund
and Quest Advisory Corp. In reviewing the enclosed preliminary
proxy material, please note that the period over which net assets
are averaged for computing the asset base on which the fee will
be charged will temporarily differ from the period over which
performance is measured to determine the percentage of the fee
which will be added to, or subtracted from, Quest's compensation
under the Agreement. The periods will differ only for the first
thirty-six months of the new Agreement since the asset base will,
as with the present agreement, be measured using a rolling thirty-
six month period, while the performance of both the Russell 2000
and the Fund will be measured starting from January 1, 1997 for a
rolling period that will build to thirty-six months. Since the
Fund's assets have grown since its inception, the use of the
rolling thirty-six month period to measure the Fund's asset base
will result in lower fees than would restarting the asset base at
January 1, 1997. For this reason, the Fund's directors and Quest
decided not to follow the guidance on this question set forth in
Investment Company Act Release No. 7113.
<PAGE>
October 9, 1996
Page 2
The Fund expects to mail its definitive proxy materials to
stockholders promptly after the November 5, 1996 record date for
the Meeting.
If you have any questions or comments with respect to the
enclosed materials, please contact the undersigned at (212) 508-
4578.
Sincerely,
John E. Denneen
Secretary
JED:fm
L:\Common\JDENNEEN\PXYPRELM.LTR
Enclosures
