AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-8030
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. 4
(check appropriate box or boxes)
ROYCE MICRO-CAP 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 MICRO-CAP 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. GARY S. SCHPERO,ESQ. SIMPSON
BROWN & WOOD LLP ROYCE MICRO-CAP TRUST, INC. THACHER & BARTLETT
ONE WORLD TRADE CENTER 1414 AVENUE OF THE AMERICAS 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10048-0557 NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable
after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), other than securities offered in
connection with a dividend reinvestment plan, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. / /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
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(2)
<S> <C> <C> <C> <C>
% Cumulative Preferred 1,600,000 Shares $25.00 $40,000,000 $12,121.21
Stock
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number in Form N-2 Caption in Prospectus
PART A - INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
1. Outside Front Cover . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back
Cover Page . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Page;
Underwriting
3. Fee Table and Synopsis . . . . . . . . . . . Not Applicable
4. Financial Highlights . . . . . . . . . . . . Financial Highlights
5. Plan of Distribution . . . . . . . . . . . . Outside Front Cover Page; Prospectus Summary;
Underwriting
6. Selling Shareholders . . . . . . . . . . . . Not Applicable
7. Use of Proceeds . . . . . . . . . . . . . . Use of Proceeds; Investment 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 Front Cover Page; Prospectus Summary; Ordinary
Securities . . . . . . . . . . . . . . . . . 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 Table of Contents of Statement of Additional
Additional Information . . . . . . . . . . . Information
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page . . . . . . . . . . . . . . . . . Front Cover Page
15. Table of Contents . . . . . . . . . . . . . Front Cover Page
16. General Information and History . . . . . . Not Applicable
17. Investment Objective and Policies . . . . . Not Applicable
18. Management . . . . . . . . . . . . . . . . . Directors and Officers; Investment Advisory and
Other Services
19. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . Principal Stockholders
20. Investment Advisory and Other Services . . . Investment Advisory and Other Services
21. Brokerage Allocation and Other Practices . . Brokerage Allocation and Other Practices
22. Tax Status . . . . . . . . . . . . . . . . . Not Applicable
23. Financial Statements . . . . . . . . . . . . Financial Statements
PART C - OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate Item, so
numbered, in Part C to this Registration Statement.
</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 JUNE , 1997
PROSPECTUS
1,600,000 SHARES
ROYCE MICRO-CAP 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 Micro-Cap
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 to seek long-term capital appreciation by
investing primarily in equity securities of companies that, at the time of
investment, have market capitalizations of $300 million or less. 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 September 23, 1997.
During the Fund's last fiscal year, distributions paid by the Fund on
its Common Stock consisted primarily of long-term capital gains, and under
current market conditions it is expected that dividends paid on the
Cumulative Preferred Stock similarly will consist primarily of long-term
capital gains. No assurance can be given, however, as to what percentage, if
any, of the dividends paid on the Cumulative Preferred Stock will consist of
long-term capital gains.
It is a condition to its issuance that the Cumulative Preferred Stock be
rated "aaa" by Moody's Investors Service, Inc. ("Moody's"). In connection
with the receipt of such rating, the composition of the Fund's portfolio must
reflect guidelines established by Moody's, and the Fund will be required to
maintain a certain discounted asset coverage with respect to the Cumulative
Preferred Stock.
The Cumulative Preferred Stock is subject to mandatory redemption in
whole or in part by the Fund for cash at a price equal to $25 per share plus
accumulated but unpaid dividends (whether or not earned or declared) (the
"Redemption Price") if the Fund fails to maintain a quarterly asset coverage
of at least 225% or to maintain the discounted asset coverage required by
Moody's. Commencing July 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 July 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 $ $
Total(3) $40,000,000 $ $
</TABLE>
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Fund and the investment adviser have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
(3) Before deducting offering expenses payable by the Fund, estimated at
$240,000.
___________________
The shares of Cumulative Preferred Stock are being offered by the
Underwriters named herein, subject to prior sale, when, as and if accepted by
them 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 July ,
1997.
___________________
SMITH BARNEY INC. PAINEWEBBER INCORPORATED
JUNE , 1997
If the Fund voluntarily terminates compliance with the Moody's
guidelines, the dividend rate payable on the Cumulative Preferred Stock will
be increased. 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 June , 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 of this Prospectus. A copy of
the Statement of Additional Information may be obtained without charge by
writing to the Fund at its address at 1414 Avenue of the Americas, New York
10019, or calling the Fund toll-free at (800) 221-4268.
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, SYNDICATE 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 Micro-Cap Trust, Inc. (the "Fund") has
been engaged in business as a closed-end
diversified management investment company since
its initial offering in December 1993. The
investment objective of the Fund is long-term
capital appreciation, which it seeks by
investing at least 65% of its assets in common
stocks, convertible securities and warrants of
companies that, at the time of investment, have
market capitalizations of $300 million or less
("micro-cap companies"). No assurance can be
given that the Fund's investment objective will
be achieved. The Fund's average annual total
returns on the net asset values of its Common
Stock for the one year and three year periods
ended May 31, 1997, and from inception on
December 14, 1993 to May 31, 1997, were 9.4%,
17.0% and 14.9%, respectively. Total return
figures are based on the Fund's historical
performance, assume reinvestment of
distributions and full participation in its
1994 primary rights offering, and are not
intended to indicate future performance. See
"Investment Objective and Policies".
The Investment Adviser Royce & Associates, Inc. ("Royce"), formerly
known as Quest Advisory Corp., has served as
the investment adviser to the Fund since its
inception. Royce also serves as investment
adviser to other management investment
companies, with aggregate net assets of
approximately $1.7 billion as of May 31, 1997,
and manages other institutional accounts.
As compensation for its services under the
present Investment Advisory Agreement, Royce
will receive a fee at a rate ranging from .5%
up to 1.5% per annum of the Fund's average net
assets for the applicable performance period,
depending upon the investment performance of
the Fund relative to the investment record of
the Russell 2000 Index (the "Russell 2000"),
determined by comparisons made over rolling
periods of up to 36 months. For a more
detailed description of the method by which the
advisory fee is determined, see "Investment
Advisory and Other Services--Advisory Fee".
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.
The Offering The Fund is offering 1,600,000 shares of %
Cumulative Preferred Stock, par value $.001 per
share, liquidation preference $25.00 per share
(the "Cumulative Preferred Stock"), at a
purchase price of $25 per share.
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 September 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"). During the Fund's last
fiscal year, distributions paid by the Fund on
its Common Stock consisted primarily of income
taxed as long-term capital gains, and under
current market conditions it is expected that
dividends paid on the Cumulative Preferred
Stock similarly will consist primarily of such
income. 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 capital
gains. See "Ordinary Income Equivalent Yield
Tables". Subject to statutory limitations,
investors may also be entitled to offset the
portion of their dividends on Cumulative
Preferred Stock that consists of long-term
capital gains with capital losses incurred by
such investors. See "Taxation". No assurance
can be given, however, as to what percentage,
if any, of the dividends to be paid on the
Cumulative Preferred Stock will consist of
long-term capital gains. To the extent that
dividends on the shares of Cumulative Preferred
Stock are not paid from long-term capital
gains, they will be paid from net investment
income (which includes both ordinary income and
short-term capital gains) and taxed as ordinary
income or will represent a return of capital.
Rating It is a condition to its issuance that the
Cumulative Preferred Stock be issued with a
rating of "aaa" from Moody's Investors Service,
Inc. ("Moody's"). The Articles Supplementary
creating and fixing the rights and preferences
of the Cumulative Preferred Stock (the
"Articles Supplementary") contain certain
provisions which reflect guidelines established
by Moody's (the "Rating Agency Guidelines") in
order to obtain such rating on the Cumulative
Preferred Stock on the Date of Original Issue.
Although it is the Fund's present intention to
continue to comply with the Rating Agency
Guidelines, the Board of Directors of the Fund
may determine that it is not in the best
interests of the Fund to continue to comply
with the Rating Agency Guidelines. If the Fund
voluntarily terminates compliance with the
Rating Agency Guidelines, the dividend rate
payable on the Cumulative Preferred Stock will
be increased by .375% per annum. See "Description
of Cumulative Preferred Stock--Termination of
Rating Agency Guidelines".
Asset Coverage The Fund will be required to maintain, as of
the last Business Day of March, June, September
and December of each year, Asset Coverage of at
least 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
December 31, 1996 and May 31, 1997, the Asset
Coverage would have been 381% and 399%,
respectively. 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 their 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 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 July 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 July 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 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. 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
Underwriters intend to make a market in the
Cumulative Preferred Stock; however, they have
no obligation to do so. Consequently, an
investment in the Cumulative Preferred Stock
may be illiquid during such period.
Special Considerations and
Risk Factors The market price for the Cumulative Preferred
Stock will be influenced by changes in interest
rates, the perceived credit quality of the
Cumulative Preferred Stock and other factors.
As indicated above, the Cumulative Preferred
Stock is subject to redemption under specified
circumstances. To the extent that the Fund
experiences a substantial decline in the value
of its net assets, it may be required to redeem
Cumulative Preferred Stock to restore
compliance with the applicable asset 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. "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 May 31, 1997, the Fund had no
outstanding indebtedness and had not issued any
Preferred Stock. See "Investment Objective and
Policies--Senior Securities and Borrowing of
Money".
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. These characteristics are particularly
pronounced in the case of micro-cap securities,
which are more volatile in price and less
liquid than the equity securities of larger-cap
companies. 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.
Administrator Mitchell Hutchins Asset Management Inc., an
affiliate of PaineWebber Incorporated, serves
as the Fund's administrator. See "Investment
Advisory and Other Services--Administration
Agreement" and "Underwriting".
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".
- --------------------
/F1/>
ORDINARY INCOME EQUIVALENT YIELD TABLES
For the fiscal year of the Fund ended December 31, 1996, distributions paid
by the Fund on its Common Stock consisted of 85% long-term capital gains
("L/T Capital Gains") and 15% ordinary income/short-term capital gains
("Ordinary Income")./F1/ Individual investors in the Cumulative Preferred
Stock who are in a Federal marginal income tax bracket higher than the
current 28.0% maximum Federal tax rate on long-term capital gains would,
under the current position of the IRS, realize a tax advantage on their
investment to the extent that distributions by the Fund to its stockholders
continue to be partially composed of the less highly taxed long-term capital
gains.
The following table shows examples of the pure Ordinary Income equivalent
yield that would be generated by the indicated dividend rates on the
Cumulative Preferred Stock, assuming distributions consisting of three
different proportions of L/T Capital Gains and Ordinary Income for an
investor in the 39.6% Federal marginal tax bracket and assuming no change in
the current maximum Federal long-term capital gain tax rate for individuals
of 28.0%.
<TABLE>
<CAPTION>
PERCENTAGE OF CUMULATIVE PREFERRED STOCK A CUMULATIVE PREFERRED STOCK DIVIDEND RATE
DIVIDEND COMPOSED OF* OF
7.50% 7.625% 7.75% 7.875%
ORDINARY IS EQUIVALENT TO AN ORDINARY
L/T CAPITAL GAINS INCOME INCOME YIELD OF
<S> <C> <C> <C> <C> <C>
85.0% 15.0% 8.72% 8.87% 9.02% 9.16%
75.0% 25.0% 8.58% 8.72% 8.87% 9.01%
50.0% 50.0% 8.22% 8.36% 8.49% 8.63%
25.0% 75.0% 7.86% 7.99% 8.12% 8.25%
</TABLE>
____________________
/1/The Fund commenced operations in December 1993. For the fiscal years of
the Fund ended December 31, 1995 and 1994, distributions paid by the Fund on
its Common Stock consisted of 36% L/T Capital Gains and 64% Ordinary Income
and no L/T Capital Gains and 100% Ordinary Income, respectively.
/*/A number of factors could affect the composition of the Fund's
distributions. Such factors include (i) active management of the Fund's
assets, which may result in varying proportions of L/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 among holders of various
classes of capital stock.
As illustrated in the table below, the yield advantage of the lower Federal
long-term capital gain tax rate would be diminished for investors in tax
brackets below the 39.6% rate assumed in the table above, and there would be
no effect on the yield for an investor in a Federal marginal income tax
bracket of 28.0% or lower. Assuming a Cumulative Preferred Stock dividend
composed of 85% L/T Capital Gains and 15% Ordinary Income (representing the
composition of distributions paid by the Fund for its most recent fiscal
year), the following table shows the pure Ordinary Income equivalent yields
that would be generated at the assumed dividend rates for taxpayers in the
indicated tax brackets.
<TABLE>
<CAPTION> A CUMULATIVE PREFERRED STOCK
DIVIDEND RATE OF
7.50% 7.625% 7.75% 7.875%
1997 FEDERAL IS EQUIVALENT TO AN ORDINARY
TAX BRACKET+ INCOME YIELD OF
<S> <C> <C> <C>
39.6% . . . . . . . . . . . . . . . . . 8.72% 8.87% 9.02% 9.16%
36.0% . . . . . . . . . . . . . . . . . 8.30% 8.44% 8.57% 8.71%
31.0% . . . . . . . . . . . . . . . . . 7.78% 7.91% 8.04% 8.17%
28.0% or lower . . . . . . . . . . . . 7.50% 7.63% 7.75% 7.88%
</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 two preceding charts are for illustrative purposes only and cannot be
taken as an indication of the composition of the Fund's future distributions.
As of the date of this Prospectus, certain legislation is expected to be
introduced in the Congress that would provide for a reduction in the Federal
long-term capital gain tax rate. If such legislation were introduced and
passed by the Congress and signed by the President, the equivalent Ordinary
Income yields presented in the tables above would be higher than the figures
presented. No assurance can be given, however, that such legislation will be
enacted.
FINANCIAL HIGHLIGHTS
The selected data set forth below is for a share of Common Stock
outstanding for the periods presented. The financial information was derived
from and should be read in conjunction with the financial statements of the
Fund incorporated by reference into this Prospectus and the Statement of
Additional Information. The financial information for each of the years
ended December 31, 1996 and 1995 has been audited by Ernst & Young LLP,
independent accountants, as stated in their reports accompanying such
financial statements. The financial information for the year ended December
31, 1994 and the period from December 14, 1993 (commencement of operations)
to December 31, 1993 has been audited by Coopers & Lybrand L.L.P.,
independent accountants.
<TABLE>
<CAPTION>
Year Ended December 31, PERIOD FROM
DEC. 14, 1993*
1996 1995 1994 TO DEC. 31, 1996
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.89 $7.58 $7.27 $7.25
INVESTMENT OPERATIONS:
Net investment income 0.09 0.02 0.01 -
Net realized and unrealized gain on
investments 1.32 1.69 0.41 0.02
Total from investment operations 1.41 1.71 0.42 0.02
DIVIDENDS AND DISTRIBUTIONS:
Net investment income (0.10) (0.02) (0.02) -
Net realized gain on investments (0.70) (0.34) (0.03) -
Total dividends and distributions (0.80)
(0.36) (0.05) -
CAPITAL STOCK TRANSACTIONS:
Effect of rights offering - - (0.06) -
Effect of reinvestment of distributions (0.12) (0.04) - -
Total capital stock transactions (0.12) (0.04) (0.06) -
$7.58
NET ASSET VALUE, END OF PERIOD $9.38 $8.89 $7.27
$7.00
MARKET VALUE, END OF PERIOD $8.25 $8.00 $7.50
TOTAL RETURN: (A)
Net Asset Value 16.6% 22.9% 6.0% 0.3%
Market Value 13.9% 19.8% (5.1%) 0.0%
RATIOS BASED ON AVERAGE NET ASSETS:
Total expenses 0.85% 1.36% 1.88% 1.92%(b)**
Management fee expense 0.47% 0.77% 1.20% 0.00%
Other operating expenses 0.38% 0.59% 0.68% 1.92%*
Net investment income (loss) 0.88% 0.26% 0.21% (0.06%)(b)**
SUPPLEMENTAL DATA:
Net Assets, End of Period
(in thousands) $113,953 $100,065 $82,534 $71,126
Portfolio Turnover Rate 51% 51% 23% 0%
Average Commission Rate Paid+ $0.0485 - - - -
</TABLE>
- -----------------------
* Commencement of operations
** Annualized
(a) Net Asset Value and Market Value Total Return assume a continuous
stockholder who reinvested all net investment income dividends and
capital gain distributions and fully participated in the 1994 primary
rights offering.
(b) Presented after waivers by the investment adviser and the administrator.
For the period ended December 31, 1993, the ratios of expenses and net
investment loss to average net assets would have been 2.12% and (0.26)%,
respectively, absent such waivers.
+ 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.
THE FUND
Royce Micro-Cap Trust, Inc. (the "Fund") is a closed-end diversified
management investment company. The Fund was incorporated under the name
"Royce OTC Micro-Cap Fund, Inc." under the laws of the State of Maryland on
September 9, 1993 and is registered under the 1940 Act. The Fund commenced
operations in December 1993. As of May 31, 1997, the Fund had 12,153,511
shares of Common Stock issued and outstanding, with an aggregate net asset
value of $121,272,315. 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 principally through investment in common stocks, convertible
securities and warrants of companies that, at the time of investment, have
market capitalizations of $300 million or less ("micro-cap companies"). See
"Investment Objective and Policies".
USE OF PROCEEDS
The net proceeds of the offering are estimated at $38,500,000, 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 capitalization of the Fund as of
December 31, 1996, and as adjusted to give effect to this offering.
OUTSTANDING AS ADJUSTED
Stockholders' equity:
Preferred Stock, $.001 par value:
No shares authorized, issued or
outstanding; as adjusted, 5,000,000
shares of % Cumulative Preferred
Stock authorized, and 1,600,000
of such shares Stock issued and
outstanding . . . . . . . . . . . . . - $ 40,000,000
Common Stock, $.001 par value:
Authorized 150,000,000 shares;
12,153,511 shares issued
and outstanding; as
adjusted,letter 145,000,000 shares
authorized . . . . . . . . . . . . . $ 12,154 $ 12,154
Additional paid-in capital . . . 88,111,021 86,611,021(1)
Dividends in excess of net
investment income. . . . . . . . (152,608) (152,608)
Accumulated net realized gain on
investments . . . . . . . . . . 4,709,893 4,709,893
Net unrealized appreciation on
investments . . . . . . . . . . 21,272,562 21,272,562
------------ ---------------
Net assets applicable to
outstanding Common Stock . . . $113,953,022 $112,453,022
============ ===============
___________________________
(1) After deducting underwriting discounts and estimated costs of this
offering of $240,000.
PORTFOLIO COMPOSITION
The following tables set forth certain information with respect to the
Fund's investment portfolio as of December 31, 1996.
VALUE PERCENTAGE
Common stock . . $103,252,141 90.6%
Repurchase 10,200,000 9.0
agreement . . . 500,881 0.4
Cash and other $113,953,022 100.0%
assets less
liabilities . .
T o t a l
investments . .
SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO
VALUE PERCENTAGE
Consumer Products
$ 22,762,068 20.0%
Industrial 19,202,941 16.9
Products . . . . . . 14,527,874 12.7
Industrial 13,615,920 11.9
Services . . . . . . 10,581,797 9.3
F i n a n c i a l 5,365,412 4.7
Intermediaries . . . 5,261,116 4.6
Technology . . . 4,003,775 3.5
Financial Services
1,253,700 1.1
Retail . . . . . 868,150 0.8
Natural Resources
288,655 0.3
Health . . . . . 5,520,733 4.8
Consumer Services
$103,252,141 90.6%
Utilities . . .
Miscellaneous .
T o t a l
common
stock. . . .
OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
Number of issuers . . . . . . . . . . . . . . . . . . . . . . . 183
Median market capitalization (total portfolio) . . . . $156 million
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. It
seeks to achieve its objective primarily through investment in common stocks
and securities convertible into or exchangeable for common stocks of
companies with market capitalizations of $300 million or less ("micro-cap
companies"). The market capitalization of a company is calculated by
multiplying the number of its common shares that are issued and outstanding
by the per share market price of the common stock. There are market risks
inherent in any investment, and there is no assurance that the investment
objective of the Fund will be achieved.
To achieve its investment objective, the Fund, under normal market
conditions, invests at least 65% of its total assets in common stocks,
convertible securities and warrants of micro-cap companies. For purposes of
calculating this 65% minimum, securities purchased before a company's market
capitalization increases to above $300 million will continue to be classified
as securities of a micro-cap company. Up to 35% of the Fund's total assets
may be invested in non-micro-cap company equity securities and non-
convertible debt securities.
INVESTMENT POLICIES AND RISK FACTORS
In selecting portfolio investments, Royce uses a value approach to
managing the Fund's assets. Accordingly, Royce puts primary emphasis on
analysis of various internal returns indicative of profitability, balance
sheets, cash flows and a company's future prospects and the relationships
that these factors have to the price of a given security in order to
determine if the securities are undervalued in relation to Royce's estimate
of the "private worth" of the company, that is, what a knowledgeable buyer
would pay for the entire company in a private transaction.
The Fund invests primarily in securities of micro-cap companies based on
Royce's belief that, because the securities of such companies may have fewer
market makers, wider spreads between their quoted bid and asked prices and
lower trading volumes, resulting in comparatively greater price volatility
and less liquidity, and may not be followed by many securities analysts or
well-known to the investing public, they may also be available for purchase
at substantial discounts from Royce's estimate of such companies' "private
worth". Royce attempts to identify and to have the Fund invest in such
securities, with the expectation that such value "discount" will narrow over
time and thus provide capital appreciation for the Fund's portfolio.
Many micro-cap companies in which the Fund is likely to invest may be
more vulnerable than larger companies to adverse business or economic
developments, may have limited product lines, markets or financial resources
and may lack management depth. In addition, most micro-cap companies are not
well-known to the investing public, do not have significant institutional
ownership and are followed by relatively few securities analysts, with the
result that there may tend to be less publicly available information
concerning such companies compared to what is available for larger
capitalization securities. The securities of these companies may have more
limited trading volumes and be subject to more abrupt or erratic market
movements than the securities of larger capitalization companies and/or the
market averages in general. Finally, the securities of micro-cap companies
traded in the over-the-counter market may have fewer market makers, wider
spreads between their quoted bid and asked prices and lower trading volumes,
resulting in comparatively greater price volatility and less liquidity than
those of larger capitalization companies. Thus, the Fund may involve
considerably more risk than an investment company investing in the more
liquid equity securities of larger-cap companies. Although there are
no liquidity restrictions on investments made by the Fund and the Fund may,
therefore, invest without limit in illiquid securities, the Fund expects to
invest only in securities for which market quotations are readily available.
The price movements, earnings and other developments of each portfolio
security are closely monitored, with a view to selling securities when price
objectives are reached or when a security no longer meets Royce's criteria
under its value approach.
Foreign Investments. The Fund may invest up to 10% of its assets in
securities of foreign issuers. Foreign investments involve certain risks,
such as political or economic instability of the issuer or of the country of
issue, fluctuating exchange rates and the possibility of imposition of
exchange controls. These securities may also be subject to greater
fluctuations in price than the securities of U.S. corporations, and there may
be less publicly available information about their operations. Foreign
companies may not be subject to accounting standards or governmental
supervision comparable to U.S. companies, and foreign markets may be less
liquid or more volatile than U.S. markets and may offer less protection to
investors such as the Fund.
Lower-rated Debt Securities. Up to 10% of the Fund's total assets may
be invested in non-convertible debt securities of various domestic 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 (Ca in the case of Moody's or D in the case of
S&P) 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 Ca 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.
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 and high-quality commercial paper, or retain all or part of its
assets in cash. Accordingly, the composition of the Fund's portfolio may
vary from time to time.
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.
Senior Securities and Borrowing of Money. The 1940 Act and the Fund's
fundamental policies (see "Investment Restrictions") permit the Fund to
borrow money from banks and certain other lenders and 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,
except for indebtedness to banks and certain other lenders, restrictive
provisions concerning Common Stock dividend payments, other Common Stock
distributions, stock repurchases and maintenance of asset coverage and giving
senior security holders the right to elect directors in the event specified
asset coverage tests are not met or dividends are not paid. 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 May 31, 1997, the Fund had total assets of $ and
total liabilities of $ and had not borrowed any money or issued
any Preferred Stock. Accordingly, as of such date, the Fund could have
issued and sold senior securities representing indebtedness of up to $
or Preferred Stock having an involuntary liquidation preference of up to $
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 and securities convertible
into or exchangeable for common stocks of micro-cap companies 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. Purchase securities on margin or write call options on its portfolio
securities.
2. Sell securities short.
3. Borrow money or issue any senior securities, except for (i)
borrowings and/or senior securities representing indebtedness having
an asset coverage of at least 300% immediately after such borrowing
and/or issuance and (ii) preferred stock having an asset coverage of
at least 200% immediately after such issuance.
4. Underwrite the securities of other issuers.
5. Invest in restricted securities unless such securities are
redeemable shares issued by money market funds registered under the
1940 Act.
6. Engage in repurchase agreement ("repo") transactions, except for
repo transactions with any bank that is the custodian of the Fund's
assets covering U.S. Treasury and agency obligations and having a
term of not more than one week.
7. Invest in the securities of any one issuer (other than the United
States or an agency or instrumentality of the United States) if, at
the time of acquisition, the Fund would own more than 10% of the
voting securities of such issuer or, as to 75% of the Fund's total
assets, more than 5% of the Fund's assets would be invested in the
securities of such issuer.
8. Invest more than 25% of its total assets in any one industry.
9. Purchase or sell real estate or real estate mortgage loans, or
invest in the securities of real estate companies unless such
securities are publicly traded.
10. Purchase or sell commodities or commodity contracts.
11. Make loans, except for purchases of portions of issues of publicly
distributed bonds, debentures and other securities, whether or not
such purchases are made upon the original issuance of such
securities, and except that the Fund may loan up to 25% of its
assets to qualified brokers, dealers or institutions for their use
relating to short sales or other security transactions (provided
that such loans are secured by collateral equal at all times to at
least 100% of the value of the securities loaned).
12. Invest in companies for the purpose of exercising control of
management.
13. Purchase portfolio securities from or sell such securities directly
to any of its officers, directors, employees or investment adviser,
as principal for their own accounts.
14. Invest more than 5% of its total assets in warrants, rights or
options.
If a percentage restriction is met at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total assets will not be considered a
violation of the above restrictions.
In addition to issuing and selling senior securities as set forth in No.
1 above, the Fund may obtain (i) temporary bank borrowings (not in excess of
5% of the value of its total assets) for emergency or extraordinary purposes
and (ii) such short-term credits (not in excess of 5% of the value of its
total assets) as are necessary for the clearance of securities transactions.
Under the 1940 Act and the Articles Supplementary, such temporary bank
borrowings would be treated as indebtedness in determining whether or not
asset coverage was at least 300% for senior securities of the Fund
representing indebtedness.
INVESTMENT ADVISORY AND OTHER SERVICES
Royce is a New York corporation organized in February 1967, with offices
at 1414 Avenue of the Americas, New York, New York 10019. It became the
investment adviser of the Fund in December 1993, when the Fund commenced
operations. Royce also serves as investment adviser to other management
investment companies, with aggregate net assets of approximately $1.7 billion
as of May 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 expenses (except those set forth above),
including, without limitation, registrar, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office space and
facilities; auditing; preparation, printing and distribution of its proxy
statements, stockholder reports and notices; Federal and state registration
fees; Nasdaq 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. There are
no applicable state limitations on the Fund's operating expenses.
ADVISORY FEE
As compensation for its services under the Investment Advisory
Agreement, Royce 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 Russell 2000 Index (the
"Russell 2000") 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 a period consisting of the rolling 36 months ending with such
month. The performance period for each such month is from January 1, 1997 to
the most recent month-end, until the Investment Advisory Agreement has been
in effect for 36 full calendar months, when the performance period will become
a rolling 36 month period ending with such month.
The Basic Fee for each such month may be increased or decreased at the
rate of 1/12 of .5% 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 the
performance period. The maximum increase or decrease in the Basic Fee for
any month may not exceed 1/12 of .5%. Accordingly, for each month, the
maximum monthly fee rate as adjusted for performance is 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 is 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, Royce
will not collect any accrued portion of the Basic Fee, as adjusted for
performance, in excess of .5% until January 1998.
The present Investment Advisory Agreement replaced a similar investment
advisory agreement between the Fund and Royce, under which the Fund's
investment performance was measured against the record of the Nasdaq
Composite over a rolling period of up to 36 months. The present Investment
Advisory Agreement provides that, for the 18 month period from January 1,
1997 to June 30, 1998, the monthly fee payable to Royce will be the lower of
the fee calculated under such Agreement or the fee that would have been
payable to Royce for the month involved under the prior agreement.
Because the Basic Fee is computed based on the Fund's net assets and not of
its total assets, Royce will not receive any fee in respect of those assets
of the Fund equal to the aggregate unpaid principal amount of any
indebtedness of the Fund. 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.
See "Investment Advisory and Other Services" in the Statement of
Additional Information.
ADMINISTRATION AGREEMENT
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins" or the
"Administrator"), an affiliate of PaineWebber Incorporated, one of the
Representative of the Underwriters, with offices at 1285 Avenue of the
Americas, New York, New York 10019, has acted as Administrator for the Fund
and has performed certain administrative services for it since December 1993.
As compensation for its services under the Administration Agreement, the
Administrator receives a monthly fee at the annual rate of $50,000 plus 0.05%
of the Fund's average daily net assets up to $125 million and 0.03% of the
Fund's average daily net assets in excess of $125 million.
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, 1,600,000 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
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 per share, payable
quarterly on March 23, June 23, September 23 and December 23 (each, a
"Dividend Payment Date"), commencing on September 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 or on a parity with
the Cumulative Preferred Stock as to dividends and upon liquidation), unless,
in each case, (A) immediately after such transaction, the Fund will have a
Portfolio Calculation for Moody's at least equal to the Basic Maintenance
Amount and the Fund will maintain the Asset Coverage (see "--Asset
Maintenance" and "--Redemption" below), (B) full cumulative dividends on
shares of Cumulative Preferred Stock due on or prior to the date of the
transaction have been declared and paid (or sufficient Deposit Securities to
cover such payment have been deposited with the Paying Agent) and (C) the
Fund has redeemed the full number of shares of Cumulative Preferred Stock
required to be redeemed by any provision for mandatory redemption contained
in the Articles Supplementary.
ASSET MAINTENANCE
The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Articles Supplementary. These
requirements are summarized below.
Asset Coverage. The Fund will be required under the Articles
Supplementary to maintain as of the last Business Day of each March, June,
September and December of each year, an "asset coverage" (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 December 31, 1996, 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
$1,500,000, would have been computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Value of Fund assets less liabilities not
constituting senior securities $153,453,022
-------------------------------------------------- ------------
Senior securities representing indebtedness plus = $ 40,000,000 = 381%
liquidation preference of the Cumulative Preferred
Stock
</TABLE>
If the shares of Cumulative Preferred Stock offered hereby had been
issued and sold on May 31, 1997 (after giving effect to the deduction of
underwriting discounts and estimated offering expenses), the Asset Coverage
would have been approximately 399%.
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 letters prepared by the
Fund's independent accountants regarding the accuracy of the calculations
made by the Fund in its most recent Basic Maintenance Report. If any such
letter prepared by the Fund's independent accountants shows that an error was
made in the most recent Basic Maintenance Report, the calculation or
determination made by the Fund's independent accountants will be conclusive
and binding on the Fund.
REDEMPTION
Mandatory Redemption. The Fund will be required to redeem, at a
redemption price equal to $25 per share plus accumulated and unpaid dividends
through the date of redemption (whether or not earned or declared) (the
"Redemption Price"), certain of the shares of Cumulative Preferred Stock (to
the extent permitted under the 1940 Act and Maryland law) in the event that:
(i) the Fund fails to maintain the Asset Coverage and such failure
is not cured on or before 60 days following such failure (a "Cure
Date"); or
(ii) the Fund fails to maintain a Portfolio Calculation at least
equal to the Basic Maintenance Amount as of any Valuation Date, and such
failure is not cured on or before the 14th day after such Valuation Date
(also, a "Cure Date").
The amount of such mandatory redemption will equal the minimum number of
outstanding shares of Cumulative Preferred Stock the redemption of which, if
such redemption had occurred immediately prior to the opening of business on
a Cure Date, would have resulted in the Asset Coverage having been satisfied
or the Fund having a Portfolio Calculation for Moody's equal to or greater
than the Basic Maintenance Amount on such Cure Date or, if the Asset Coverage
or a Portfolio Calculation for Moody's equal to or greater than the Basic
Maintenance Amount, as the case may be, cannot be so restored, all of the
shares of Cumulative Preferred Stock, at the Redemption Price. In the event
that shares of Cumulative Preferred Stock are redeemed due to the occurrence
of (i) above, the Fund may, but is not required to, redeem a sufficient
number of shares of Cumulative Preferred Stock in order to increase the
"asset coverage", 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 will 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 July 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 July 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 accrue on such redemption date and
(vii) the provision of the Articles Supplementary under which the redemption
is being made. No defect in the Notice of Redemption or in the mailing
thereof will affect the validity of the redemption proceedings, except as
required by applicable law.
LIQUIDATION RIGHTS
Upon a liquidation, dissolution or winding up of the affairs of the Fund
(whether voluntary or involuntary), holders of shares of Cumulative Preferred
Stock then outstanding will be entitled to receive out of the assets of the
Fund available for distribution to stockholders, after satisfying claims of
creditors but before any distribution or payment of assets is made to holders
of the Common Stock or any other class of stock of the Fund ranking junior to
the Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25 per share plus an amount equal to all
unpaid dividends accrued to and including the date fixed for such
distribution or payment (whether or not earned or declared by the Fund, but
excluding interest thereon) (the "Liquidation Preference"), and such holders
will be entitled to no further participation in any distribution payment in
connection with any such liquidation, dissolution or winding up. If, upon
any liquidation, dissolution or winding up of the affairs of the Fund,
whether voluntary or involuntary, the assets of the Fund available for
distribution among the holders of all outstanding shares of Cumulative
Preferred Stock and any other outstanding class or series of Preferred Stock
of the Fund ranking on a parity with the Cumulative Preferred Stock as to
payment upon liquidation, will be insufficient to permit the payment in full
to such holders of Cumulative Preferred Stock of the Liquidation Preference
and the amounts due upon liquidation with respect to such other Preferred
Stock, then such available assets will be distributed among the holders of
Cumulative Preferred Stock and such other Preferred Stock ratably in
proportion to the respective preferential amounts to which they are entitled.
Unless and until the Liquidation Preference has been paid in full to the
holders of Cumulative Preferred Stock, no dividends or distributions will be
made to holders of the Common Stock or any other stock of the Fund ranking
junior to the Cumulative Preferred Stock as to liquidation.
Upon any liquidation, the holders of the Common Stock, after required
payments to the holders of Preferred Stock, will be entitled to participate
equally and ratably in the remaining assets of the Fund.
VOTING RIGHTS
Except as otherwise stated in this Prospectus and as otherwise required
by applicable law, holders of shares of Cumulative Preferred Stock 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 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 a majority of
the shares of Preferred Stock outstanding at the time, voting separately as
one class, amend, alter or repeal the provisions of the Charter, whether by
merger, consolidation or otherwise, so as to materially adversely affect any
of the contract rights expressly set forth in the Charter of holders of
shares of the Cumulative Preferred Stock or any other Preferred Stock. To
the extent permitted under the 1940 Act, in the event shares of more than one
series of Preferred Stock are outstanding, the Fund will not approve any of
the actions set forth in the preceding sentence which materially adversely
affects the contract rights expressly set forth in the Charter of a holder of
shares of a series of Preferred Stock differently than those of a holder of
shares of any other series of Preferred Stock without the affirmative vote of
at least a majority of votes entitled to be cast by holders of the Preferred
Stock of each series materially adversely affected and outstanding at such
time (each such materially adversely affected series voting separately as a
class). The Board of Directors, however, without stockholder approval, may
amend, alter or repeal the Rating Agency Guidelines in the event the Fund
receives confirmation from Moody's that any such amendment, alteration or
repeal would not impair the rating then assigned to the Cumulative Preferred
Stock. Furthermore, under certain circumstances, without the vote of
stockholders, the Board of Directors of the Fund may determine that it is not
in the best interests of the Fund to continue to comply with the Rating
Agency Guidelines. See "--Termination of Rating Agency Guidelines" below.
The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding shares of the Cumulative Preferred Stock and any other
Preferred Stock, voting as a separate class, will be required to approve any
plan of reorganization adversely affecting such shares or any action
requiring a vote of security holders under Section 13(a) of the 1940 Act,
including, among other things, changes in the Fund's investment objective or
changes in the investment restrictions described as fundamental policies
under "Investment 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.
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 American Stock Exchange 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
3,400,000 additional shares of the Cumulative Preferred Stock and/or shares of
one of 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.
REPURCHASE OF CUMULATIVE PREFERRED STOCK
The Fund is a closed-end investment company and, as such, holders of
Cumulative Preferred Stock do not, and will not, have the right to redeem
their shares of the Fund. The Fund, however, may repurchase shares of the
Cumulative Preferred Stock when it is deemed advisable by the Board of
Directors in compliance with the requirements of the 1940 Act and the rules
and regulations thereunder.
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 150,000,000 shares of
capital stock, par value $.001 per share, all of which shares were initially
classified as Common Stock. 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 1,600,000 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
(EXCLUSIVE
OF
AMOUNT HELD AMOUNT HELD
BY FUND BY FUND FOR
FOR ITS OWN ITS
AMOUNT ACCOUNT OWN
TITLE OF CLASS AUTHORIZED ACCOUNT)
<S> <C> <C> <C>
Common Stock . . . . . . . . . . . . . 145,000,000 -0- 12,153,511
Cumulative Preferred Stock . . . . . . 5,000,000 -0- -0-
</TABLE>
Certain Voting Requirements. Under the Fund's Articles of
Incorporation, (i) any merger of the Fund into or with another entity, any
consolidation of the Fund with another entity, any share exchange to which
the Fund is a party or any sale, transfer or other disposition not in the
ordinary course of its business of all or substantially all of the Fund's
assets, (ii) any dissolution or other liquidation of the Fund, (iii) any
conversion of the Fund from a closed-end fund to another type of investment
company and (iv) any change in the nature of the Fund's business that would
cause it to cease to be an investment company will have to be recommended by
the Board, including a majority of the non-interested directors, and 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 Articles of Incorporation containing these voting
requirements, is the vote provided for certain of these matters by the
Maryland General Corporation Law in the absence of the Articles of
Incorporation 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 Articles of Incorporation.
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. The discussion reflects applicable tax laws of the United
States as of the date of this Prospectus, which tax laws are subject to being
changed retroactively or prospectively.
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. If it so
qualifies, the Fund (but not its stockholders) will not be subject to Federal
income tax on the part of its net ordinary income and net realized capital
gains which it distributes to stockholders. The Fund intends to distribute
substantially all of such income.
TAXATION OF STOCKHOLDERS
Dividends paid by the Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
stockholders as ordinary income. Distributions made from an excess of net
long-term capital gains over net short-term capital losses (including gains
or losses from certain transactions in warrants, rights and options)
("capital gain dividends") are taxable to stockholders as long-term capital
gains, regardless of the length of time the stockholder has owned Fund
shares. Any loss upon the sale or exchange of Fund shares held for six
months or less, however, will be treated as long-term capital loss to the
extent of any capital gain dividends received by the stockholder.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax
basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset).
The excess of net long-term capital gains over net short-term capital
losses may be taxed at a lower rate than ordinary income for certain
noncorporate taxpayers. As of the date of this Prospectus, certain
legislation is expected to be introduced in the Congress that would provide
for a reduction in the Federal long-term capital gain tax rate. No assurance
can be given, however, that such legislation will be enacted.
Stockholders may be entitled to offset their capital gain dividends with
capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains, and limiting the use of
losses from certain investments and activities. Accordingly, stockholders
with capital losses are urged to consult their tax advisers.
Dividends are taxable to stockholders, whether they are paid in cash or,
in the case of Common Stockholders, paid in additional shares of Common
Stock under the Fund's plan for the automatic investment of dividends. Not
later than 60 days after the close of its taxable year, the Fund will provide
its stockholders with a written notice designating the amounts of any
ordinary income dividends or capital gain dividends. If the Fund pays a
dividend in January which was declared in the previous October, November or
December to stockholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by its stockholders on December 31 of the year in which such
dividend was declared.
Ordinary income dividends (but not long-term capital gains
distributions) paid to stockholders who are nonresident aliens or foreign
entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and
entities unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident stockholders are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax.
Dividends and interest received by the Fund may give rise to withholding
and other taxes imposed by foreign countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes.
Under certain provisions of the Code, some stockholders may be subject
to a 31% withholding tax on ordinary income dividends, capital gain dividends
and redemption payments ("backup withholding"). A stockholder, however, may
generally avoid becoming subject to this requirement by filing an appropriate
form with the payor (i.e., the financial institution or brokerage firm where
the stockholder maintains his or her account), certifying under penalties of
perjury that such stockholder's taxpayer identification number is correct and
that such stockholder has never been notified by the IRS that he or she is
subject to backup withholding, has been notified by the IRS that he or she is
no longer subject to backup withholding, or is exempt from backup
withholding. Corporate stockholders and certain other stockholders are
exempt from backup withholding. Backup withholding is not an additional tax.
Any amounts withheld under the backup withholding rules from payments made to
a stockholder may be credited against such stockholder's Federal income tax
liability.
At the time of a stockholder's purchase, the market price of the Fund's
Common Stock or Cumulative Preferred Stock may reflect undistributed net
investment income or capital gains. A subsequent distribution of these
amounts by the Fund will be taxable to the stockholder even though the
distribution economically is a return of part of the stockholder's
investment. Investors should carefully consider the tax implications of
acquiring shares just prior to a distribution, as they will receive a
distribution that would nevertheless be taxable to them.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares of the same class are acquired within a 61-
day period beginning 30 days before and ending 30 days after the date that
the shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.
Designation of Capital Gain Dividends to Cumulative Preferred Stock.
The IRS has taken the position in Revenue Ruling 89-81 that if a RIC has two
classes of shares, it may designate distributions made to each class in any
year as consisting of no more than such class's proportionate share of
particular types of income, such as long-term capital gain. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the RIC during such year that was
paid to such class. Consequently, the Fund will designate distributions made
to the Common Stock and Cumulative Preferred Stock and any other Preferred
Stock series 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 and any other Preferred
Stock. The amount of net capital gains and other types of income allocable
among the Cumulative Preferred Stock, any other Preferred Stock and the
Common Stocks will depend upon the amount of such gains and other income
realized by the Fund and the total dividends paid by the Fund on shares of
Common Stock Cumulative Preferred Stock and any other Preferred Stock
during a taxable year.
In the opinion of Brown & Wood LLP, special counsel to the Fund, under
current law the manner in which the Fund intends to allocate net capital
gains and other taxable income between shares of Common Stock and Cumulative
Preferred Stock will be respected for Federal income tax purposes. However,
there is currently no direct guidance from the IRS or other sources
specifically addressing whether the Fund's method of allocation will be
respected for Federal income tax purposes, and it is possible that the IRS
could disagree with counsel's opinion and attempt to reallocate the Fund's
net capital gains or other taxable income. Brown & Wood LLP has advised the
Fund that, in its opinion, if the IRS were to challenge in court the Fund's
allocation of income and gain, the IRS would be unlikely to prevail. The
opinion of Brown & Wood LLP, however, represents only its best legal judgment
and is not binding on the IRS or the courts.
TAXATION OF THE FUND
The Code requires a RIC to pay a nondeductible 4% excise tax to the
extent the RIC does not distribute, during each calendar year, 98% of its
ordinary income, determined on a calendar year basis, and 98% of its capital
gains, determined, in general, on an October 31 year end, plus certain
undistributed amounts from previous years. While the Fund intends to
distribute its ordinary income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In such event, the
Fund will be liable for the tax only on the amount by which it does not meet
the foregoing distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"). Some of these high yield securities
may be purchased at a discount and may therefore cause the Fund to accrue
income before amounts due under the obligations are paid. In addition, a
portion of the interest payments on such high yield securities may be treated
as dividends for Federal income tax purposes.
If the Fund does not meet the asset coverage requirements of the 1940
Act 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 investment company taxable income, as is required in order to avoid Fund-
level taxation on the Fund's distributions, or might prevent it from
distributing enough income and capital gain to avoid completely imposition of
the excise tax. Upon any failure to meet the asset coverage requirements of
the 1940 Act or the Articles Supplementary, the Fund may, and in certain
circumstances will be required to, partially redeem the shares of Cumulative
Preferred Stock in order to maintain or restore the requisite asset coverage
and avoid the adverse consequences to the Fund and its stockholders of
failing to qualify as a RIC. If asset coverage were restored, the Fund would
again be able to pay dividends and might be able to avoid Fund-level taxation
on the Fund's distributions.
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify to be taxed as a RIC in any year, it would
be subject to tax in such year on all of its taxable income, whether or not
the Fund made any distributions. To qualify again to be taxed as a RIC in a
subsequent year, the Fund would be required to distribute to Cumulative
Preferred Stockholders and Common Stockholders as an ordinary income
dividend, its earnings and profits attributable to non-RIC years reduced by
an interest charge on 50% of such earnings and profits payable by the Fund to
the IRS. In addition, if the Fund failed to qualify as a RIC for a period
greater than one taxable year, then, except as provided in regulations to be
promulgated, the Fund would be required to recognize and pay tax on any net
built-in gains (the excess of aggregate gains, including items of income,
over aggregate losses that would have been realized if the Fund had been
liquidated) in order to qualify as a RIC in a subsequent year.
If the Fund invests in stock of a so-called passive foreign investment
company ("PFIC"), the Fund may be subject to Federal income tax on a portion
of any "excess distribution" with respect to, or gain from the disposition
of, such stock. The tax would be determined by allocating such distribution
or gain ratably to each day of the Fund's holding period for the stock. The
amount so allocated to any taxable year of the Fund prior to the taxable year
in which the excess distribution or disposition occurs would be taxed to the
Fund at the highest marginal income tax rate in effect for the year to which
it was allocated, and the tax would be further increased by an interest
charge. The amount allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed
by the Fund as a dividend to stockholders.
The Fund may be able to make an election, in lieu of being taxable in
the manner described above, to include annually in income its pro rata share
of the ordinary earnings and net capital gain (whether or not distributed) of
the PFIC. In order to make this election, the Fund would be required to
obtain annual information from the PFICs in which it invests, which in many
cases may be difficult to obtain. Alternatively, if eligible, the Fund may
be able to elect to mark to market its PFIC stock, resulting in the stock
being treated as sold at fair market value on the last business day of each
taxable year. Any resulting gain would be reported as ordinary income, and
any resulting loss would not be recognized. The Fund may make either of
these elections with respect to its investments (if any) in PFICs.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Treasury regulations promulgated thereunder. The Code and the
Treasury regulations are subject to change by legislative, judicial or
administrative action, either prospectively or retroactively.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations.
State law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
OTHER TAXATION
Distributions may also be subject to additional state, local and foreign
taxes, depending on each stockholder's particular situation. Stockholders
are advised to consult their own tax advisers with respect to the particular
tax consequences to them of an investment in the Cumulative Preferred Stock.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
State Street, which is located at 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian of the securities, cash and other
assets of the Fund, as dividend-paying agent and as transfer agent and
registrar for the Fund's Cumulative Preferred Stock. Stockholder inquiries
should be directed to P.O. Box 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, each Underwriter named below,
for whom Smith Barney Inc. and PaineWebber Incorporated are acting as the
Representatives (the "Representatives"), has severally 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> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . . .
___________________________ . . . . . . . . . . . . . . . . . . .
___________________________ . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Cumulative
Preferred Stock offered hereby are subject to the approval of certain legal
matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all shares of Cumulative Preferred Stock
offered hereby if any are taken.
The Underwriters propose to offer part of the shares of Cumulative
Preferred Stock offered hereby directly to the public at the public offering
price set forth on the cover page 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 Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the initial offering of the shares
of Cumulative Preferred Stock to the public, the public offering price and
such concessions may be changed by the Underwriters. The underwriting
discount of $ per share is equal to % of the initial offering
price. Investors must pay for any shares of Cumulative Preferred Stock
purchased on or before July , 1997.
The Fund and Royce have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
The Underwriters have advised the Fund that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended, certain persons
participating in the offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of
penalty bids, which may have the effect of stabilizing or maintaining the
market price of the Cumulative Preferred Stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for
or the purchase of the Cumulative Preferred Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the
Cumulative Preferred Stock. A "syndicate covering transaction" is a bid for
or purchase of the Cumulative Preferred Stock on behalf of the Underwriters
to reduce a short position incurred by the Underwriters in connection with
the offering. A "penalty bid" is an arrangement permitting the Underwriters
to reclaim the selling concession otherwise accruing to an Underwriter or
selling group member in connection with the offering if any of the Cumulative
Preferred Stock originally sold by such Underwriter or selling group member
is purchased in a syndicate covering transaction and has therefore not been
effectively placed by such Underwriter or selling group member. The
Underwriters have advised the Fund that such transactions may be effected on
the AMEX or otherwise and, if commenced, may be discontinued at any time.
The Underwriters have acted in the past and may continue to act from
time to time, during and subsequent to the completion of the offering of
Cumulative Preferred Stock hereunder, as 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 Underwriters intend to make a market in the Cumulative Preferred
Stock; however, they have no obligation to do so. Consequently, an
investment in the Cumulative Preferred Stock may be illiquid during such
period.
Mitchell Hutchins, an affiliate of PaineWebber Incorporated, is a party
to and has an agreement with the Fund to provide various administrative
services to the Fund. See "Investment Advisory and Other Services-
Administration Agreement".
LEGAL MATTERS
Certain matters concerning the legality under Maryland law of the
Cumulative Preferred Stock will be passed on by Venable, Baetjer and Howard
LLP, Baltimore, Maryland. Certain legal matters will be passed on by Brown &
Wood LLP, New York, New York, special counsel to the Fund, and by Simpson
Thacher & Bartlett (a partnership which includes professional corporations),
New York, New York, counsel to the Underwriters. Brown & Wood LLP and
Simpson Thacher & Bartlett will each rely as to matters of Maryland law or
the opinion of Venable, Baetjer and Howard LLP.
EXPERTS
Ernst & Young LLP, independent accountants, are the independent auditors
of the Fund. The audited financial statements of the Fund and certain of the
information appearing under the caption "Financial Highlights" included in
this Prospectus have been audited by Ernst & Young LLP and Coopers & Lybrand
L.L.P for the periods indicated in their reports with respect thereto, and
are included in reliance upon such reports and upon the authority of such
firms as experts in accounting and auditing. Ernst & Young LLP has an office
at 787 Seventh Avenue, New York, New York 10019, and also performs tax and
other professional services for the Fund. The address of Coopers & Lybrand
L.L.P. is 1 Post Office Square, Boston, Massachusetts 02109.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, 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 June , 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 . . . . . . . . . . . . . . . . . . . . .
Directors and Officers . . . . . . . . . . . . . . . . . . . . .
Code of Ethics and Related Matters . . . . . . . . . . . . . . .
Investment Advisory and Other Services . . . . . . . . . . . . .
Brokerage Allocation and Other Practices . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . .
GLOSSARY
"Articles Supplementary" means the Fund's Articles Supplementary
creating and fixing the rights of the Cumulative Preferred Stock.
"Asset Coverage" has the meaning set forth on page of this
Prospectus.
"Basic Maintenance Amount" means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by
the Liquidation Preference; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each
outstanding share of Cumulative Preferred Stock from the most recent Dividend
Payment Date to which dividends have been paid or duly provided for (or, in
the event the Basic Maintenance Amount is calculated on a date prior to the
initial Dividend Payment Date with respect to the Cumulative Preferred Stock,
then from the Date of Original Issue) through the Valuation Date plus all
dividends to accumulate on the Cumulative Preferred Stock then outstanding
during the 70 days following such Valuation Date; (C) the Fund's other
liabilities due and payable as of such Valuation Date (except that dividends
and other distributions payable by the Fund by the issuance of Common Stock
will not be included as a liability) and such liabilities projected to become
due and payable the Fund during the 90 days following such Valuation Date
(excluding liabilities for investments to be purchased and for dividends and
other distributions not declared as of such Valuation Date); (D) any current
liabilities of the Fund as of such Valuation Date to the extent not reflected
in any of (i)(A) through (i)(D) (including, without limitation, and
immediately upon determination, any amounts due and payable by the Fund
pursuant to reverse repurchase agreements and any payables for assets
purchased as of such Valuation Date) less (ii) (A) the Discounted Value of
any of the Fund's assets and/or (B) the face value of any of the Fund's
assets if, in the case of both (ii)(A) and (ii)(B), such assets are either
cash or securities which mature prior to or on the date of redemption or
repurchase of Cumulative Preferred Stock or payment of another liability and
are either U.S. Government Obligations or securities which have a rating
assigned by Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at
least AAA, SP-1+ or A-1+, in both cases irrevocably held by the Fund's
custodian bank in a segregated account or deposited by the Fund with the
Paying Agent for the payment of the amounts needed to redeem or repurchase
Cumulative Preferred Stock subject to redemption or repurchase or any of
(i)(B) through (i)(E) and provided that in the event the Fund has repurchased
Cumulative Preferred Stock at a price of less than the Liquidation Preference
thereof and irrevocably segregated or deposited assets as described above
with its custodian bank or the Paying Agent for the payment of the repurchase
price the Fund may deduct 100% of the Liquidation Preference of such
Cumulative Preferred 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 State Department of Assessments and Taxation of Maryland.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Fund.
"Cumulative Preferred Stock" means the % Cumulative Preferred
Stock, par value $.001 per share, of the Fund.
"Date of Original Issue" has the meaning set forth on page of this
Prospectus.
"Deposit Securities" means cash, Short-Term Money Market Instruments and
U.S. Government Obligations. Except for determining whether the Fund has a
Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security will be deemed to have a value equal to its principal
or face amount payable at maturity plus any interest payable thereon after
delivery of such Deposit Security but only if payable on or prior to the
applicable payment date in advance of which the relevant deposit is made.
"Discounted Value" means, with respect to a Moody's Eligible Asset, the
quotient of (A) in the case of non-convertible fixed income securities, the
lower of the principal amount and the market value thereof or (B) in the case
of any other Moody's Eligible Assets, the market value thereof, divided by
the applicable Moody's Discount Factor.
"Dividend Payment Date" has the meaning set forth on page of this
Prospectus.
"Fund" means Royce Micro-Cap Trust, Inc., a Maryland corporation.
"Liquidation Preference" has the meaning set forth on page of this
Prospectus.
"Moody's" means Moody's Investors Service, Inc.
"Moody's Discount Factor" means, with respect to a Moody's Eligible
Asset specified below, the following applicable number:
<TABLE>
<CAPTION> Moody's
<S> <C> <C>
Type of Moody's Eligible Asset: Discount Factor:
Moody's Short Term Money Market Instruments
(other than U.S. Government Obligations set forth below) and other
commercial paper:
Demand or time deposits,
certificates of deposit and bankers' acceptances includible in
Moody's Short Term Money Market Instruments . . . . . . . . . . . 1.00
Commercial paper rated P-1 by Moody's
maturing in 30 days or less . . . . . . . . . . . . . . . . . . . 1.00
Commercial paper rated P-1 by Moody's
maturing in more than 30 days but in 270 days or less . . . . . . 1.15
Commercial paper rated A-1+ by S&P
maturing in 270 days or less . . . . . . . . . . . . . . . . . . . 1.25
Repurchase obligations includible in Moody's
Short Term Money Market Instruments if term is less than 30 days and
counterparty is rated at least A2 . . . . . . . . . . . . . . . . 1.00
Other repurchase obligations . . . . . . . . . . . . . . . . . . . . . Discount Factor applicable
to underlying assets
Common stocks:
Transportation issuers . . . . . . . . . . . . . . . . . . . . . . 4.30
Other issuers . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00
Moody's
Type of Moody's Eligible Asset: Discount Factor:
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:
1.08
1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15
2 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.20
3 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.26
4 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.31
5 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.40
7 years of less . . . . . . . . . . . . . . . . . . . . . . . . . 1.48
10 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.54
15 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.61
20 years or less . . . . . . . . . . . . . . . . . . . . . . . . . 1.63
30 years or less . . . . . . . . . . . . . . . . . . . . . . . . .
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
Moody's
Type of Moody's Eligible Asset: Discount Factor:
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
Moody's
Type of Moody's Eligible Asset: Discount Factor:
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 of an issuer's
senior debt securities or preferred stock is not rated by Moody's, which
either (1) are issued by an issuer whose senior debt securities are
rated at least A by S&P or (2) are rated at least A by S&P and for this
purpose have been assigned a Moody's equivalent rating of at least
"baa3"), (B) of issuers which have (or, in the case of issuers which are
special purpose corporations, whose parent companies have) common stock
listed on the New York Stock Exchange or the American Stock Exchange,
(C) which have a minimum issue size (when taken together with other of
the issuer's issues of similar tenor) of $50,000,000, (D) which have
paid cash dividends consistently during the preceding three-year period
(or, in the case of new issues without a dividend history, are rated at
least "a1" by Moody's or, if not rated by Moody's, are rated at least AA
by S&P), (E) which pay cumulative cash dividends in U.S. dollars, (F)
which are not convertible into any other class of stock and do not have
warrants attached, (G) which are not issued by issuers in the
transportation industry and (H) in the case of auction rate preferred
stocks, which are rated at least "aa" by Moody's, or if not rated by
Moody's, AAA by S&P or are otherwise approved in writing by Moody's and
have never had a failed auction; provided, however, that for this
purpose the aggregate Market Value of the Company's holdings of any
issue of preferred stock will not be less than $500,000 nor more than
$5,000,000;
(v) common stocks (A) which are traded on the New York Stock
Exchange, the American Stock Exchange or in the over-the-counter market,
(B) which, if cash dividend paying, pay cash dividends in U.S. dollars,
and (C) which are not privately placed; provided, however, that (1)
common stock which, while a Moody's Eligible Asset owned by the Fund,
ceases paying any regular cash dividend will no longer be considered a
Moody's Eligible Asset until 71 days after the date of the announcement
of such cessation, unless the issuer of the common stock has senior debt
securities rated at least A3 by Moody's and (2) the aggregate Market
Value of the Fund's holdings of the common stock of any issuer will not
exceed 4% in the case of utility common stock and 6% in the case of non-
utility common stock of the number of outstanding shares times the
Market Value of such common stock;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which are not privately placed, rated at
least B3 (Caa subordinate) by Moody's (or, in the event the bond is not
rated by Moody's, the bond is rated at least BB- by S&P and which for
this purpose is assigned a Moody's equivalent rating of one full rating
category lower), with such rating confirmed on each Valuation Date, (B)
which have a minimum issue size of at least (x) $100,000,000 if rated at
least Baa3 or (y) $50,000,000 if rated B or Ba3, (C) which are U.S.
dollar denominated and pay interest in cash in U.S. dollars, (D) which
are not convertible or exchangeable into equity of the issuing
corporation and have a maturity of not more than 30 years, (E) for
which, if rated below Baa3, the aggregate Market Value of the Company's
holdings do not exceed 10% of the aggregate Market Value of any
individual issue of corporate bonds calculated at the time of original
issuance, (F) the cash flow from which must be controlled by an
Indenture trustee and (G) which are not issued in connection with a
reorganization under any bankruptcy law;
(viii) convertible corporate bonds (A) which are issued by issuers
whose senior debt securities are rated at least B2 by Moody's (or, in
the event an issuer's senior debt securities are not rated by Moody's,
which are issued by issuers whose senior debt securities are rated at
least BB by S&P and which for this purpose is assigned a Moody's
equivalent rating of one full rating category lower), (B) which are
convertible into common stocks which are traded on the New York Stock
Exchange or the American Stock Exchange or are quoted on the NASDAQ
National Market System and (C) which, if cash dividend paying, pay cash
dividends in U.S. dollars; provided, however, that once convertible
corporate bonds have been converted into common stock, the common stock
issued upon conversion must satisfy the criteria set forth in clause (v)
above and other relevant criteria set forth in this definition in order
to be a Moody's Eligible Asset;
provided, however, that the Fund's investment in preferred stock, common
stock, corporate bonds and convertible corporate bonds described above must
be within the following diversification requirements (utilizing Moody's
industry and sub-industry categories) in order to be included in Moody's
Eligible Assets:
<TABLE>
<CAPTION>
Issuer: Non-Utility Utility Maximum Single Issuer
Moody's Rating Maximum Single Issuer (3)(4)
(1)(2) (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 Maximum
Non-Utility Maximum Utility Single State(3)
Single Industry(3) Maximum Single Sub-
Moody's Rating(1) Industry(3)(6)
<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 of this
Prospectus.
"Paying Agent" means State Street Bank and Trust Company and its
successors or any other paying agent appointed by the Fund.
"Portfolio Calculation" means the aggregate Discounted Value of all
Moody's Eligible Assets.
"Preferred Stock" means the preferred stock, par value $.001 per share,
of the Fund, and includes the Cumulative Preferred Stock.
"Redemption Price" has the meaning set forth on page of this
Prospectus.
"Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Fund (or, in the case of an instrument specified by 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> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN 1,600,000 SHARES
CONNECTION WITH THIS OFFERING, 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 UNDERWRITERS. ROYCE MICRO-CAP TRUST, INC.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
FUND SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH
IT RELATES. THIS PROSPECTUS DOES NOT % CUMULATIVE PREFERRED STOCK
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. PROSPECTUS
______________ JUNE , 1997
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . .
Ordinary Income Equivalent
Yield Tables . . . . . . . . . . . . . . . Smith Barney Inc.
Financial Highlights . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . PaineWebber Incorporated
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 . . . . . . . . . . . .
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 JUNE , 1997
STATEMENT OF ADDITIONAL INFORMATION
1,600,000 SHARES
ROYCE MICRO-CAP 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 Micro-Cap 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 investing at least 65% of its assets in common stocks, convertible
securities and warrants of companies that, at the time of investment, have
market capitalizations of $300 million or less. 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 June , 1997).
Please retain this document for future reference. To obtain an additional
copy of the Prospectus or the Fund's Annual Report to Stockholders for the
year ended December 31, 1996, 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 June , 1997
PRINCIPAL STOCKHOLDERS
As of May 31, 1997, the following persons owned of record or were known
by the Fund to have owned beneficially 5% or more of the 12,153,511 shares of
its Common Stock then outstanding:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Type and Percentage of Ownership
Charles M. Royce 776,626 shares 6.6%
1414 Avenue of the Americas (beneficial)
New York, New York 10019
Depository Trust Company 11,575,205 95.2%
Cede & Co. (of record only)
P.O. Box 20, Bowling Green Station
New York, New York 10274
</TABLE>
All directors and officers of the Fund as a group owned approximately 6.6%
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 Directors
and officers of the Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
Position with Principal Occupations and Other Affiliations
Name and Address the Fund During the Last Five Years
Charles M. Royce* (57) Director, President, Managing Director (since April 1997),
1414 Avenue of the Americas President and Secretary, Treasurer, sole director and sole voting
New York, NY 10019 Treasurer shareholder of Royce & Associates, Inc. ("Royce"),
formerly named Quest Advisory Corp., the Fund's
investment adviser; Trustee, President and Treasurer
of The Royce Fund ("TRF") and its predecessors;
Director, President and Treasurer of the Fund (since
September 1993), Royce Value Trust, Inc. ("RVT"),
and Royce Global Trust, Inc. ("RGT") (since October
1996), closed-end diversified management investment
companies of which Royce is the investment adviser;
(the Fund, TRF, RVT and RGT collectively, "The Royce
Funds"); Secretary and sole director and shareholder
of Royce Fund Services, Inc. ("RFS"), formerly named
Quest Distributors, Inc., the distributor of the
Fund's shares; and managing general partner of Royce
Management Company ("RMC"), formerly named Quest
Management Company, a registered investment adviser,
and its predecessor.
Position with Principal Occupations and Other Affiliations
Name and Address the Fund During the Last Five Years
Thomas R. Ebright* (52) Director & Vice President of Royce; Trustee of TRF and one of
50 Portland Pier Vice President its predecessors; Vice President of TRF and one of
Portland, ME 04101 its predecessors; Director of RVT and, since
September 1993, the Fund; Vice President since
November 1995 (President until October 1995) and
Treasurer of RFS; general partner of RMC and its
predecessor until June 1994; President, Treasurer
and a Director and principal shareholder of Royce,
Ebright & Associates, Inc., the investment adviser
for a series of TRF since June 1994; Director of
Atlantic Pro Sports, Inc. and of the Strasburg Rail
Road Co. since March 1993; and President and
principal owner of Baltimore Professional Hockey,
Inc. until May 1993.
Richard M. Galkin (59) Director Private investor and President of Richard M. Galkin
5284 Boca Marina Associates, Inc., tele-communications consultants.
Boca Raton, FL 33487
Stephen L. Isaacs (57) Director President of The Center for Health and Social Policy
65 Harmon Avenue since September 1996; President of Stephen L. Isaacs
Pelham, NY 10803 Associates, Consultants; and Director of Columbia
University Development Law and Policy Program;
Professor at Columbia University until August 1996.
David L. Meister (56) Director Consultant to the communications industry since
111 Marquez Place January 1993; and Executive Officer of Digital
Pacific Palisades, CA 90272 Planet Inc. from April 1991 to December 1992.
John D. Diederich * (45) Vice President Director of Operations of TRF and RVT (since April
1414 Avenue of the Americas 1993) and of the Fund (since September 1993); Vice
New York, NY 10019 President of RGT (since October 1996) and of the
Fund and RVT (since April 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
1414 Avenue of the Americas President (since August 1993) of Royce, having been
New York, NY 10019 employed by Royce since October 1989; Vice President
of RGT (since October 1996) and the other Royce
Funds (since April 1995); and General Partner of RMC
and its predecessor since January 1992.
W. Whitney George* (39) Vice President Managing Director (since April 1997) and Vice
1414 Avenue of the Americas President (since August 1993) of Royce, having been
New York, NY 10019 employed by Royce since October 1991; Vice President
of RGT (since October 1996) and of the other Royce
Funds (since April 1995); and General Partner of RMC
and its predecessor since January 1992.
Daniel A. O'Byrne* (35) Vice President Vice President of Royce (since May 1994), having
1414 Avenue of the Americas and Assistant been employed by Royce since October 1986; and Vice
New York, NY 10019 Secretary President of RGT (since October 1996) and of the
other Royce Funds (since July 1994).
John E. Denneen* (30) Secretary Associate General Counsel and Chief Compliance
1414 Avenue of the Americas Officer of Royce (since May 1996); Secretary of RGT
New York, NY 10019 (since October 1996) and of 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 Investment Company Act of 1940, as amended (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. and 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
RVT and, except for Thomas R. Ebright, RGT.
The Board of Directors has an Audit Committee, comprised of Richard M.
Galkin, Stephen L. Isaacs and David L. Meister. The Audit Committee is
responsible for recommending the selection and nomination of the independent
auditors for the Fund and for conducting post-audit reviews of its financial
condition with such auditors.
REMUNERATION OF DIRECTORS
Set forth below is the compensation paid by the Fund and the 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
Thomas R. Ebright 0 0
Richard M. Galkin 7,500 64,000
Stephen L. Isaacs 7,500 64,000
David L. Meister 7,500 64,000
Fees and expenses paid to the directors aggregated $25,633 for the year
ended December 31, 1996.
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 United States Government debt securities, municipal
debt securities, money market instruments, shares of affiliated or non-
affiliated registered open-end investment companies or shares acquired from
an issuer in a rights offering or under an automatic dividend reinvestment
plan or employer-sponsored automatic payroll deduction cash purchase plan or
(ii) they first obtain permission to trade from 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 May 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 $27.4 million, and their equity interests in
Royce-related private investment companies totaled approximately $3.3 million.
INVESTMENT ADVISORY AND OTHER SERVICES
ADVISORY FEE
The following table illustrates, on an annualized basis, the full range
of permitted increases or decreases to the Basic Fee.
<TABLE>
<CAPTION>
Difference between Performance of
Fund and % Change in Russell 2000
Index Adjustment to 1% Basic Fee Fee as Adjusted
<S> <C> <C>
+12 or more . . . . . . . . . . . +.5% 1.5%
+11 . . . . . . . . . . . . . . . +.45% 1.45%
+10 . . . . . . . . . . . . . . . +.4% 1.4%
+9 . . . . . . . . . . . . . . . +.35% 1.35%
+8 . . . . . . . . . . . . . . . +.3% 1.3%
+7 . . . . . . . . . . . . . . . +.25% 1.25%
+6 . . . . . . . . . . . . . . . +.2% 1.2%
+5 . . . . . . . . . . . . . . . +.15% 1.15%
+4 . . . . . . . . . . . . . . . +.1% 1.1%
+3 . . . . . . . . . . . . . . . +.05% 1.05%
+/-2 . . . . . . . . . . . . . . 0 1%
- -3 . . . . . . . . . . . . . . . -0.05% .95%
- -4 . . . . . . . . . . . . . . . -.1% .9%
- -5 . . . . . . . . . . . . . . . -.15% .85%
- -6 . . . . . . . . . . . . . . . -.2% .8%
- -7 . . . . . . . . . . . . . . . -.25% .75%
- -8 . . . . . . . . . . . . . . . -.3% .7%
- -9 . . . . . . . . . . . . . . . -.35% .65%
- -10 . . . . . . . . . . . . . . . -.4% .6%
- -11 . . . . . . . . . . . . . . . -.45% .55%
- -12 or less . . . . . . . . . . . -.5% .5%
</TABLE>
In calculating the investment performance of the Fund and the percentage
change in the investment record of the Russell 2000 Index (the "Russell
2000"), all dividends and other distributions per share of Common Stock of
realized capital gains and/or of any net investment income and any capital
gains taxes per share of Common Stock paid or payable on undistributed
realized long-term capital gains and all dividends and other distributions on
the securities comprising the Russell 2000 during the performance period are
treated as having been reinvested, and no effect is given to gain or loss
resulting from capital share transactions of the Fund. Fractions of a
percentage point are rounded to the nearest whole point (to the higher whole
point if exactly one-half).
For the years ended December 31, 1996, 1995 and 1994, Royce received
investment advisory fees from the Fund of $499,869, $713,033 (net of $2,878
voluntarily waived by Royce) and $881,249, 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.
ADMINISTRATION AGREEMENT
Mitchell Hutchins Asset Management Inc. (the "Administrator") is a
wholly-owned subsidiary of PaineWebber Incorporated. Under the
Administration Agreement with the Fund (the "Administration Agreement"), the
Administrator is responsible for (i) preparing all reports required to be
filed by the Fund with the Securities and Exchange Commission (the
"Commission") on Form N-SAR; (ii) providing to the Fund's independent
accountants such information as is necessary for such accountants to prepare
and file the Fund's Federal, state and local tax returns, and reviewing such
returns after they are prepared; (iii) assisting in the preparation of
financial information relating to the Fund for the Fund's periodic reports to
stockholders; (iv) assisting in monitoring compliance of the Fund's
operations with the 1940 Act and with its investment policies and
limitations; (v) reviewing the calculation of the Fund's net asset value in
accordance with the Fund's registration statement under the 1940 Act and the
Securities Act of 1933, as amended (the "1933 Act"), by the Fund's accounting
agent (which may or may not be the same party as the Fund's custodian or an
affiliate of the Fund's custodian), and in monitoring the performance of such
agent in making the Fund's net asset value available for public
dissemination; (vi) assisting in establishing the accounting policies of the
Fund; and (vii) assisting the Fund in determining the amount of dividends or
other distributions available to be paid by the Fund to its stockholders.
The Administration Agreement is terminable without penalty on 60 days'
prior written notice by either party to the other. The Board reviews the
Administrator's performance under the Administration Agreement semi-annually
and will continue, modify or terminate the Agreement, based on what it
determines to be in the best interests of the Fund's stockholders. During
the fiscal years ended December 31, 1996, 1995 and 1994, the Fund paid
$119,427, $147,482 and $186,625, respectively, in fees to the Administrator
for administration services.
SERVICE CONTRACT WITH STATE STREET
State Street Bank and Trust Company ("State Street"), the custodian of
the Fund's assets, provides certain management-related services to the Fund.
Such services include keeping books of accounts and rendering such financial
and other statements as may be requested by the Fund from time to time, and
generally assisting in the preparation of reports to the Fund's stockholders,
to the Securities and Exchange Commission and others, in the auditing of
accounts and in other ministerial matters of like nature, as agreed to
between the Fund and State Street. During the fiscal years ended December
31, 1996, 1995 and 1994, the Fund paid $59,957, $63,266 and $55,527,
respectively, in fees to State Street for management-related and custodial
services.
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 $158,000, $122,000 and $83,000,
respectively.
One or more of the Underwriters have 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, 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 three years ended
December 31, 1996 and the period December 14, 1993 (commencement
of operations) to December 31, 1993.
Incorporated by reference in Part B:
- 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 three years ended
December 31, 1996 and the period December 14, 1993 (commencement
of operations) to December 31, 1993*
- Notes to Financial Statements*
- Report of Independent Accountants*
_______________
* Incorporated by reference to the Registrant's 1996 Annual Report to
Stockholders, filed with the Securities and Exchange Commission (the
"Commission") for the year ended December 31, 1996, pursuant to Rule
30b2-1 under the Investment Company Act of 1940, as amended.
2. Exhibits
(a)(1) Articles of Amendment and Restatement to the Articles of
Incorporation of the Registrant.(1)
(2) Articles of Amendment to the Articles of Incorporation of
the Registrant.(2)
(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.(3)
(c) Not applicable.
(d)(1) Form of Specimen certificate for % Cumulative Preferred
Stock.
(2) Portions of the Articles of Supplementary of the Registrant
defining the rights of holders of % Cumulative
Preferred Stock.(4)
(e) Amended and Restated Distribution Reinvestment and Cash
Purchase Plan.
(f) Not applicable.
(g) Form of Investment Advisory Agreement between the Registrant
and Royce & Associates, Inc. ("Royce").(3)
(h)(1) Form of Smith Barney Underwriting Agreement*
(2) Form of Smith Barney Agreement Among Underwriters.
(i) Not applicable.
(j) Form of Custodian Contract.(1)
(k)(1) Form of Registrar, Transfer Agency and Service Agreement.(1)
(2) Form of Administration Agreement.(1)
(3) Amendment to Administration Agreement.
(4) Form of Registrar, Transfer Agent and Paying Agency
Agreement between the Registrant and State Street Bank and
Trust Company.
(l) Opinion and Consent of Venable, Baetjer and Howard LLP,
Maryland counsel to the Registrant*
(m) Not applicable.
(n)(1) Consent of Ernst & Young LLP, independent auditors for the
Registrant.
(2) Consent of Coopers & Lybrand L.L.P., independent auditors.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Financial Data Schedule.*
_______________
(1) Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form N-2 filed with the
Commission on December 14, 1993 (File No. 33-68950) (the "Common Stock
Registration Statement").
(2) Incorporated by reference to the Semi-Annual Report on Form N-SAR, filed
with the Commission on September 14, 1995 (the "September 1995 N-SAR").
(3) Incorporated by reference to the Semi-Annual Report on Form N-SAR, filed
with the Commission on February 27, 1997 (the "February 1997 N-SAR").
(4) 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 Common Stock
Registration Statement; (ii) Article I and Article IV of the
Registrant's Amended and Restated By-Laws, previously filed as Exhibit
(b) to the Common Stock Registration Statement; and (iii) Article II of
the Registrant's Articles of Supplementary filed as Exhibit (a)(3).
* 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 $ 12,121
Listing Fees 15,000
Printing expenses (other than stock certificates) 50,000
Accounting fees and expenses 4,000
Legal fees and expenses 117,000
Rating Agency fees 20,000
Miscellaneous 21,879
------
Total $240,000
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of May 31, 1997:
<TABLE>
<CAPTION> NUMBER OF
TITLE OF CLASS RECORD HOLDERS
<S> <C>
Common Stock ($.001 par value) . . . . . . . . . . . . . . . . . . . . . . . . . 391
Preferred Stock ($.001 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 September 1995 N-SAR,
the form of Investment Advisory Agreement, previously filed as an Exhibit to
the February 1997 N-SAR and the form of Underwriting Agreement, filed as
Exhibit(h)(1) 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.
Reference is made to Section of the form of Underwriting Agreement
to be filed as Exhibit (h)(1) to this Registration Statement for provisions
relating to indemnification of the Underwriters.
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 Micro-Cap 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 Micro-Cap Trust, Inc.
(Records relating to its functions as Custodian, Registrar and
Transfer Agent and Dividend Paying Agent for the Registrant)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
1. Not applicable.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that, for the purpose of determining any
liability under the Securities Act, the information omitted from the
form of prospectus filed as part of the registration statement in
reliance upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 497(h) will be deemed to be
a part of the registration statement as of the time it was declared
effective.
Registrant undertakes that, for the purpose of determining any
liability under the Securities Act, each post-effective amendment
that contains a form of prospectus will be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days
of receipt of a written or oral request, any Statement of Additional
Information constituting Part B of this registration statement.
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 5th day of June, 1997.
ROYCE MICRO-CAP 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 June 5, 1997
- --------------------- and Treasurer
Charles M. Royce (Principal Executive, Financial and
Accounting Officer)
/s/ Thomas R. Ebright Director June 5, 1997
- -------------------------
Thomas R. Ebright
/s/ Richard M. Galkin Director June 5, 1997
- -------------------------
Richard M. Galkin
/s/ Stephen L. Issacs Director June 5, 1997
- -------------------------
Stephen L. Issacs
/s/ David L. Meister Director June 5, 1997
- -------------------------
David L. Meister
Exhibit 2(a)(3)
ARTICLES SUPPLEMENTARY
CREATING AND FIXING THE RIGHTS OF
___% CUMULATIVE PREFERRED STOCK OF
ROYCE MICRO-CAP TRUST, INC.
ROYCE MICRO-CAP 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 $.001 per share, as
shares of preferred stock, par value $.001 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 plus accrued but unpaid interest
thereon 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 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 $.001 per share, of the
------------
Corporation.
"Corporation" shall mean Royce Micro-Cap Trust, Inc., a Maryland
-----------
corporation.
"Cumulative Preferred Stock" means the __% Cumulative Preferred Stock,
--------------------------
par value $.001 per share, of the Corporation.
"Date of Original Issue" shall have the meaning set forth in paragraph
----------------------
1(a) of Article II hereof.
"Deposit Securities" means cash, Short-Term Money Market Instruments and
------------------
U.S. Government Obligations. Except for determining whether the Corporation
has a Portfolio Calculation equal to or greater than the Basic Maintenance
Amount, each Deposit Security shall be deemed to have a value equal to its
principal or face amount payable at maturity plus any interest payable
thereon after delivery of such Deposit Security but only if payable on or
prior to the applicable payment date in advance of which the relevant deposit
is made.
"Discounted Value"* means, with respect to a Moody's Eligible Asset, the
----------------
quotient of (A) in the case of non-convertible fixed income securities, the
- -------- --
lower of the principal amount and the Market Value thereof or (B) in the case
of any other Moody's Eligible 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
<S> <C> <C>
Type of Moody's Eligible Asset: Discount Factor:
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
Moody's
Type of Moody's Eligible Asset: Discount Factor:
Preferred stocks:
Auction rate preferred stocks . . . . . . . . . . . . . . . . . . 3.50
Other preferred stocks issued by issuers
in the financial and industrial industries . . . . . . . . .
Other preferred stocks issued by issuers 2.35
in the utilities industry . . . . . . . . . . . . . . . . . . 1.60
U.S. Government Obligations (other than U.S.
Treasury Securities Strips set forth below) with remaining terms to
maturity of:
1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Moody's
Type of Moody's Eligible Asset: Discount Factor:
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
Moody's
Type of Moody's Eligible Asset: Discount Factor:
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 shall not be less than $500,000 nor more than
$5,000,000;
(v) common stocks (A) which are traded on the New York Stock
Exchange, the American Stock Exchange or in the over-the-counter market,
(B) which, if cash dividend paying, pay cash dividends in U.S. dollars,
and (C) which are not privately placed; provided, however, that (1)
-------- -------
common stock which, while a Moody's Eligible Asset owned by the
Corporation, ceases paying any regular cash dividend will no longer be
considered a Moody's Eligible Asset until 71 days after the date of the
announcement of such cessation, unless the issuer of the common stock
has senior debt securities rated at least A3 by Moody's and (2) the
aggregate Market Value of the Corporation's holdings of the common stock
of any issuer shall not exceed 4% in the case of utility common stock
and 6% in the case of non-utility common stock of the number of
outstanding shares times the Market Value of such common stock;
(vi) U.S. Government Obligations;
(vii) corporate bonds (A) which are not privately placed, rated
at least B3 (Caa subordinate) by Moody's (or, in the event the bond is
not rated by Moody's, the bond is rated at least BB- by S&P and which
for this purpose is assigned a Moody's equivalent rating of one full
rating category lower), with such rating confirmed on each Valuation
Date, (B) which have a minimum issue size of at least (x) $100,000,000
if rated at least Baa3 or (y) $50,000,000 if rated B or Ba3, (C) which
are U.S. dollar denominated and pay interest in cash in U.S. dollars,
(D) which are not convertible or exchangeable into equity of the issuing
corporation and have a maturity of not more than 30 years, (E) for
which, if rated below Baa3, the aggregate Market Value of the Company's
holdings do not exceed 10% of the aggregate Market Value of any
individual issue of corporate bonds calculated at the time of original
issuance, (F) the cash flow from which must be controlled by an
indenture trustee and (G) which are not issued in connection with a
reorganization under any bankruptcy law;
(viii) convertible corporate bonds (A) which are issued by issuers
whose senior debt securities are rated at least B2 by Moody's (or, in
the event an issuer's senior debt securities are not rated by Moody's,
which are issued by issuers whose senior debt securities are rated at
least BB by S&P and which for this purpose is assigned a Moody's
equivalent rating of one full rating category lower), (B) which are
convertible into common stocks which are traded on the New York Stock
Exchange or the American Stock Exchange or are quoted on the NASDAQ
National Market System and (C) which, if cash dividend paying, pay cash
dividends in U.S. dollars; provided, however, that once convertible
corporate bonds have been converted into common stock, the common stock
issued upon conversion must satisfy the criteria set forth in clause (v)
above and other relevant criteria set forth in this definition in order
to be a Moody's Eligible Asset;
provided, however, that the Corporation's investment in preferred stock,
- -------- -------
common stock, corporate bonds and convertible corporate bonds described above
must be within the following diversification requirements (utilizing Moody's
Industry and Sub-industry Categories) in order to be included in Moody's
Eligible Assets:
<TABLE>
<CAPTION>
Issuer: Non-Utility Utility Maximum
Moody's Rating Maximum Single Single Issuer
<S> <C> <C>
(1)(2) Issuer (3)(4)
(3)(4)
"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:
Non-Utility Maximum Utility
Single Industry(3) Maximum Single Sub- Utility Maximum
Moody's Rating(1) 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
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 $.001 per share,
---------------
of the Corporation, and includes the Cumulative Preferred Stock.
"Quarterly Valuation Date"* means the last Valuation Date in March,
------------------------
June, September and December of each year, commencing September 26, 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 September 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 any such shares are originally issued
("Date of Original Issue"). Each period beginning on and including a
Dividend Payment Date (or the Date of Original Issue, in the case of the
first dividend period after issuance of any 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 Dates 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, Common Stock or other stock, if any, ranking junior to the
Cumulative Preferred Stock as to dividends or upon liquidation) in respect of
the Common Stock or any other stock of the Corporation ranking junior to or
on parity with the Cumulative Preferred Stock as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire
for consideration any shares of Common Stock or any other stock of the
Corporation ranking junior to or on parity with the Cumulative Preferred
Stock as to dividends or upon liquidation (except by conversion into or
exchange for stock of the Corporation ranking junior to or on parity with the
Cumulative Preferred Stock as to dividends and upon liquidation), unless, in
each case, (A) immediately thereafter, the Corporation shall have a Portfolio
Calculation at least equal to the Basic Maintenance Amount and the
Corporation shall maintain the Asset Coverage, (B) full cumulative dividends
on all shares of Cumulative Preferred Stock due on or prior to the date of
the transaction have been declared and paid (or shall have been declared and
sufficient funds for the payment thereof deposited with the Paying Agent) and
(C) the Corporation has redeemed the full number of shares of Cumulative
Preferred Stock required to be redeemed by any provision contained herein for
mandatory redemption.
(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 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 July 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 July 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 accrue on such redemption date; and (G) the provisions of this paragraph 3
under which such redemption is made. If fewer than all shares of Cumulative
Preferred Stock held by any holder are to be redeemed, the Notice of
Redemption mailed to such holder also shall specify the number of shares to
be redeemed from such holder. No defect in the Notice of Redemption or the
mailing thereof shall affect the validity of the redemption proceedings,
except as required by applicable law.
(ii) If the Corporation shall give a Notice of Redemption, then by the
close of business on the Business Day preceding the redemption date specified
in the Notice of Redemption the Corporation shall (A) deposit with the Paying
Agent Deposit Securities having an initial combined value sufficient to
effect the redemption of the shares of Cumulative Preferred Stock to be
redeemed, which Deposit Securities shall mature on or prior to such
redemption date, and (B) give the Paying Agent irrevocable instructions and
authority to pay the Redemption Price to the holders of the shares of
Cumulative Preferred Stock called for redemption on the redemption date. The
Corporation may direct the Paying Agent with respect to the investment of any
Deposit Securities so deposited, provided that the proceeds of any such
investment will be available at the opening of business on such 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) holders of outstanding shares of Cumulative Preferred
Stock shall be entitled as a series, to the exclusion of holders of shares
of Common Stock and any other series of Preferred Stock of the Corporation,
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
Preferred Stock shall be entitled, as a series, to the exclusion of any
other outstanding series of holders of shares of the Cumulative Preferred
Stock, to vote on matters affecting such other Preferred Stock that do not
adversely affect 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 such paragraph
5(a)(ii)(B) and any Basic Maintenance Amount Cure Date, the Corporation shall
deliver to Moody's an Accountant's Confirmation relating to such Basic
Maintenance Report. If any Accountant's Confirmation delivered pursuant to
this paragraph 5(a)(ii)(C) shows that an error was made in the Basic
Maintenance Report for such Quarterly Valuation Date, or shows that a lower
Portfolio Calculation was determined by the Independent Accountants, the
calculation or determination made by such Independent Accountants shall be
final and conclusive and shall be binding on the Corporation, and the
Corporation shall accordingly amend the Basic Maintenance Report and deliver
the amended Basic Maintenance Report to Moody's promptly following Moody's
receipt of such Accountant's Confirmation.
(D) In the event the Portfolio Calculation shown in any Basic
Maintenance Report prepared pursuant to paragraph 5(a)(ii)(B) above is less
than the applicable Basic Maintenance Amount, the Corporation shall have
until the Basic Maintenance Amount Cure Date to achieve a Portfolio
Calculation at least equal to the Basic Maintenance Amount, and upon such
achievement (and not later than such Basic Maintenance Amount Cure Date) the
Corporation shall inform Moody's of such achievement in writing by delivery
of a revised Basic Maintenance Report showing a Portfolio Calculation at
least equal to the Basic Maintenance Amount as of the date of such revised
Basic Maintenance Report, together with an Officers' Certificate to such
effect.
(E) On or before 5:00 P.M., New York City time, on the first Business
Day after shares of Common Stock are repurchased by the Corporation, the
Corporation shall complete and deliver to Moody's a Basic Maintenance Report
as of the close of business on such date that Common Stock is repurchased. A
Basic Maintenance Report delivered as provided in paragraph 5(a)(ii)(B) above
also shall be deemed to have been delivered pursuant to this paragraph
5(a)(ii)(E).
(b) Failure to Meet Asset Coverage.
------------------------------
If the Asset Coverage is not satisfied as provided in paragraph 5(a)(i)
hereof and such failure is not cured as of the related Asset Coverage Cure
Date, the Corporation shall give a Notice of Redemption as described in
paragraph 3 of Article II hereof with respect to the redemption of a
sufficient number of shares of Cumulative Preferred Stock to enable it to
meet the requirements of paragraph 5(a)(i) above, and, at the Corporation's
discretion, such additional number of shares of Cumulative Preferred Stock in
order that the "asset coverage" of a class of senior security which is stock,
as defined in Section 18(h) of the 1940 Act, of the remaining outstanding
shares of Cumulative Preferred Stock and any other Preferred Stock is up to
275%, and deposit with the Paying Agent Deposit Securities having an initial
combined value sufficient to effect the redemption of the shares of
Cumulative Preferred Stock to be redeemed, as contemplated by paragraph 3(a)
of Article II hereof.
(c) Failure to Maintain a Portfolio Calculation At Least
----------------------------------------------------
Equal to the Basic Maintenance Amount.
-------------------------------------
If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A)
above and such failure is not cured by the related Basic Maintenance Amount
Cure Date, the Corporation shall give a Notice of Redemption as described in
paragraph 3 of Article II hereof with respect to the redemption of a
sufficient number of shares of Cumulative Preferred Stock to enable it to
meet the requirements of paragraph 5(a)(ii)(A) above, and, 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
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 _____ 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.
IN WITNESS WHEREOF, ROYCE MICRO-CAP 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
June , 1997.
ROYCE MICRO-CAP TRUST, INC.
By _________________________
Name: ----------------------
Title: _____________________
Attest:
- -------------------------
John E. Denneen
Secretary
Exhibit 2(d)(1)
SPECIMEN
CERTIFICATE
Certificate Number _____ Number of Shares ___
CUSIP # _______
ROYCE MICRO-CAP 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 _____% Tax-Advantaged Cumulative
Preferred Stock, par value $.001 per share, liquidation preference $25.00 per
share, of Royce Micro-Cap Trust, Inc., transferable only on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. This certificate is
not valid until countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of the duly authorized officers of the Corporation.
DATED:
Countersigned and Registered:
State Street Bank and Trust Company ____________________________________
(Boston) Transfer Agent 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 MICRO-CAP 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> <S>
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 MICRO-CAP TRUST, INC.
WHAT IS THE DISTRIBUTION REINVESTMENT
AND CASH PURCHASE PLAN?
The Distribution Reinvestment and Cash Purchase Plan offers stockholders
of Royce Micro-Cap 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 reinvested for you in additional shares of
common stock of the Fund, increasing your holdings in the
Fund. If the Fund declares a dividend or capital gains distribution, you
will automatically receive shares of common stock of the Fund. 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 per share 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 that 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 any amount
of at least $100 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 in your own name, you should contact State
Street Bank directly. Please send your check to the following address:
State Street Bank and Trust Company, PO Box 8200, Boston, MA 02266-8200.
Your investment 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 on the reinvestment 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 reinvesting 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 11 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 State Street, 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, State Street will sell all of the shares in your Plan account
(including any other Fund shares deposited by you) through a broker selected
by State Street 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 State Street deems acceptable.
State Street 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 State Street.
HOW DO PARTICIPATING STOCKHOLDERS
BENEFIT?
- You will build holdings in the Fund easily and automatically, at no
brokerage cost or at reduced cost in the case of voluntary cash purchases.
- You will receive a detailed account statement from State Street,
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 State Street for you. You will be able
to vote all shares held for you by State Street at stockholder meetings.
- As long as you participate in the Plan, State Street, as your 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 Micro-Cap Trust, Inc.
P.O. Box 8200
Boston, MA 02110
1 (800) 426-5523
Either Royce Micro-Cap 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 MICRO-CAP TRUST, INC.
Royce Micro-Cap 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:
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.
1. 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.
2. 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.
3. 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 at the
close of regular trading on the Nasdaq National Market on the valuation date
fixed by the Board of Directors for such distribution, which will normally be
the first business day following the record date, or (ii) the net asset value
per share on the valuation date (but not less than 95% of the last reported
sale price on that date).
4. 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.
5. 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.
6. 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. Voluntary payments will be
invested on or shortly after 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
the 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.
7. Investments of voluntary cash payments may be made 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 it is
understood that, in any event, 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. State Street may commingle funds of
Participants for the purpose of cash investments and 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.
8. 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.
9. 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 that the
certificates are to be deposited to your account in the Plan. There is no
need to endorse the certificates. The certificates should be sent by
registered mail or certified mail, return receipt requested, to:
State Street Bank and Trust Company
c/o Royce Micro-Cap Trust, Inc.
P.O. Box 8200
Boston, MA 02110
10. 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.
11. 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.
12. 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.
13. 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.
14. 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)(2)
MASTER AGREEMENT AMONG UNDERWRITERS
July 18, 1985
Smith Barney Inc.
388 Greenwich Street
New York, New York
Dear Sirs:
We understand that from time to time you may act as
Representative or as one of the Representatives of several underwriters of
offerings of various issuers. This Agreement shall apply to any offering of
securities handled by your Corporate Syndicate Department in which we elect
to act as an underwriter after receipt of an invitation from your Corporate
Syndicate Department which shall identify issuer, contain information
regarding certain terms of the securities to be offered and specify the
amount of our proposed participation and the names of the other
Representatives, if any, and that our participation as an underwriter in the
offering shall be subject to the provisions of this Agreement. Your
invitation will include instructions for our acceptance of such invitation.
At or prior to the time of an offering, you will advise us, to the extent
applicable, as to the expected offering date, the expected closing date, the
initial public offering price, the interest or dividend rate (or the method
by which such rate is to be determined), the conversion price, the
underwriting discount, the management fee, the selling concession and the
reallowance, except that if the public offering price of the securities is to
be determined by a formula based upon the market price of certain securities
(such procedure being hereinafter referred to as "Formula Pricing"), you
shall specify the maximum underwriting discount, management fee and selling
concession. Such information may be conveyed by you in one or more
communications (such communications received by us with respect to the
offering are hereinafter collectively referred to as the "Invitation"). If
the Underwriting Agreement (as hereinafter defined) provides for the granting
of an option to purchase additional securities to cover over-allotments, you
will notify us, in the Invitation, of such option.
This Agreement, as amended or supplemented by the Invitation, shall
become effective with respect to our participation in an offering of
securities if your Corporation Syndicate Department receives our oral or
written acceptance and does not subsequently receive a written communication
revoking our acceptance prior to the time and date specified in the
Invitation (our unrevoked acceptance after expiration of such time and date
being hereinafter referred to as our "Acceptance"). Our Acceptance will
constitute our confirmation that, except as otherwise stated in such
Acceptance, each statement included in the Master Underwriters' Questionnaire
set forth as Exhibit A hereto (or otherwise furnished to us) is correct. The
issuer of the securities in any offering of securities made pursuant to this
Agreement is hereinafter referred to as the "Issuer." If the Underwriting
Agreement does not provide for an over-allotment option, the securities to be
purchased are hereinafter to as the "Securities," if the Underwriting
Agreement provides for an over-allotment option, the securities the
Underwriters (as hereinafter defined) are initially obligated to purchase
pursuant to the Underwriting Agreement are hereinafter called the "Firm
Securities" and any additional securities which may be purchased upon
exercise of the over-allotment option are hereinafter called the "Additional
Securities," with the Firm Securities and all or any part of the Additional
Securities being hereinafter collectively referred to as the "Securities."
Any underwriters of Securities under this Agreement, including the
Representatives (as hereinafter defined), are hereinafter collectively
referred to as the "Underwriters." All references herein to "you" or to this
"Representatives" shall mean Smith Barney, Harris Upham & Co. Incorporated
and the other firms, if any, which are named as Representatives in the
Invitation. The Securities to be offered may, but need not, be registered
for a delayed or continuous offering pursuant to Rule 415 under the
Securities Act of 1933 (the "1933 Act").
The following provisions of this Agreement shall apply
separately to each individual offering of Securities. This Agreement may be
supplemented or amended by you by written notice to us and, except for
supplements or amendments set forth in an Invitation relating to a particular
offering of Securities, any such supplement or amendment to this Agreement
shall be effective with respect to any offering of Securities to which this
Agreement applies after this Agreement is so amended or supplemented.
1. UNDERWRITING AGREEMENT; AUTHORITY OF REPRESENTATIVES. We
authorize you to execute and deliver an underwriting of purchase agreement
and any amendment or supplement thereto and any associated Terms Agreement or
other similar agreement (collectively, the "Underwriting Agreement") on our
behalf with the Issuer and/or any selling securityholder with respect to the
Securities in such form as you determine. We will be bound by all terms of
the Underwriting Agreement as executed. We understand that changes may be
made in those who are to be Underwriters and in the amount of Securities to
be purchased by them, but the amount of Securities to be purchased by us in
accordance with the terms of this Agreement and the Underwriting Agreement,
including the amount of Additional Securities, if any, which we may become
obligated to purchase by reason of the exercise of any over-allotment option
provided in the Underwriting Agreement, shall not be changed without our
consent.
As Representatives of the Underwriters, you are authorized
to take such action as you deem necessary or advisable to carry out this
Agreement, the Underwriting Agreement, and the purchase, sale and
distribution of the Securities, and to agree to any waiver or modification of
any provision of the Underwriting Agreement. The extent applicable, you are
also authorized to determine (i) the amount of Additional Securities, if any,
to be purchased by the Underwriters pursuant to any over-allotment option and
(ii) with respect to offerings using Formula Pricing, the initial public
offering price and the price at which the Securities are to be purchased in
accordance with the Underwriting Agreement. It is understood and agreed that
SmithBarney,HarrisUpham &Co.Incorporatedmayact onbehalfofall Representatives.
It is understood that, if so specified in the Invitation,
arrangements may be made for the sale of Securities by the Issuer pursuant to
delayed delivery contracts (hereinafter referred to as "Delayed Delivery
Contract"). References herein to delayed delivery and Delayed Delivery
Contracts apply only to offerings to which delayed delivery is applicable.
The term "underwriting obligation," as used in this Agreement with respect to
any Underwriting, shall refer to the amount of Securities, including any
Additional Securities (plus such additional Securities as may be required by
the Underwriting Agreement in the event of a default by one or more of the
Underwriters) which such Underwriter is obligated to purchase pursuant to the
provisions of the Underwriting Agreement, without regard to any reduction in
such obligation as a result of Delayed Delivery Contracts which may be
entered into by the Issuer.
If the Securities consist in whole or in part of debt
obligations maturing serially, the serial Securities being purchased by each
Underwriter pursuant to the Underwriting Agreement will consist, subject to
adjustment as provided in the Underwriting Agreement, of serial Securities of
each maturity in a principal amount which bears the same proportion to the
aggregate principal amount of the serial Securities of such maturity to be
purchased by all the Underwriters as the principal amount of serial
Securities set forth opposite such Underwriter's name in the Underwriting
Agreement bears to the aggregate principal amount of the serial Securities to
be purchased by all the Underwriters.
2. REGISTRATION STATEMENT AND PROSPECTUS; OFFERING CIRCULAR.
In the case of an Invitation regarding an offer of Securities registered
under the 1933 Act (a "Registered Offering"), you will furnish to us, to the
extent made available to you and the Issuer, copies of any registration
statement or registration statements relating to the Securities which may be
filed with the Securities and Exchange Commission) the "Commission") pursuant
to the 1933 Act and each amendment thereto (excluding exhibits but including
any documents incorporated by reference therein). Such registration
statement(s) as amended, and the prospectus(es) relating to the sale of
Securities by the Issuer constituting a part thereof, including all documents
incorporated therein by reference, as from time to time amended or
supplemented by the filing of documents pursuant to the Securities Exchange
Act of 1934 (the "1934 Act"), the 1933 Act or otherwise, are referred to
herein as the "Registration Statement" and the "Prospectus," respectively,
provided however, that a supplement to the Prospectus filed with the
Commission pursuant to Rule 424 under the 1933 Act with respect to an
offering of Securities (a "Prospectus Supplement") shall be deemed to have
supplemented the Prospectus only with respect to the offering of Securities
to which it relates.
With respect to Securities for which no Registration
Statement if filed with the Commission, you will furnish to us, to the extent
made available to you by the Issuer, copies of any offering circular or other
offering materials to be used in connection with the offering of the
Securities and of each amendment thereto (the "Offering Circular").
3. PUBLIC OFFERING. The sale of the Securities shall
commence as soon as you deem advisable. We will not sell any Securities until
they are released by you for that purpose. When notified by you that the
Securities are released for sale, we will offer to the public in conformity
with the terms of offering set forth in the Prospectus or Offering Circular,
such of the Securities to be purchased by us ("our Securities") as are not
reserved for our account for sale to Selected Dealers and others pursuant to
Section 5. After the initial public offering, the public offering price and
the concession and discount therefrom may be changed by you by notice to the
Underwriters, and we agree to be bound by any such change.
If, in accordance with the terms of offering set forth in
the Prospectus or Offering Circular, the offering of the Securities is not at
a fixed price but at varying prices set by individual Underwriters based on
market prices or at negotiated prices, the provisions above relating to your
right to change the public offering price and concession and discount to
dealers shall not apply, and other references in this Section and elsewhere
in this Agreement to the public offering price or Selected Dealers'
concession shall be deemed to mean the prices and concessions determined by
you from time to time in your discretion.
If so directed in the Invitation, we will not sell any
Securities to any account over which we have discretionary authority. We will
also comply with any other restrictions which may be set forth in the
Invitation.
The initial public advertisement with respect to the
Securities shall appear on such date, and shall include the names of such of
the Underwriters, as you may determine. Thereafter, any Underwriter may
advertise at its own expense.
4. DELAYED DELIVERY ARRANGEMENTS. We authorize you to act on
our behalf in making all arrangements for the solicitation of offers to
purchase Securities from the Issuer pursuant to Delayed Delivery Contracts,
and we agree that all such arrangements will be made only through you
(directly or through Underwriters or Selected Dealers). You may allow to
Selected Dealers in respect of such Securities a commission equal to the
concession allowed to Selected Dealers pursuant to Section 5.
The obligations of the Underwriters shall be reduced in the
aggregate by the principal amount of Securities covered by Delayed Delivery
Contracts made by the Issuer, the obligations of each Underwriter to be
reduced by the principal amount of such Securities, if any, allocated by you
to such Underwriter. Your determination of the allocation of Securities
covered by Delayed Delivery Contracts among the several Underwriters shall be
final and conclusive, and we agree to be bound by any notice delivered by you
to the Issuer setting forth the amount of the reduction in our obligation as
a result of Delayed Delivery Contracts.
Upon receiving payment from the fee for arranging Delayed
Delivery Contracts, you will credit our account with the portion of such fee
applicable to the Securities covered by Delayed Delivery Contracts allocated
to us. You will charge our account with any commission allocated to Selected
Dealers in respect of Securities covered by Delayed Delivery Contracts
allocated to us.
5. OFFERING TO SELECTED DEALERS AND OTHERS; MANAGEMENT OF
OFFERING. We authorize you, for our account, to reserve for sale and to sell
to dealers ("Selected Dealers"), among whom any of the Underwriters may be
included, such amount of our Securities as you shall determine. Reservations
for sales to Selected Dealers for our account need not be in proportion to
our under-writing obligation, but sales of Securities reserved for our
account for sale to Selected Dealers shall be made as nearly as practicable
in the ratio which the amount of Securities reserved for our account bears to
the aggregate amount of Securities reserved for the account of all
Underwriters, as calculated from day to day. The price to Selected Dealers
initially shall be the public offering price less a concession not in excess
of the Selected Dealers concession set forth in the Invitation. Selected
Dealers shall be actually engaged in the investment banking or securities
business and shall be either members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD") or dealers with their
principal place of business located outside the United States, its
territories and its possessions and not registered under the 1934 Act who
agree to make no sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein.
Each Selected Dealer shall agree to comply with the provisions of Section 24
of Article III of the Rules of Fair Practice of the NASD, and each foreign
Selected Dealer who is not a member of the NASD also shall agree to comply
with the NASD's interpretation with respect to free-riding and withholding,
to comply, as though it were a member of the NASD, with the provisions of
Section 8 and 36 of Article III of such Rules of Fair Practice, and to comply
with Section 25 of Article III thereof as that Section applies to a
non-member foreign dealer.
With your consent, the Underwriters may allow, and Selected
Dealers may reallow, a discount on sales to any dealer who meets the above
NASD requirements in an amount not in excess of the amount set forth in the
Invitation. Upon your request, we will advise you of the identity of any
dealer to whom we allow such a discount and any Underwriter or Selected
Dealer from whom we receive such a discount.
We also authorize you, for our account, to reserve for sale
and to sell our Securities at the public offering price to others, including
institutions and retail purchasers. Except for such sales which are
designated by a purchaser to be for the account of a particular Underwriter,
such reservations and sales shall be made as nearly as practicable in
proportion to our underwriting obligations, unless you agree to smaller
proportion at our request.
At or before the time the Securities are released for sale,
you shall notify us of the amount of our Securities which have not been
reserved for our account for sale to Selected Dealers and others and which is
to be retained by us for direct sale.
We will from time to time, upon your request, report to you
the amount of securities retained by us for direct sale which remains unsold
and, upon your request, deliver to you for our account, or sell to you for
the account of one or more of the Underwriters, such amount of our unsold
Securities as you may designate at the public offering price less an amount
determined by you not in excess of the concession to Selected Dealers. You
may also repurchase Securities from other Underwriters and Selected Dealers,
for the account of one or more of the Underwriters, at prices determined by
you not in excess of the public offering price less the concession to
Selected Dealers.
You may from time to time deliver to any Underwriter, for
carrying purposes or for sale by such Underwriter, any of the securities then
reserved for sale to, but not purchased and paid for by, Selected Dealers or
others as above provided, but to the extent that Securities are so delivered
for sale by such Underwriter, the amount of Securities then reserved for the
account of such Underwriter shall be correspondingly reduced. Securities
delivered for carrying purposes only shall be redelivered to you upon demand.
The Underwriters and Selected Dealers may, with your
consent, purchase Securities from and sell Securities to each other at the
public offering price less a concession not in excess of the concession to
Selected Dealers.
6. REPURCHASE OF SECURITIES NOT EFFECTIVELY PLACED. In
recognition of the importance of distributing the Securities to bona fide
investors, we agree to repurchase on demand any Securities sold by us, except
through you, which are purchased by you in the open market or otherwise
during a period terminating as provided in Section 16, at a price equal to
the cost of such purchase, including accrued interest, amortization of
original issue discount or dividends, commissions and transfer and other
taxes, if any, on redelivery. The certificates delivered to us need not be
the identical certificates delivered to you in respect of the Securities
purchased. In lieu of requiring repurchase, you may, in your discretion, sell
such Securities for our account at such prices, upon such terms and to such
persons, including any of the other Underwriters, as you may determine,
charging the amount of any loss and expense, or crediting the amount of any
net profit, resulting from such sale, to our account, or you may charge our
account with an amount determined by you not in excess of the concession to
Selected Dealers.
7. STABILIZATION AND OVER-ALLOTMENT. In order to facilitate
the distribution of the Securities, we authorize you, in your discretion, to
purchase and sell Securities, any securities into which the Securities are
convertible or for which the securities are exchangeable, and any other
securities of the Issuer or any guarantor of the Securities specified in the
Invitation, in the open market or otherwise, for long or short account, at
such prices as you may determine, and, in the arranging for sales to Selected
Dealers or others, to over-allot. You may liquidate any long position or
cover any short position incurred pursuant to this Section as such prices as
you may determine. You shall make such purchases and sales (including
over-allotments) for the accounts of the Underwriters as nearly as
practicable in proportion to their respective underwriting obligations. It is
understood that, in connection with any particular offering of Securities to
which this Agreement applies, you may have made purchases of any such
securities for stabilizing purposes prior to the time when we became one of
the Underwriters, and we agree that any such securities so purchased shall be
treated as having been purchased for the respective accounts of the
Underwriters pursuant to the foregoing authorization.
At the close of business on any day our net commitment, either for long or
short account, resulting from such purchases or sales (including
over-allotments) shall not exceed 15% (or such other amount as may be
specified in the Invitation) of our underwriting obligation, except that such
percentage may be increased with the approval of a majority in interest of
the Underwriters. We will take up at cost on demand any Securities or any
such other securities so sold or over-allotted for our account, including
accrued interest, amortization of original issue discount or dividend, and we
will pay to you on demand the amount of any losses or expenses incurred for
our account pursuant to this Section. In the event of default by any
Underwriter in respect of its obligations under this section, each
non-defaulting Underwriter shall assume its share of the obligations of such
defaulting Underwriter in the proportion that its underwriting obligation
bears to the underwriting obligations of all non-defaulting Underwriters
without relieving such defaulting Underwriter of its liability thereunder.
If you effect any stabilizing purchase pursuant to this
Section, you shall promptly notify us of the date and time of the first
stabilizing purchase and the date and time when stabilizing was terminated.
You shall prepare and maintain such records as are required to be maintained
by you as manager pursuant to Rule 17a-2 under the 1934 Act.
8. RULE 10B-6. We represent and agree that in connection
with the offering of Securities we have complied and will comply with the
provisions of Rule 10b-6 under the 1934 Act as they apply to the offering of
the Securities.
9. PAYMENT AND DELIVERY. As or before such time, on such
dates and at such places as you may specify in the Invitation, we will
deliver to you a certified or official bank check in such funds as are
specified in the Invitation, payable to the order of Smith Barney, Harris
Upham & Co. Incorporated (unless otherwise specified in the Invitation) in an
amount equal to, as you direct, either (i) the public offering price or
prices plus accrued interest, amortization of original issue discount or
dividends, if any, set forth in the Prospectus or Offering Circular less the
concession to Selected Dealers in respect of the amount of Securities to be
purchased by us in accordance with the terms of this Agreement, or (ii) the
amount set forth in the Invitation with respect to the Securities to be
purchased by us. We authorize you to make payment for our account of the
purchase price for the Securities to be purchased by us against delivery to
you of such Securities (which, in the case of Securities which are debt
obligations, may be in temporary form), and the difference between such
purchase price of the securities and the amount of our funds delivered to you
therefor shall be credited to our account.
Delivery to us of Securities retained by us for direct sale
shall be made by you as soon as practicable after your receipt of the
Securities. Upon termination of the provisions of this Agreement as provided
in Section 16, you shall deliver to us any Securities reserved for our
account for sale to Selected Dealers and others which remain unsold at that
time. If, upon termination of the provisions of this Agreement specified in
Section 16 hereof, an aggregate of not more than 10% of the Securities
remains unsold, you may, in your discretion, sell such Securities at such
prices as you may determine.
If we are a member of The Depository Trust Company or any
other depository or similar facility, you are authorized to make appropriate
arrangements for payment for and/or delivery through its facilities of the
Securities to be purchased by us, or, if we are not a member, settlement may
be made through a correspondent that is a member pursuant to our timely
instructions to you.
Upon receiving payment for Securities sold for our account
to Selected Dealers and others, you shall remit to us an amount equal to the
amount paid by us to you in respect of such Securities and credit or charge
our account with the difference, if any, between such amount and the price at
which such Securities were sold.
In the event that the Underwriting Agreement for an offering
provides for the payment of a commission or other compensation to the
Underwriters, we authorize you to receive such commission or other
compensation for our account.
10. MANAGEMENT COMPENSATION. As compensation for your services in
the management of the offering, we will pay you an amount equal to the
management fee specified in the Invitation in respect of the Securities to be
purchased by us pursuant to the Underwriting Agreement, and we authorize you
to charge our account with such amount. If there is more than one
Representative, such compensation shall be divided among the Representatives
in such proportion as they may determine.
11. AUTHORITY TO BORROW. We authorize you to advance your own funds
for our account, charging current interest rates, or to arrange loans for our
account or the account of the Underwriters, as you may deem necessary or
advisable for the purchase, carrying, sale and distribution of the
Securities. You may execute and deliver any notes or other instruments
required in connection therewith and may hold or pledge as security therefor
all or any part of the Securities which we or such Underwriters have agreed
to purchase. The obligations of the Underwriters under loans arranged on
their behalf shall be several in proportion to their respective
participations in such loans, and not joint. Any lender is authorized to
accept you instruction as to the disposition of the proceeds of any such
loans. You shall credit each Underwriter with the proceeds of any loans made
for its account.
12. BLUE SKY QUALIFICATION. You shall inform us, upon request, of
the states and other jurisdictions of the United States in which it is
believed that the Securities are qualified for sale under, or are exempt from
the requirements of, their respective securities laws, but you assume no
responsibility with respect to our right to sell Securities in any
jurisdiction. You are authorized to file with the Department of State of the
State of New York a further State Notice with respect to the Securities, if
necessary.
If we propose to offer Securities outside the United States,
its territories or its possessions, we will take, at our own expense, such
action, if any, as may be necessary to comply with the laws of each foreign
jurisdiction in which we propose to offer Securities.
13. MEMBERSHIP IN NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.:
FOREIGN UNDERWRITERS: We understand that you are a member in good standing
of the NASD. We confirm that we are actually engaged in the investment
banking or securities business and are either (i) a member in good standing
of the NASD or (ii) a dealer with its principal place of business located
outside the United States, its territories and its possessions and not
registered under the 1934 Act who hereby agrees to make no sales within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein (except that we may participate in
sales to Selected Dealers and others under Section 5 of this Agreement). We
hereby agree to comply with Section 24 of Article III of the Rules of fair
Practice of the NASD, and if we are a foreign dealer and not a member of the
NASD we also hereby agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though we were a member
of the NASD, with the provisions of Sections 5 and 36 of Article III of such
Rules of Fair Practice, and to comply with Section 25 of Article III thereof
as that Section applies to a non-member foreign dealer.
14. DISTRIBUTION OF PROSPECTUSES; OFFERING CIRCULARS. We are
familiar with Securities Act of 1933 Release No. 4968 and Rule 15c2-8 under
the 1934 Act, relating to the distribution of preliminary and final
prospectuses, and we confirm that we will comply therewith, to the extent
applicable, in connection with any sales of Securities. You shall cause to be
made available to us, to the extent made available to you by the Issuer, such
number of copies of the Prospectus as we may reasonably request for purposes
contemplated by the 1933 Act, the 1934 Act and the rules and regulations
thereunder.
If an Invitation states that the offering is subject to the
48-hour prospectus delivery requirement set forth in Rule 15c2-8(b), our
Acceptance of the Invitation shall be deemed to constitute confirmation that
we have delivered (or we will deliver) a copy of the preliminary prospectus
to all persons to whom we expect to confirm a sale of Securities and that
such delivery was affected (or will be affected) at least 48 hours prior to
the mailing of such confirmation of sale.
Our Acceptance of an Invitation relating to an offering made
pursuant to an Offering Circular shall constitute our agreement that, if
requested by you, we will furnish a copy of any amendment to a preliminary or
final Offering Circular to each person to whom we shall have furnished a
previous preliminary of final Offering Circular. Our Acceptance shall
constitute our confirmation that we have delivered and our agreement that we
will deliver all preliminary and final Offering Circulars required for
compliance with the applicable federal and state laws and the applicable
rules and regulations of any regulatory body promulgated thereunder governing
the use and distribution of offering circulars by underwriters and, to the
extent consistent with such laws, rules and regulations, our Acceptance shall
constitute our confirmation that we have delivered and our agreement that we
will deliver all preliminary and final Offering circulars which would be
required if the provisions of Rule 15c2-8 (or any successor provision) under
the 1934 Act applied to such offering.
15. NET CAPITAL. The incurrence by us of our obligations hereunder
and under the Underwriting Agreement in connection with the offering of the
Securities will not place us in violation of the capital requirements of Rule
15c3-1 under the 1934 Act.
16. TERMINATION. With respect to each offering of Securities to
which this Agreement applies, all limitations in this Agreement on the price
at which the Securities may be sold, the period of time referred to in
Section 6, the authority granted by the first sentence of Section 7, and the
restrictions contained in Section B shall terminate at the close of business
on the 45th day after the commencement of the offering of such Securities.
You may terminate any or all of such provisions at any time prior thereto by
notice to the Underwriters. All other provisions of this Agreement shall
remain operative and in full force and effect with respect to such offering.
17. EXPENSES AND SETTLEMENT. You may charge our account with any
transfer taxes on sales of Securities made for our account and with our
proportionate share (based upon our underwriting obligation) of all other
expenses incurred by you under this Agreement or otherwise in connection with
the purchase, carrying, sale or distribution of the Securities. With respect
to each offering of Securities to which this Agreement applies, the
respective accounts of the Underwriters shall be settled as promptly as
practicable after the termination of all the provisions of this Agreement as
provided in Section 16, but you may reserve such amount as you may deem
advisable for additional expenses. Your determination of the amount to be
paid to or by us shall be conclusive. You may at any time make partial
distributions of credit balances or call for payment of debit balances. Any
of our funds in your hands may beheld with your general funds without
accountability for interest. Notwithstanding any settlement, we will remain
liable for any taxes on transfers for our account and for our proportionate
share (based upon our underwriting obligation) of all expenses and
liabilities which may be incurred by or for the accounts of the Underwriters
with respect to each offering of Securities to which this Agreement applies.
18. INDEMNIFICATION. With respect to each offering of Securities
pursuant to this Agreement, we will indemnify and hold harmless each other
Underwriter and each person, if any, who controls each other Underwriter
within the meaning of Section 15 of the 1933 Act, to the extent that and on
the terms upon which we agree to indemnify and hold harmless the Issuer and
other specified persons as set forth in the Underwriting Agreement.
19. CLAIMS AGAINST UNDERWRITERS. With respect to each offering of
Securities to which this Agreement applies, if at any time any person other
than an Underwriter asserts a claim (including any commenced or threatened
investigation or proceeding by any government agency or body) against on or
more of the Underwriters or against you as Representative(s) of the
Underwriters arising out of an alleged untrue statement or omission in the
Registration Statement (or any amendment thereto) or in any preliminary
prospectus or the Prospectus or any amendment or supplement thereto, or in
any preliminary or final Offering Circular, or relating to any transaction
contemplated by this Agreement, we authorize you to make such investigation,
to retain such counsel for the Underwriters and to take such action in the
defense of such claim as you may deem necessary or advisable. You may settle
such claim with the approval of a majority in interest of the Underwriters.
We will pay our proportionate share (based upon our underwriting obligations
of all expenses incurred by you (including the fees and expenses of counsel
for the Underwriters) in investigating and defending against such claim and
our proportionate share of the aggregate liability incurred by all
Underwriters in respect of such claim (after deducting any contribution or
indemnification obtained pursuant to the Underwriting Agreement, or
otherwise, from persons other than Underwrites), whether such liability is
the result of a judgment against one or more of the Underwriters or the
result of any settlement. Any Underwriter may retain separate counsel at its
own expense. A claim against or liability incurred by a person who controls
an Underwriter shall be deemed to have been made against or incurred by such
Underwriter. In the event of default by any Underwriter in respect of its
obligations under this Section, the non-defaulting Underwriters shall be
obligated to pay the full amount thereof in the proportions that their
respective underwriting obligations bear to the underwriting obligations of
all non-defaulting Underwriters without relieving such defaulting Underwriter
of its liability hereunder.
20. DEFAULT BY UNDERWRITERS. Default by any Underwriter in respect
of its obligations hereunder or under the Underwriting Agreement shall not
release us from any of our obligations or in any way affect the liability of
such defaulting Underwriter to the other Underwriters for damages resulting
from such default. If one or more Underwriters default under the Underwriting
Agreement, if provided in the Underwriting Agreement you may (but shall not
be obligated to) arrange for the purchase by others, which may include
yourselves or other non-defaulting Underwriters, of all or a portion of the
Securities no taken up by the defaulting Underwriters.
In the event that such arrangements are made, the respective
underwriting obligations of the non-defaulting Underwriters and the amounts
of the Securities to be purchased by others, if any, shall be taken as the
basis for all rights and obligations hereunder, but this shall not in any way
affect the liability of any defaulting Underwriter to the other Underwriters
for damage resulting from its default, nor shall any such default relieve any
other Underwriter of any of its obligations hereunder or under the
Underwriting Agreement except as herein or therein provided. In addition, in
the event of default by one or more Underwriters in respect of their
obligations under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder and, to the extent that
arrangements shall not have been made by you for any person to assume the
obligations of such defaulting Underwriter or Underwriters, we agree, if
provided in the Underwriting Agreement, to assume our proportionate share,
based upon our underwriting obligation, of the obligations of each defaulting
Underwriter without relieving any such defaulting Underwriter of its
liability therefor.
21. LEGAL RESPONSIBILITY. As Representative(s) of the Underwriters,
you shall have no liability to us, except for your lack of good faith and for
obligations assumed by you in this Agreement and except that we do not waive
any rights that we may have under the 1933 or the 1934 Act or the rules and
regulations thereunder. No obligations not expressly assumed by you in this
Agreement shall be implied herefrom.
Nothing herein contained shall constitute the Underwriters
an association, or partners, with you, or with each other, or, except as
otherwise provided herein or in the Underwriting Agreement, render any
Underwriter liable for the obligations of any other Underwriter, and the
rights, obligations and liabilities of the Underwriters are several in
accordance with their respective underwriting obligations, and not joint.
If the Underwriters are deemed to constitute a partnership
for federal income tax purposes, we elect to be excluded from the application
of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1954,
as amended, and agrees not to take any position inconsistent with such
election, and you, as Representative(s), are authorized, in your discretion,
to execute on behalf of the Underwriters such evidence of such election as
may be required by the Internal Revenue Service.
Unless we have promptly notified you in writing otherwise,
our name as it should appear in the Prospectus or Offering circular and our
address are set forth below.
22. NOTICES. Any notices from you shall be deemed to have been duly
given if mailed or transmitted to us at our address appearing below.
23. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of New York applicable to agreements made and to be performed in
said State.
Please confirm this Agreement and deliver a copy to us.
Very truly yours,
Name of Firm:
By:__________________________
Authorized Officer or Partner
Address:
_____________________________
_____________________________
_____________________________
Confirmed as of the date first above written.
Smith Barney Inc.
By:___________________________
Managing Director
EXHIBIT A
MASTER UNDERWRITERS' QUESTIONNAIRE
In connection with each offering of Securities pursuant to
the Smithy Barney, Harris Upham & Co. Incorporated Master Agreement Among
Underwriters, dated July 18, 1985 (the "Agreement"), each Underwriter
confirms the following information, except as indicated in such Underwriter's
Acceptance or other written communication furnished to Smith Barney, Harris
Upham & Co. Incorporated. Defined terms used herein have the same meaning as
defined terms in the Master Agreement Among Underwriters.
(a) Neither such Underwriter nor any of its directors, officers or
partners have any material (as defined in Regulation C under the 1933 Act)
relationship with the Issuer, its parent (if any), any other seller of the
Securities or any guarantor of the Securities.
(b) Except as described or to be described in the Agreement, the
Underwriting Agreement or the Invitation, such Underwriter does not know: (i)
of any discounts or commissions to be allowed or paid to dealers, including
all cash, securities, contracts, or other consideration to be received by any
dealer in connection with the sale of the Securities, or of any other
discounts or commissions to be allowed or paid to the Underwriters or of any
other items that would be deemed by the NASD to constitute underwriting
compensation for purposes of the NASD's Rules of Fair Practice, (ii) of any
intention to over-allot, or (iii) that the price of any security may be
stabilized to facilitate the offering of the Securities.
(c) No report or memorandum has been prepared for external use
(i.e., outside such Underwriter's organization) by such Underwriter in
connection with the proposed offering of Securities and, in the case of a
Registered Offering, where the Registration Statement is on Form S-1, such
Underwriter has not prepared or had prepared for it any engineering,
management or similar report or memorandum relating to the broad aspects of
the business, operations or products of the Issuer, its parent (if any) or
any guarantor of the Securities within the past twelve months. If any such
report or memorandum has been prepared, furnish to Smith Barney, Harris Upham
& Co. Incorporated three copies thereof, together with a statement as to the
distribution of the report or memorandum, identifying each class of persons
to whom the report or memorandum was distributed, the number of copies
distributed to each class and the period of distribution.
(d) If the Securities are debt securities to be issued under an
indenture to be qualified under the Trust Indenture Act of 1939, neither such
Underwriter nor any of its directors, officers or partners is an "affiliate",
as that term is defined under the Trust Indenture Act of 1939, of the Trustee
for the Securities as specified in the Invitation, or its parent (if any);
neither the Trustee nor its parent (if any) nor any of their directors or
executive officers is a director, officer, partner, employee, appointee or
representative of such Underwriter as those terms are defined in the Trust
Indenture Act of 1939 or in the relevant instruction to Form T-1; neither
such Underwriter nor any of its directors, partners or executive officers,
separate or as a group, owns beneficially 1% or more of the shares of any
class of voting securities of the Trustee or of its parent (if any); and if
such Underwriter is a corporation, it does not have outstanding nor has it
assumed or guaranteed any securities issued otherwise than in its present
corporate name, and neither the Trustee nor its parent (if any) is a holder
of any such securities.
(e) If the Issuer is a public utility, such Underwriter is not a
"holding company" or a "subsidiary company" or an "affiliate" of a "holding
company" or of a "public utility company", each as defined in the Public
Utility Holding Company Act of 1935.
(f) Neither such Underwriter nor any "group" (as that term is
defined in Section 13(d)(3) of the 1934 Act) of which it is a member is the
beneficial owner (determined in accordance with Rule 13d-3 under the 1934
Act) of more than 5% of any class of voting securities of the Issuer, its
parent (if any), any other seller of the Securities or any guarantor of the
Securities nor does it have any knowledge that more than 5% of any class of
voting securities of the Issuer is held or to be held subject to any voting
trust or other similar agreement.
EXHIBIT 2(k)(3)
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made as of the 14th day of December, 1993,
amended March 1, 1996, between Royce Micro-Cap Trust, Inc. (formerly Royce
OTC Micro-Cap Fund, Inc.) a Maryland corporation (the "Fund"), and Mitchell
Hutchins Asset Management Inc., a Delaware corporation (the "Administrator").
W I T N E S S E T H :
-------------------
WHEREAS, the Fund is a diversified, closed-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, the Fund has retained Quest Advisory Corp. to serve as
investment adviser for the purpose of investing its assets in securities and
desires to retain the Administrator for certain administrative services, and
the Administrator is willing to furnish such services on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Fund hereby appoints the Administrator to provide the services
set forth below, subject to the overall supervision of the Board of Directors
of the Fund, for the period and on the terms set forth in this Agreement.
The Administrator hereby accepts such appointment and agrees during such
period to render the services herein described and to assume the obligations
herein set forth, for the compensation herein provided.
2. Subject to the supervision of the Board of Directors and officers
of the Fund, the Administrator shall provide the following services to the
Fund:
(a) Prepare all reports required to be filed by the Fund with the
S.E.C. on Form N-SAR, or such other form as the S.E.C. may substitute for
Form N-SAR;
(b) Provide to the Fund's independent accountants such information
as is necessary for such accountants to prepare and file the Fund's Federal,
state, and local tax returns, and review such returns after they are
prepared;
(c) Assist in preparing financial information relating to the Fund
for the Fund's periodic reports to stockholders.
(d) Assist in monitoring compliance of the Fund's operations in
accordance with its investment policies and limitations as stated in the
Fund's prospectus, as amended from time to time.
(e) Review the calculation of the Fund's net asset value in
accordance with the Fund's registration statement under the 1940 Act and the
1933 Act, by the Fund's accounting agent (which may or may not be the same
party as the Fund's custodian or on affiliate of the Fund's custodian), and
in monitoring the performance or such agent in making the Fund's net asset
value available for public dissemination;
(f) Assist in establishing the accounting policies of the Fund;
(g) Assist the Fund in determining the amount of dividends or other
distributions available to be paid by the Fund to its stockholders;
All services are to be furnished through the medium of any directors,
officers or employees of the Administrator as the Administrator deems
appropriate in order to fulfill its obligations hereunder.
Each party shall bear all its own expenses incurred in connection with
this Agreement.
3. The Fund will pay the Administrator an annual fee, payable monthly,
of $50,000 plus 0.05% on the first $125 million of the Fund's average daily
net assets and 0.03% of the Fund's average daily net assets exceeding $125
million based on the net asset value of the Fund's shares on the last day of
each week and on which the New York Stock Exchange is open for business.
Average net assets shall be calculated for this purpose without regard to the
liquidation value of any outstanding shares of preferred stock of the Fund.
4. The Administrator assumes no responsibility under this Agreement
other than to render the services called for hereunder, and specifically
assumes no responsibilities for investment advice or the investment or
reinvestment of the Fund's assets.
5. The Administrator shall not be liable to the Fund for any action
taken or omitted to be taken by the Administrator in connection with the
performance of any of its duties or obligations under this Agreement, and the
Fund shall indemnify the Administrator and hold it harmless from and against
all damages, liabilities, cost and expenses (including reasonable attorneys'
fees and amounts reasonably paid in settlement) incurred by the Administrator
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
Administrator in connection with the performance of any of its duties or
obligations under this Agreement; provided, however, that nothing contained
herein shall protect or be deemed to protect the Administrator against or
entitle or be deemed to entitle the Administrator to indemnification in
respect to any liability to the Fund or its security holders to which the
Administrator would otherwise be subject by reason of the Administrator's
willful misfeasance, bad faith or gross negligence in the performance of its
duties under this Agreement, or by reason of its reckless disregard of its
duties and obligations under this Agreement.
6. This Agreement shall become effective as of the date on which the
Fund's Registration Statement on Form N-2 shall be declared effective by the
SEC and shall thereafter continue in effect unless terminated as herein
provided. This Agreement may be terminated by either party hereto (without
penalty) at any time upon not less than 60 days' prior written notice to the
other party hereto.
7. The services of the Administrator to the Fund hereunder are not
exclusive and nothing in this Agreement shall limit or restrict the right of
the Administrator to engage in any other business or to render services of
any kind to any other corporation, firm, individual or association. The
Administrator shall be deemed to be an independent contractor, unless
otherwise expressly provided or authorized by this Agreement.
8. During the term of this Agreement, the Fund agrees to furnish the
Administrator at the principal office of the Administrator prior to use
thereof all prospectuses, proxy statements, reports to stockholders, sales
literature, or other material prepared for distribution to stockholders of
the Fund or the public that refer in any way to the Administrator. If the
Administrator reasonably objects in writing to such references within two
business days (or such other time as may be mutually agreed upon) after
receipt thereof, the Fund will modify such references in a manner reasonably
satisfactory to the Administrator. In the event of termination of this
Agreement, the Fund will continue to furnish to the Administrator copies of
any of the above-mentioned materials that refer in any way to the
Administrator. The Fund shall furnish or otherwise make available to the
Administrator such other information relating to the business affairs of the
Fund as the Administrator at any time, or from time to time, reasonably
requests in order to discharge its obligations hereunder.
9. This Agreement may be amended by mutual written consent.
10. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Administrator at 1285 Avenue of
the Americas, New York, New York, 10019, Attention: Director of Mutual
Funds, or (2) to the Fund at 1414 Avenue of the Americas, New York, New York,
10019, Attention: Charles M. Royce, President.
11. This Agreement sets forth the entire agreement and understanding of
the parties hereto solely with respect to the matters covered hereby and the
relationship between the Fund and Mitchell Hutchins Asset Management Inc. as
Administrator. Nothing in this Agreement shall govern, restrict or limit in
any respect any other business dealings between the parties hereto unless
otherwise expressly provided herein.
12. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without reference to choice of law
principles thereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
above written.
Royce Micro-Cap Trust, Inc.
ATTEST:
BY:
- ------------------------------ -----------------------------
Name:
Title:
ATTEST: MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
BY:
- ------------------------------ -----------------------------
Name:
Title:
EXHIBIT 2(k)(4)
=============================================================================
REGISTRAR,
TRANSFER AGENCY AND PAYING AGENCY AGREEMENT
between
Royce Micro-Cap Trust, Inc.
and
State Street Bank and Trust Company
=============================================================================
TABLE OF CONTENTS
-----------------
ARTICLE 1 TERMS OF APPOINTMENT; DUTIES OF THE BANK 2
ARTICLE 2 FEES AND EXPENSE 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE BANK 4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE FUND 5
ARTICLE 5 CONFIDENTIALITY, DATA ACCESS AND PROPRIETARY INFORMATION 5
ARTICLE 6 LIABILITIES/INDEMNIFICATION 7
ARTICLE 7 STANDARD OF CARE 9
ARTICLE 8 COVENANTS OF THE FUND AND THE BANK 9
ARTICLE 9 TERMINATION OF AGREEMENT 10
ARTICLE 10 ASSIGNMENT 10
ARTICLE 11 AMENDMENT 11
ARTICLE 12 MASSACHUSETTS LAW TO APPLY 11
ARTICLE 13 FORCE MAJEURE 11
ARTICLE 14 CONSEQUENTIAL DAMAGES 11
ARTICLE 15 MERGER OF AGREEMENT 11
ARTICLE 16 SURVIVAL 11
ARTICLE 17 SEVERABILITY 12
ARTICLE 18 COUNTERPARTS 12
REGISTRAR, TRANSFER AGENCY AND PAYING AGENCY AGREEMENT
------------------------------------------------------
AGREEMENT made as of , by and between Royce Micro-Cap
---------------
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 the payment of any
redemption or liquidation proceeds related to the Cumulative Preferred Stock
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 Cumulative Preferred Stock ("Shares"), dividend paying
agent and agent in connection with the payment of any redemption or
liquidation proceeds as set out in the 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.
(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 as described in Article 1 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 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, diversified investment company registered
under the Investment Company Act of 1940, as amended.
4.05 To the extent required by federal securities laws a
registration statement under the Securities Act of 1933, as amended is
currently effective and appropriate state securities law filings have been
made with respect to all Shares of the Fund being offered for sale;
information to the contrary will result in immediate notification to the
Bank.
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 is 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 statues.
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 indentities 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
indentities 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
indemnify 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 not limited 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 indemnifty 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 on 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 MASSACHUSETTS 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 MICRO-CAP TRUST, INC.
BY:__________________________________________
ATTEST:
________________________________________
STATE STREET BANK AND TRUST COMPANY
BY:___________________________________________
EXECUTIVE VICE PRESIDENT
ATTEST:
______________________________________
Exhibit 2(n)(1)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Experts" and "Financial Statements" and to the incorporation by
reference of our report dated December 31, 1996, in this Registration
Statement (Form N-2 No. 811-8030) of Royce Micro-Cap Trust, Inc.
ERNST & YOUNG LLP
New York, New York
June 4, 1997
Exhibit 2(n)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of Royce Micro-Cap Trust, Inc.:
We consent to the reference to our Firm in the initial Registration
Statement of Royce Micro-Cap Trust, Inc. on Form N-2 (File No. 333-XXXX)
under the Securities Act of 1933 and Amendment No. 4 under the Investment
Company Act of 1940 (File No. 811-8030). We further consent to the reference
to our Firm under the heading "Experts" in the Prospectus.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 5, 1997
