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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000949377-03-000062.txt : 20030207
<SEC-HEADER>0000949377-03-000062.hdr.sgml : 20030207
<ACCEPTANCE-DATETIME>20030207150316
ACCESSION NUMBER:		0000949377-03-000062
CONFORMED SUBMISSION TYPE:	497
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20030207
EFFECTIVENESS DATE:		20030207

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ROYCE VALUE TRUST INC
		CENTRAL INDEX KEY:			0000804116
		IRS NUMBER:				133356097
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		497
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	033-09514
		FILM NUMBER:		03544541

	BUSINESS ADDRESS:	
		STREET 1:		1414 AVE OF THE AMERICAS 9TH FL
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10019
		BUSINESS PHONE:		2123557311

	MAIL ADDRESS:	
		STREET 1:		1414 AVENUE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10019
</SEC-HEADER>
<DOCUMENT>
<TYPE>497
<SEQUENCE>1
<FILENAME>royce59678-497.txt
<DESCRIPTION>REGISTRATION STATEMENT
<TEXT>

                             ROYCE VALUE TRUST, INC.
                        4,301,737 SHARES OF COMMON STOCK
                   ISSUABLE UPON EXERCISE OF NON-TRANSFERABLE
               RIGHTS TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK

      Royce Value Trust, Inc. is offering to its Common Stockholders of record
as of January 28, 2003 non-transferable Rights. These Rights will allow you to
subscribe for one (1) share of Common Stock for each ten (10) Rights held. You
will receive one Right for each whole share of Common Stock that you hold of
record as of January 28, 2003, rounded up to the nearest number of Rights evenly
divisible by ten. The Rights will not be listed for trading on the New York
Stock Exchange ("NYSE") or any other exchange. THE SUBSCRIPTION PRICE WILL BE
THE LOWER OF (I) $0.50 BELOW THE LAST REPORTED SALE PRICE OF A SHARE OF THE
FUND'S COMMON STOCK ON THE NYSE ON THE PRICING DATE, WHICH IS MARCH 11, 2003 OR
(II) THE NET ASSET VALUE OF A SHARE OF THE FUND'S COMMON STOCK ON THAT DATE.

      RIGHTS MAY BE EXERCISED AT ANY TIME UNTIL 5:00 P.M., EASTERN TIME, ON
MARCH 10, 2003, UNLESS EXTENDED. SINCE THE OFFER CLOSES PRIOR TO THE PRICING
DATE, STOCKHOLDERS WHO EXERCISE THEIR RIGHTS WILL NOT KNOW THE SUBSCRIPTION
PRICE AT THE TIME THEY EXERCISE THEIR RIGHTS.

      The Fund is a closed-end investment company, whose shares of Common Stock
are listed and traded on the NYSE under the symbol "RVT." The Fund's primary
investment goal is long-term capital growth. The Fund normally invests at least
75% of its assets in the equity securities of small- and micro-cap companies.
The net asset value per share of the Fund's Common Stock at the close of
business on January 22, 2003 was $13.07, and the last reported sales price of a
share of the Fund's Common Stock on the NYSE on that date was $14.30.

      This Prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference.

      Stockholders who do not fully exercise their Rights will own a smaller
proportional interest in the Fund. In addition, because the Subscription Price
may be less than the net asset value per share as of the Pricing Date, the Offer
may result in an immediate dilution of the net asset value per share for all
stockholders. See "Risk Factors and Special Considerations at a Glance" on page
5 of this Prospectus.


                                                               Proceeds, before
                         Estimated                             expenses, to the
                     Subscription Price      Sales Load           Fund(1)(2)
                     ------------------      ----------           ----------
      Per Share          $13.00                 None              $13.00
      Total              $55,922,581            None              $55,922,581
- --------------------
(1)   Before deduction of expenses payable by the Fund, estimated at $225,000,
      which will be charged against paid-in capital of the Fund.

(2)   If the Fund increases the number of shares subject to subscription by 20%,
      the Proceeds, before expenses, to the Fund will be $67,107,092.

      The Fund may increase the number of shares of Common Stock subject to
subscription by up to 20%, or up to an additional 860,347 Shares, for an
aggregate total of 5,162,084 Shares.

      Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has approved or disapproved of these securities or
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.

      The Shares will be ready for delivery on or about March 31, 2003.

                              --------------------

                The date of this Prospectus is January 28, 2003.

<PAGE>




      Information about the Fund can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Call 1-202-942-8090 for information on the
operation of the Public Reference Room. This information is also available on
the SEC's Internet site at http://www.sec.gov, and copies may be obtained upon
payment of a duplicating fee by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-0102.



                                       2
<PAGE>


- --------------------------------------------------------------------------------


                               PROSPECTUS SUMMARY

      You should consider the matters discussed in this summary before investing
in the Fund through the Offer. This summary is qualified in its entirety by
reference to the detailed information included in this Prospectus and the
related Statement of Additional Information.

                              THE OFFER AT A GLANCE

THE OFFER

      The Fund is offering to its Common Stockholders of record as of January
28, 2003 non-transferable Rights. These Rights will allow you to subscribe for
one (1) share of Common Stock for each ten (10) Rights held. You will receive
one Right for each whole share of Common Stock that you hold of record as of
January 28, 2003, rounded up to the nearest number of Rights evenly divisible by
ten. The Rights will not be listed for trading on the NYSE or any other
exchange. Rights may be exercised at any time from February 10, 2003 through
5:00 p.m., Eastern time, on March 10, 2003, unless extended. Since the
Expiration Date is prior to the Pricing Date, stockholders who exercise their
Rights will not know the Subscription Price at the time they exercise their
Rights. The Fund may increase the number of shares of Common Stock subject to
subscription by up to 20% of the Shares (any such additional Shares are referred
to as "Additional Shares"). See "The Offer."

SUBSCRIPTION PRICE

      The Subscription Price will be the lower of (i) $0.50 below the last
reported sale price of a share of the Fund's Common Stock on the NYSE on the
Pricing Date or (ii) the net asset value of a share of the Fund's Common Stock
on that date. See "The Offer -- Subscription Price."

OVER-SUBSCRIPTION PRIVILEGE

      If you fully exercise all Rights issued to you, you will be entitled to
subscribe for additional Shares that were not subscribed for by other
stockholders. If sufficient Shares are available, all stockholders'
over-subscription requests will be honored in full. If these requests for
additional Shares exceed the Shares available, the available Shares, including
any Additional Shares, will be allocated pro rata among stockholders who
over-subscribe based on the number of Rights originally issued to them by the
Fund. See "The Offer -- Over-Subscription Privilege."

USE OF PROCEEDS

      We estimate the net proceeds of the Offer to be approximately $55,697,581
($66,882,092 if all of the Additional Shares are available for subscription).
These figures assume (i) all Rights are exercised in full, (ii) a Subscription
Price of $13.00 and (iii) payment of offering expenses of approximately
$225,000.

      Royce & Associates, LLC ("Royce"), the Fund's investment adviser,
anticipates that investment of the net proceeds of the Offer in accordance with
the Fund's investment goal and policies will take up to six months from their
receipt by the Fund, depending on market conditions and the availability of
appropriate securities. See "Use of Proceeds."

OBTAINING SUBSCRIPTION INFORMATION

      If you have any questions or requests for assistance, please contact
Georgeson Shareholder Communications, Inc., the Information Agent, (toll free)
at (866) 328-5443. You may also call the Fund (toll free) at (800) 221-4268, or
contact your broker or Nominee for information with respect to the Offer. See
"The Offer -- Information Agent."


                                       3

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------


                           IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>

                            Event                                           Date
                            -----                                           ----
<S>                                                                   <C>

Record Date.......................................................    January 28, 2003
Subscription Period...............................................    February 10, 2003 through March 10, 2003*
Expiration Date...................................................    March 10, 2003*
Pricing Date......................................................    March 11, 2003*
Nominee Subscription Certificate and Payment for Shares Due
   Pursuant to Notice of Guaranteed Delivery......................    March 13, 2003*
Confirmation to Participants......................................    March 18, 2003*
Final Payment for Shares..........................................    March 28, 2003*
</TABLE>

*Unless the Offer is extended.

TAX CONSEQUENCES

      For Federal income tax purposes, neither the receipt nor the exercise of
the Rights will result in taxable income to you. You will not realize a taxable
loss if your Rights expire without being exercised. See "The Offer -- Federal
Income Tax Consequences of the Offer."

                              THE FUND AT A GLANCE

THE FUND

      The Fund is a closed-end investment company.

INVESTMENT GOAL AND POLICIES

      The Fund's primary investment goal is long-term capital growth. Royce
normally invests more than 75% of the Fund's assets in the equity securities of
small- and micro-cap companies, generally with stock market capitalizations
ranging from $100 million to $2 billion, that Royce believes are trading
significantly below its estimate of their current worth. The Fund may also
invest up to 25% of its assets in non-convertible fixed income securities. An
investment in the Fund is not appropriate for all investors. There can be no
assurance that the Fund's investment goal will be realized. See "Investment Goal
and Policies."

CAPITAL STOCK

      The Fund's Common Stock is listed and traded on the NYSE. As of January
22, 2003, the Fund had 42,417,362 shares of Common Stock, 2,400,000 shares of
7.80% Cumulative Preferred Stock and 4,000,000 shares of 7.30% Tax-Advantaged
Cumulative Preferred Stock issued and outstanding. The Fund's Preferred Stock
has an aggregate liquidation preference of $160 million. See "Description of
Capital Stock."

DISTRIBUTIONS

      The Fund's policy is to make quarterly distributions to its Common
Stockholders at the annual rate of 9% of the rolling average of the prior four
calendar quarter-end net asset values of the Fund's Common Stock, with the
fourth quarter distribution being the greater of 2.25% of the rolling average or
the distribution required by Internal Revenue Service regulations. These
quarterly distributions are generally reinvested in additional full and
fractional shares of Common Stock through the Fund's Dividend Reinvestment and
Cash Purchase Plan. The Fund's quarterly distribution policy may be changed by
the Board of Directors without stockholder approval. See "Dividends,
Distributions and Reinvestment Plan."



                                       4

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------


INVESTMENT ADVISER

      Royce provides investment advisory services to the Fund. For its services,
the Fund pays Royce a monthly fee at a rate ranging from 0.5% to 1.5% per annum
of the Fund's average net assets (including assets obtained from the sale of
Preferred Stock) for rolling 60 month periods based on the investment
performance of the Fund relative to the investment record of the Standard &
Poor's 600 SmallCap Stock Price Index over such periods. See "Investment
Advisory and Other Services."

               RISK FACTORS AND SPECIAL CONSIDERATIONS AT A GLANCE

DILUTION - NET ASSET VALUE AND NON-PARTICIPATION IN THE OFFER

      If you do not fully exercise your Rights, you should expect that you will,
at the completion of the Offer, own a smaller proportional interest in the Fund
than would otherwise be the case had you exercised your Rights. Further, if you
do not submit a subscription request pursuant to the Over-Subscription
Privilege, you may also experience dilution in your Fund ownership if the Fund
offers Additional Shares for subscription. The Fund may sell Additional Shares
to stockholders if and to the extent that shares issued through the Offer would
dilute (reduce) the net asset value of its Common Stock by less than 1.0%. We
cannot state precisely the amount of any decrease because we do not know at this
time how many Shares will be subscribed for or what the net asset value or
market price per Share will be at the Pricing Date. As of January 22, 2003, the
Fund's shares traded at a 9.4% premium above net asset value. If the Fund's
shares trade at a premium above net asset value as of the Pricing Date, the Fund
estimates that such dilution would be minimal. See "The Offer."

MARKET RISK

      As with any investment company that invests in common stocks, the Fund is
subject to market risk -- the possibility that common stock prices will decline
over short or extended periods of time. As a result, the value of an investment
in the Fund's Common Stock will fluctuate with the market, and you could lose
money over short or long periods of time.

SMALL- AND MICRO-CAP RISK

      The prices of small- and micro-cap companies are generally more volatile
and their markets are generally less liquid relative to larger-cap companies.
Therefore, the Fund may involve more risk of loss and its returns may differ
significantly from funds investing in larger-cap companies or other asset
classes. See "Investment Goal and Policies -- Risk Factors - Investing in Small-
and Micro-Cap companies."

SELECTION RISK

      Different types of stocks tend to shift into and out of favor with stock
market investors, depending on market and economic conditions. The performance
of funds that invest in value-style stocks may at times be better or worse than
the performance of stock funds that focus on other types of stocks or that have
a broader investment style.

MARKET PRICE OF SHARES

      Although the Fund's shares of Common Stock have recently traded on the
NYSE at a market price above their net asset value (a premium), the Fund's
shares have traded in the market below (a discount), at and above net asset
value since the commencement of the Fund's operations. There can be no assurance
that the Fund's shares will trade at a premium in the future, or that any such
premium is sustainable. The Fund's shares have traded at discounts of as much as
18.1% in the past five years. Market price risk is a risk separate and distinct
from the risk that the Fund's net asset value will decrease. In the year ended
December 31, 2002, the Fund's shares traded in the market at an average discount
to net asset value of 0.6%. As of December 31, 2002, the premium above net asset
value was 0.2%.


                                       5

- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------


LEVERAGE AND BORROWING

      The Fund is authorized to borrow money. So long as the Issued Preferred is
rated by Moody's, the Fund cannot borrow for investment leverage purposes.
Borrowings create an opportunity for greater capital appreciation with respect
to the Fund's investment portfolio, but at the same time such borrowing is
speculative in that it will increase the Fund's exposure to capital risk. In
addition, borrowed funds are subject to interest costs that may offset or exceed
the return earned on the borrowed funds. See "Investment Goal and Policies --
Risks to Common Stockholders of Borrowing Money and Issuing Senior Securities."

PREFERRED STOCK - LEVERAGE RISK

      The leverage resulting from the issuance of Preferred Stock creates risks
for holders of Common Stock, including higher volatility of both the net asset
values and market prices of the Common Stock. If the Fund is able to realize a
net return on its investment portfolio in excess of the then current dividend
rate of the Preferred Stock, the effect of leverage permits holders of Common
Stock to realize a higher current rate of return than if the Fund were not
leveraged. On the other hand, if the current dividend rate on the Preferred
Stock exceeds the net return on the Fund's investment portfolio, the Fund's
leveraged capital structure will result in a lower rate of return to holders of
Common Stock than if the Fund were not leveraged. Similarly, because any decline
in the value of the Fund's investments will be borne entirely by holders of
Common Stock, the effect of leverage in a declining market results in a greater
decrease in net asset value to holders of Common Stock than if the Fund were not
leveraged, which would likely be reflected in a greater decline in the market
price for shares of Common Stock. See "Investment Goal and Policies -- Risks to
Common Stockholders of Borrowing Money and Issuing Senior Securities."
Leveraging through the issuance of Preferred Stock requires that the holders of
the Preferred Stock have class voting rights on various matters that could make
it more difficult for the holders of the Common Stock to change the investment
goal or other fundamental policies of the Fund, to convert the Fund to an
open-end fund or make certain other changes. See "Investment Goal and Policies
- -- Changes in Investment Goal and Methods/Policies" and "Description of Capital
Stock -- Certain Corporate Governance Provisions."

      Because Royce's fee is partially based on the average net assets of the
Fund (including assets obtained from the sale of Preferred Stock), Royce has
generally benefited from the Fund's issuance of the Issued Preferred. See
"Investment Advisory and Other Services -- Advisory Fee."

CERTAIN CORPORATE GOVERNANCE PROVISIONS

      The six Fund Directors who are elected by the holders of Common Stock and
Preferred Stock voting together are divided into three classes, each having a
staggered term of three years. The two Directors elected only by the holders of
Preferred Stock stand for election at each annual meeting of stockholders.
Accordingly, it likely would take three years to change a majority of the Board
of Directors. Vacancies on the Board of Directors for one or more of the six
classified positions may be filled by the remaining Directors for the balance of
the term of the class. In addition, the Fund's By-laws permit stockholders to
call a special meeting of stockholders only if certain procedural requirements
are met and the request is made by stockholders entitled to cast at least a
majority of the votes entitled to be cast at such a meeting. These provisions
may have the effect of maintaining the continuity of management and thus may
make it more difficult for the Fund's stockholders to change the majority of
Directors. See "Description of Capital Stock -- Certain Corporate Governance
Provisions."


                                       6

- --------------------------------------------------------------------------------

<PAGE>


                                  FUND EXPENSES

      The following tables are intended to assist investors in understanding the
various costs and expenses that a stockholder of the Fund will bear, directly or
indirectly.

Stockholder Transaction Expenses
<TABLE>
<CAPTION>
<S>                                                                                         <C>
    Sales Load..................................................................            None
    Distribution Reinvestment and Cash Purchase Plan Fees ......................            None

Annual Expenses (as a percentage of average net assets attributable
  to the Fund's Common Stock, and estimated for the year ending
  December 31, 2003)
    Investment Advisory Fees(1)(2)..............................................            1.22%
    Other Expenses(1)...........................................................            0.15%
                                                                                     --------------------
      Total Annual Expenses(1)(3)...............................................            1.37%
                                                                                     ====================
</TABLE>

- --------------------
(1)   Assumes the Issued Preferred remains outstanding for the year ending
      December 31, 2003. See "Risk Factors and Special Considerations at a
      Glance -- Preferred Stock - Leverage Risk." If the Fund redeems the Issued
      Preferred, it is estimated that, as a percentage of net assets
      attributable to Common Stock, the Investment Advisory Fees would be 1.0%,
      Other Expenses would be 0.13% and Total Annual Expenses would be 1.13%.
(2)   The Investment Advisory Fees as a percentage of average net assets may be
      as low as 0.5% or as high as 1.5% (0.61% and 1.82%, respectively, as a
      percentage of average net assets attributable to the Fund's Common Stock),
      based on the Fund's relative investment performance. See "Investment
      Advisory and Other Services -- Advisory Fee."
(3)   The indicated 1.37% expense ratio assumes that the Offer (including the
      Over-Subscription Privilege) is fully subscribed and assumes estimated net
      proceeds from the Offer of approximately $66.9 million (assuming an
      estimated Subscription Price of $13.00).

EXAMPLE

      The following Example demonstrates the projected dollar amount of total
cumulative expense that would be incurred over various periods with respect to a
hypothetical investment in the Fund's Common Stock. These amounts are based upon
payment by the Fund of investment advisory fees and other expenses at the levels
set forth in the above table.

      An investor would directly or indirectly pay the following expenses on a
$1,000 investment in shares of the Fund's Common Stock, assuming (i) the market
price at the time of investment was equal to the net asset value ("NAV") per
share, (ii) a 5% annual return and (iii) reinvestment of all distributions at
NAV:

      ONE YEAR           THREE YEARS        FIVE YEARS          TEN YEARS
        $14                  $43                $75                $165

      This Example assumes that the percentage amounts listed under Annual
Expenses remain the same in the years shown. The above tables and the assumption
in the Example of a 5% annual return and reinvestment at NAV are required by
regulation of the SEC and are applicable to all investment companies, and the
assumed 5% annual return is not a prediction of, and does not represent, the
projected performance of the Fund's Common Stock. Actual expenses and annual
rates of return may be more or less than those allowed for purposes of this
Example. In addition, while the Example assumes reinvestment of all
distributions at NAV, the Fund's Distribution Reinvestment and Cash Purchase
Plan contemplates payment of net investment income dividends and capital gain
distributions in shares of the Fund's Common Stock (unless a stockholder elects
to receive payments in cash), based on the lower of the market price or NAV on
the valuation date, except that distributions may not be reinvested for less
than 95% of the market price.

      THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.


                                       7

<PAGE>


                              FINANCIAL HIGHLIGHTS

      The financial highlights table is intended to help you understand the
Fund's financial performance for the periods presented and reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The information for the six
months ended June 30, 2002 has not been audited. The information for each of the
four years in the period ended December 31, 2001 has been audited by Tait,
Weller & Baker, whose report, along with the Fund's financial statements, is
included in the Fund's 2001 Annual Report to Stockholders, which is available
upon request. The information for the year ended December 31, 1997 has been
audited by Ernst & Young LLP, independent accountants, as stated in their
unqualified report accompanying such financial statements.
<TABLE>
<CAPTION>

                       Six months
                          ended                                Years ended December 31
                      June 30, 2002 ------------------------------------------------------------------------------------------------
                       (unaudited)    2001     2000      1999      1998      1997      1996      1995      1994     1993      1992
                      ------------- -------  --------  --------  --------  --------  --------  --------  -------- --------  --------
<S>                       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>      <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ..    $17.31    $16.56    $15.77    $15.72    $16.91    $14.32    $13.56    $12.34    $13.47   $12.50   $11.23
INVESTMENT
OPERATIONS(a):
  Net investment
  income (loss).......     (0.01)     0.05      0.18      0.26      0.17      0.21      0.26      0.04      0.04     0.09     0.15
  Net realized and
  unrealized gain on
  investments.........      0.18      2.58      2.58      1.65      0.67      3.85      1.92      2.70      0.09     2.12     2.12
                      --------------------------------------------------------------------------------------------------------------
    Total investment
    operations........      0.17      2.63      2.76      1.91      0.84      4.06      2.18      2.74      0.13     2.21     2.27
                      --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
PREFERRED
STOCKHOLDERS:
  Net investment
  income .............      -        (0.01)    (0.03)    (0.04)    (0.03)    (0.03)    (0.01)     -         -        -        -
  Net realized gain on
  investments.........      -        (0.30)    (0.30)    (0.32)    (0.26)    (0.15)    (0.06)     -         -        -        -
  Quarterly
  distributions* .....     (0.15)     -         -         -         -         -         -         -         -        -        -
                      --------------------------------------------------------------------------------------------------------------
    Total distributions
    to Preferred
    Stockholders .....     (0.15)    (0.31)    (0.33)    (0.36)    (0.29)    (0.18)    (0.07)     -         -        -        -
                      --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
COMMON
STOCKHOLDERS:
  Net investment
  income .............      -        (0.05)    (0.13)    (0.15)    (0.16)    (0.19)    (0.15)    (0.03)    (0.01)   (0.09)   (0.15)
  Net realized gain on
  investments ........      -        (1.44)    (1.35)    (1.22)    (1.38)    (1.02)    (1.00)    (1.26)    (1.04)   (1.06)   (0.75)
  Quarterly
  distributions* .....     (0.76)     -         -         -         -         -         -         -         -        -        -
                      --------------------------------------------------------------------------------------------------------------
    Total distributions
    to Common
    Stockholders .....     (0.76)    (1.49)    (1.48)    (1.37)    (1.54)    (1.21)    (1.15)    (1.29)    (1.05)   (1.15)   (0.90)
                      --------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
  Effect of reinvestment
  of distributions by
  Common Stockholders.     (0.02)    (0.08)    (0.16)    (0.13)    (0.09)    (0.08)    (0.11)    (0.11)    (0.07)+  (0.01)   (0.04)
  Effect of Rights
  offering ...........      -          -        -          -        -         -         -        (0.12)    (0.14)   (0.08)   (0.06)
  Effect of Preferred
  Stock offering .....      -          -        -          -       (0.11)     -        (0.09)     -         -        -        -
                      --------------------------------------------------------------------------------------------------------------
    Total capital
    stock
    transactions .....     (0.02)    (0.08)    (0.16)    (0.13)    (0.20)    (0.08)    (0.20)    (0.23)    (0.21)   (0.09)   (0.10)
                      ==============================================================================================================
NET ASSET VALUE, END
OF PERIOD(a)              $16.55    $17.31    $16.56    $15.77    $15.72    $16.91    $14.32    $13.56    $12.34   $13.47   $12.50
                      ==============================================================================================================
MARKET VALUE, END
OF PERIOD                 $16.55    $15.72   $14.438   $13.063    $13.75   $15.063   $12.625   $11.875    $11.00  $12.875   $12.25
                      ==============================================================================================================
TOTAL RETURN(a):
Market Value .........      10.1%***  20.0%     22.7%      5.7%      1.5%     28.8%     16.3%    19.45%    -6.68%   14.91%   26.55%
Net Asset Value (b) ..       0.0%***  15.2%     16.6%     11.7%      3.3%     27.5%     15.5%    21.08%     0.06%   17.27%   19.30%
RATIOS BASED ON
AVERAGE NET ASSETS
APPLICABLE TO
COMMON STOCKHOLDERS:
Total expenses (c, d).      1.61%**   1.61%     1.43%     1.39%     1.31%     1.12%     1.28%     2.01%     2.01%    1.33%    0.81%
  Management fee
  expense ............      1.48%**   1.45%     1.25%     1.18%     1.10%     0.39%     0.39%     0.97%     1.21%    1.09%    0.53%
  Interest expense ...      -         -         -         -         -         0.45%     0.64%     0.75%     0.46%    -        -
  Other operating
  expenses ...........      0.13%**   0.16%     0.18%     0.21%     0.21%     0.28%     0.25%     0.29%     0.34%    0.24%    0.28%
Net investment
income (loss) ........     (0.14)%**  0.35%     1.18%     1.47%     1.11%     1.53%     1.27%     0.34%     0.31%    0.74%    1.31%
SUPPLEMENTAL DATA:
Net Assets; End of
Period (in
thousands) ...........  $838,661  $849,141  $783,262  $712,928  $676,963  $554,231  $441,837  $338,970  $269,032 $246,558 $202,483
Portfolio Turnover
Rate .................        15%       30%       36%       41%       43%       29%       34%       32%       35%      33%      40%
PREFERRED STOCK:
Total shares
outstanding .......... 6,400,000 6,400,000 6,400,000 6,400,000 6,400,000 2,400,000 2,400,000      -         -        -        -
Asset coverage
per share ............   $131.04   $132.68   $122.38   $111.40   $105.78   $165.51   $120.15      -         -        -        -

Liquidation preference
per share ............    $25.00    $25.00    $25.00    $25.00    $25.00    $25.00    $25.00      -         -        -        -
Average market value
per share:
  7.80% Cumulative (e)    $26.36    $25.70    $23.44    $24.98    $25.91    $25.70    $25.20      -         -        -        -
  7.30% Tax-Advantaged    $25.83    $25.37    $22.35    $24.24    $25.43     -         -          -         -        -        -
  Cumulative (e) .....
NOTES:
Total amount outstanding
(in thousands) .......     -         -         -         -         -       $27,801   $40,000   $40,000   $40,000     -        -
Asset coverage
per note .............     -         -         -         -         -     $2,090.59 $1,201.51   $944.35   $768.67     -        -
Average market value
per note (e) .........     -         -         -         -         -       $107.69   $100.68    $96.62    $95.62     -        -
</TABLE>
- -----------------------

                                       8
<PAGE>


(a)      The Market Value Total Return is calculated assuming a purchase of
         Common Stock on the opening of the first business day and a sale on the
         closing of the last business day of each period reported. Dividends and
         distributions, if any, are assumed for the purposes of this
         calculation, to be reinvested at prices obtained under the Fund's
         Distribution Reinvestment and Cash Purchase Plan. Net Asset Value Total
         Return is calculated on the same basis, except that the Fund's net
         asset value is used on the purchase and sale dates instead of market
         value. Net Asset Value and Market Value Total Return, assuming a
         continuous stockholder who fully participated in the primary rights
         offerings, were 22.42% and 19.55%, 0.94% and -6.53%, 17.82% and 14.60%,
         19.80% and 26.77% for the years ended 1995, 1994, 1993 and 1992,
         respectively. These returns include the positive impact to a
         stockholder from participation in the primary subscription of these
         rights offerings resulting from the purchase of shares in each such
         offering at a discount to the market price and net asset value of the
         Fund.
(b)      Commencing June 21, 1995 through December 31, 1997, Net Asset Value per
         share, Net Asset Value Total Returns and Income from Investment
         Operations were calculated assuming that the then outstanding
         convertible notes had been fully converted, except when the effect of
         doing so resulted in a higher Net Asset Value per share than would have
         been calculated without such assumption. If it were not assumed that
         the Notes had been converted, the Net Asset Value per share would have
         been increased by $0.31 at December 31, 1997, $0.17 at December 31,
         1996 and $0.09 at December 31, 1995.
(c)      Expense ratios based on total average net assets were 1.32%, 1.30%,
         1.12%, 1.06%, 1.06%, 0.99%, 1.20%, 2.01%, 2.01%, 1.33% and 0.81% for
         the period ended June 30, 2002 and years ended December 31, 2001, 2000,
         1999, 1998, 1997, 1996, 1995, 1994, 1993 and 1992, respectively.
(d)      Expense ratios based on average net assets applicable to Common
         Stockholders before waiver of fees by Royce would have been 1.65%,
         1.51%, 1.48%, 1.34%, 1.14%, 1.31%, 2.04% and 2.02% for the periods
         ended December 31, 2001, 2000, 1999, 1998, 1997, 1996, 1995 and 1994,
         respectively.
(e)      The average of month-end market values during the period.
*        To be allocated to net investment income and capital gains at year-end.
**       Annualized.
***      Not annualized.
[dagger] Includes distributions paid January 31, 1994 and December 30, 1994.


                                       9
<PAGE>


                             INVESTMENT PERFORMANCE

      The table below presents average annual total returns of the Fund's Common
Stock on two separate bases. The NAV Return is the compound average annual rate
of return, using NAVs, on an amount invested in the Fund from the beginning to
the end of the stated period and assumes reinvestment of net investment income
dividends and capital gains distributions. Historically, stockholders have been
able to reinvest distributions at prices below NAV and without commission costs.
Market Value Return presents the same information, but values the Fund at market
rather than NAV and, therefore, reflects the actual experience of a stockholder,
before commission costs, who bought and sold shares of the Fund at the beginning
and ending dates.

      The record of the S&P SmallCap Stock Price 600 Index ("S&P 600 Index") has
been included so that the Fund's results may be compared with an unmanaged index
reflecting 600 domestic stocks chosen by Standard & Poor's for market size,
liquidity (bid-asked spread, ownership, share turnover and number of no trade
days) and industry group representation. The S&P 600 Index is a market-value
weighted index (stock price times the number of shares outstanding), with each
stock's weight in the Index proportionate to its market value. The record of the
Russell 2000 Index has been included so that the Fund's results may be compared
with an unmanaged index reflecting the performance of the 2,000 smallest
companies in the Russell 3000 Index (which represent the 3,000 largest U.S.
companies based on total market capitalization). As of December 31, 2002, the
average market capitalization of companies included in the Russell 2000 Index
was approximately $640 million, their median market capitalization was
approximately $306 million and the Index had a total market capitalization range
of approximately $2.4 billion to $8 million. The Fund primarily invests in
small- and micro-cap companies. The figures for each Index assume reinvestment
of dividends.

<TABLE>
<CAPTION>

                                           AVERAGE ANNUAL TOTAL RETURNS
                                                                                                                   From
                                                                                                      November 28, 1986 (inception)
                                                                                                         to December 31, 2002(%)
                                                                                                   ---------------------------------
                         Three Months     Six Months       Twelve       Thirty-Six   Sixty Months
                            Ended           Ended       Months Ended   Months Ended      Ended      Without Rights     With Rights
                         December 31,    December 31,   December 31,   December 31,   December 31,     Offering          Offering
                          2002(%)*         2002(%)*        2002(%)        2002(%)        2002(%)     Participation    Participation
                         ------------    ------------   ------------   ------------  -------------  --------------    --------------
<S>                          <C>           <C>            <C>              <C>           <C>            <C>              <C>
Fund Market Value            8.16          -15.44          -6.87           11.11          8.04          10.35            10.43
Return
Fund NAV Return              8.17          -15.63         -15.61            4.27          5.52          10.81            11.17
S&P 600 Index                4.91          -14.62         -14.65            0.56          2.44           8.91             8.91
Russell 2000 Index           6.16          -16.56         -20.48           -7.54         -1.36           8.24             8.24
</TABLE>

*     Not annualized.

      The table above shows since inception Market Value and NAV Returns both
with and without assumed primary participation in past rights offerings.
Participation in rights offerings has had a positive impact on returns because
it reflects the purchase of shares in such offerings at a discount to the market
price and NAV of the Fund.

      It should be noted that the NAV Return for the period from November 28,
1986 through December 31, 2002 is based on the Fund's initial NAV of $9.30 per
share, rather than the initial public offering price of $10.00 per share.
Accordingly, that figure does not reflect underwriting commissions and discounts
or expenses of the offering paid by stockholders who purchased the Fund's shares
in the initial public offering.

      The above results represent past performance and should not be considered
an indication of future performance from an investment in the Fund today. They
are provided only to give an historical perspective of the Fund. The investment
return and net asset and market prices will fluctuate, so that shares of Common
Stock may be worth more or less than their original cost when sold.


                                       10
<PAGE>


                                    THE OFFER

TERMS OF THE OFFER

      The Fund is offering to stockholders of record ("Stockholders") as of the
close of business on January 28, 2003 (the "Record Date") non-transferable
rights (the "Rights") to subscribe for an aggregate of 4,301,737 shares of
Common Stock (the "Shares") of the Fund. The Fund may increase the number of
shares of Common Stock subject to subscription by up to 20% of the Shares, or up
to 860,347 Additional Shares, for an aggregate total of 5,162,084 Shares.
However, the Fund may sell Additional Shares to Stockholders if and to the
extent that shares issued through the Offer would dilute (reduce) the net asset
value of its Common Stock by less than 1.0%.

      Each Stockholder is being issued one (1) Right for each whole share of
Common Stock owned on the Record Date. The Rights entitle a Stockholder to
acquire at the Subscription Price one (1) Share for each ten (10) Rights held,
rounded up to the nearest number of Rights evenly divisible by ten (the
"Offer"). Fractional Shares will not be issued upon the exercise of Rights. In
the case of shares held of record by a broker-dealer, bank or other financial
intermediary (each, a "Nominee"), the number of Rights issued to such Nominee
will be adjusted to permit rounding up (to the nearest number of Rights evenly
divisible by ten) of the Rights to be received by each of the beneficial owners
for whom it is the holder of record only if the Nominee provides to the Fund, on
or before the close of business on March 7, 2003, a written representation of
the number of Rights required for such rounding.

      Rights may be exercised at any time during the Subscription Period, which
commences on February 10, 2003 and ends as of 5:00 p.m., Eastern time, on March
10, 2003, unless extended by the Fund (such date, as it may be extended, is
referred to in this Prospectus as the "Expiration Date"). A Stockholder's right
to acquire one (1) additional Share for each ten (10) Rights held during the
Subscription Period at the Subscription Price is referred to as the "Primary
Subscription." The Rights are evidenced by Subscription Certificates, which will
be mailed to Stockholders.

      In addition, any Stockholder who fully exercises all Rights issued to him
or her is entitled to subscribe for additional Shares, which were not otherwise
subscribed for in the Primary Subscription, at the Subscription Price (the
"Over-Subscription Privilege"). Shares acquired pursuant to the
Over-Subscription Privilege are subject to allotment and may be subject to
increase, which is more fully discussed below under "The Offer --
Over-Subscription Privilege."

      The Subscription Price will be the lower of (i) $0.50 below the last
reported sale price of a share of the Fund's Common Stock on the NYSE on March
11, 2003 (the "Pricing Date") or (ii) the net asset value ("NAV") of a share of
the Fund's Common Stock on the Pricing Date. Since the time of the close of the
Offer on the Expiration Date is prior to the Pricing Date, holders who choose to
exercise their Rights will not know the Subscription Price at the time they
exercise their Rights.

      The Rights are non-transferable. Therefore, only the underlying Shares,
and not the Rights, will be listed for trading on the NYSE.

PURPOSES OF THE OFFER

      The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its stockholders to continue to increase the
assets of the Fund available for current and future investment opportunities. In
addition, the Offer seeks to reward the long-term stockholder by giving existing
Stockholders Rights to purchase additional Shares at a price below market price.
Increasing the size of the Fund also might result in lowering the Fund's
expenses as a percentage of average net assets. Royce expects to take up to six
months from the Fund's receipt of the proceeds of the Offer following the
Expiration Date to fully invest them in accordance with the Fund's investment
goal and policies.

      The Subscription Price will be determined the first business day
subsequent to the Expiration Date in order to ensure that the Offer will attract
the maximum participation of Stockholders with the minimum dilution to
non-participating Stockholders.

                                       11
<PAGE>


      The Fund's Board of Directors voted unanimously to approve the terms of
the Offer. Two of the Fund's Directors who voted to authorize the Offer are
affiliated with Royce and, therefore, could benefit indirectly from the Offer.
The other six directors are not "interested persons" of the Fund within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act").
Royce may also benefit from the Offer because its fee is partially based on the
net assets of the Fund. See "Investment Advisory and Other Services -- Advisory
Fee." It is not possible to state precisely the amount of additional
compensation Royce might receive as a result of the Offer because it is not
known how many Shares will be subscribed for and because the proceeds of the
Offer will be invested in additional portfolio securities, which will fluctuate
in value.

      The Fund may, in the future, choose to make additional rights offerings
from time to time for a number of shares and on terms that may or may not be
similar to this Offer. Any such future rights offerings will be made in
accordance with the then applicable requirements of the 1940 Act and the
Securities Act of 1933, as amended.

      There can be no assurance that the Fund or its stockholders will achieve
any of the foregoing objectives or benefits through the Offer.

OVER-SUBSCRIPTION PRIVILEGE

      If some Stockholders do not exercise all of the Rights initially issued to
them, any Shares for which subscriptions have not been received from
Stockholders will be offered by means of the Over-Subscription Privilege to
those Stockholders who have exercised all of the Rights initially issued to them
and who wish to acquire additional Shares. Stockholders who exercise all of the
Rights initially issued to them should indicate on the Subscription Certificate
how many Shares they are willing to acquire through this Over-Subscription
Privilege. If sufficient Shares remain after completion of the Primary
Subscription, all over-subscription requests will be honored in full. However,
if sufficient Shares are not available to honor all over-subscription requests,
the Fund may issue up to an additional 20% of the initial Shares (the
"Additional Shares"), in order to honor such over-subscription requests. The
Fund may sell Additional Shares to stockholders if and to the extent that shares
issued through the Offer would dilute (reduce) the net asset value of its Common
Stock by less than 1.0%. To the extent that there are not sufficient Shares to
honor all over-subscription requests, the available Shares will be allocated
among those who over-subscribe based on the number of Rights originally issued
to them by the Fund, so that the number of Shares issued to Stockholders who
subscribe through the Over-Subscription Privilege will generally be in
proportion to the number of Shares of the Fund owned by them on the Record Date.
The percentage of remaining Shares each over-subscribing Stockholder may acquire
may be rounded up or down to result in delivery of whole Shares. The allocation
process may involve a series of allocations in order to ensure that the total
number of Shares available for over-subscriptions is distributed, as nearly as
may be practicable, on a pro rata basis. The Fund will not offer or sell any
Shares which are not subscribed for through the Primary Subscription or the
Over-Subscription Privilege. The combination of the Over-Subscription Privilege
and the Fund's election to issue Additional Shares may result in additional
dilution of interest and voting rights to Stockholders, and additional reduction
in the Fund's NAV per share.

      Charles M. Royce and certain other officers and employees of Royce may
purchase shares of Common Stock in the Primary Subscription and the
Over-Subscription Privilege. Any such purchases will be made on the same terms
applicable to other stockholders.

SUBSCRIPTION PRICE

      The Subscription Price for the Shares to be issued pursuant to the Offer
will be the lower of (i) $0.50 below the last reported sale price of a share of
the Fund's Common Stock on the NYSE on the Pricing Date or (ii) the NAV of a
share of the Fund's Common Stock on the Pricing Date. For example, if the last
reported sale price of a share of the Fund's Common Stock on the NYSE on the
Pricing Date is $14.30 and the NAV of a share of the Fund's Common Stock on that
date is $13.07, the Subscription Price will be $13.07. However, if the NAV of a
share of the Fund's Common Stock on that date is $14.00, then the Subscription
Price will be $13.80.

      The Fund announced the Offer after the close of trading on the NYSE on
January 3, 2003. The NAV per share of the Fund's Common Stock at the close of
business on December 31, 2002 and January 22, 2003 were

                                       12
<PAGE>

$13.22 and $13.07, respectively, and the last reported sales prices of a share
of the Fund's Common Stock on the NYSE on those dates were $13.25 and $14.30,
respectively.

EXPIRATION OF THE OFFER

      The Expiration Date is 5:00 p.m., Eastern time, on March 10, 2003, unless
extended by the Fund. The Rights will expire on the Expiration Date and may not
be exercised after that date. Since the time of the close of the Offer on the
Expiration Date is prior to the Pricing Date, Stockholders who choose to
exercise their Rights will not know the Subscription Price when they decide
whether to acquire Shares on Primary Subscription or through the
Over-Subscription Privilege.

SUBSCRIPTION AGENT

      The Subscription Agent for the Offer is Equiserve Trust Company, N.A.
("Equiserve"), which will receive, for its administrative, processing, invoicing
and other services as Subscription Agent, an estimated fee of $15,000 and
reimbursement for all out-of-pocket expenses related to the Offer. The
Subscription Agent is also the Fund's Transfer Agent. Stockholder inquiries may
be directed to Georgeson Shareholder Communications, Inc., the Information
Agent, (toll free) at (866) 328-5443. SIGNED SUBSCRIPTION CERTIFICATES SHOULD BE
SENT TO EQUISERVE TRUST COMPANY, N.A., by one of the following methods:

         (1)   BY FIRST CLASS MAIL:
               Equiserve Trust Company, N.A.
               Attn: Corporate Actions
               P.O. Box 43025
               Providence,  RI  02940-3025

         (2)   BY EXPRESS MAIL OR OVERNIGHT COURIER:
               Equiserve Trust Company, N.A.
               Attn: Corporate Actions
               40 Campanelli Drive
               Braintree,  MA  02184

         (3)   BY HAND:
               Securities Transfer & Reporting Services, Inc.
               100 Williams Street Galleria
               New York,  NY  10038

               DELIVERY TO AN ADDRESS OTHER THAN THE ABOVE DOES NOT CONSTITUTE
               GOOD DELIVERY.

INFORMATION AGENT COORDINATOR

      Any questions or requests for assistance may be directed to the
Information Agent at its telephone number listed below:

                   GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
                            TOLL FREE: (866) 328-5443

      Stockholders may also call the Fund (toll free) at (800) 221-4268 or
contact their Nominees, who hold shares for the account of others, for
information with respect to the Offer.

      The Fund will pay a fee of $12,000 to Georgeson Shareholder
Communications, Inc. and reimbursement for all out-of-pocket expenses related to
its services as Information Agent.

                                       13
<PAGE>


METHOD FOR EXERCISING RIGHTS

      Rights may be exercised by Stockholders who fill in and sign the
accompanying Subscription Certificate and mail it in the envelope provided or
deliver the completed and signed Subscription Certificate to the Subscription
Agent, together with any required payment for the Shares as described below
under "Payment for Shares." Rights may also be exercised by a Stockholder
contacting his or her broker, bank or trust company, which can arrange, on the
stockholder's behalf, to guarantee delivery (using a "Notice of Guaranteed
Delivery") of a properly completed and executed Subscription Certificate and
payment for the Shares. The broker, bank or trust company may charge a fee for
this service. Fractional Shares will not be issued. Completed Subscription
Certificates must be received by the Subscription Agent prior to 5:00 p.m.,
Eastern time, on the Expiration Date (unless payment is to be effected by means
of a notice of guaranteed delivery (see "Payment for Shares")) at the offices of
the Subscription Agent.

      Stockholders who are Record Owners. Stockholders who are record owners can
      choose between either option set forth below under "Payment for Shares."
      If time is of the essence, option (1) will permit delivery of the
      Subscription Certificate and payment after the Expiration Date.

      Investors Whose Shares Are Held Through A Nominee. Stockholders whose
      shares are held by a Nominee such as a broker, bank or trust company, must
      contact that Nominee to exercise their Rights. In that case, the Nominee
      will complete the Subscription Certificate on behalf of the stockholder
      and arrange for proper payment by one of the methods set forth below under
      "Payment for Shares."

      Nominees. Nominees, who hold shares for the account of others, should
      notify the respective beneficial owners of such shares as soon as possible
      to ascertain such beneficial owners' intentions and to obtain instructions
      with respect to the Rights. If the beneficial owner so instructs, the
      Nominee should complete the Subscription Certificate and submit it to the
      Subscription Agent, together with the proper payment described below under
      "Payment for Shares."

PAYMENT FOR SHARES

      Stockholders who acquire Shares in the Primary Subscription or pursuant to
the Over-Subscription Privilege may choose between the following methods of
payment:

         (1)   If, prior to 5:00 p.m., Eastern time, on the Expiration Date, the
               Subscription Agent has received a Notice of Guaranteed Delivery
               by facsimile or otherwise, from a bank or trust company or a NYSE
               member firm, guaranteeing delivery of (a) payment of the full
               Subscription Price for the Shares subscribed for in the Primary
               Subscription and any additional Shares subscribed for through the
               Over-Subscription Privilege and (b) a properly completed and
               executed Subscription Certificate, the subscription will be
               accepted by the Subscription Agent. The Subscription Agent will
               not honor a Notice of Guaranteed Delivery if a properly completed
               and executed Subscription Certificate together with full payment
               is not received by the Subscription Agent by the close of
               business on the third (3rd) business day after the Expiration
               Date (March 13, 2003, unless the offer is extended).

         (2)   Alternatively, a record owner can send payment for the Shares
               acquired in the Primary Subscription and any additional shares
               subscribed for pursuant to the oversubscription privilege,
               together with the Subscription Certificate, to the Subscription
               Agent based on an assumed purchase price of $13.00 per Share. To
               be accepted, such payment, together with the Subscription
               Certificate, must be received by the Subscription Agent prior to
               5:00 p.m., Eastern time, on the Expiration Date.

      IF THE SECOND METHOD DESCRIBED ABOVE IS USED, PAYMENT BY CHECK MUST
ACCOMPANY ANY SUBSCRIPTION CERTIFICATE FOR THE SUBSCRIPTION CERTIFICATE TO BE
ACCEPTED.

                                       14
<PAGE>

      STOCKHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER
RECEIPT OF A NOTICE OF GUARANTEED DELIVERY ON THEIR PAYMENT FOR SHARES BY THE
SUBSCRIPTION AGENT, EXCEPT AS PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE
DECLINE / POSSIBLE SUSPENSION OR WITHDRAWAL OF THE OFFER."

      THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH SUBSCRIPTION
CERTIFICATES AND PAYMENT BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE FUND AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN
TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR AND MAY, AT THE DISCRETION OF THE FUND, NOT BE
ACCEPTED IF NOT CLEARED PRIOR TO THE EXPIRATION DATE, YOU ARE STRONGLY
ENCOURAGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR BANK
CASHIER'S CHECK.

      A confirmation will be sent by the Subscription Agent to each Stockholder
(or, if the Fund's Shares on the Record Date are held by a Nominee, to such
Nominee) by March 18, 2003, showing (i) the number of Shares acquired pursuant
to the Primary Subscription; (ii) the number of Shares, if any, acquired through
the Over-Subscription Privilege; (iii) the per Share and total purchase price
for the Shares; and (iv) any additional amount payable by the Stockholder to the
Fund or any excess to be refunded by the Fund to the Stockholder, in each case
based on the Subscription Price as determined on the Pricing Date. Any
additional payment required from a Stockholder must be received by the
Subscription Agent within ten (10) days after the Confirmation Date. Any excess
payment to be refunded by the Fund to a Stockholder will be mailed by the
Subscription Agent to such Stockholder as promptly as possible within ten (10)
business days after the Confirmation Date. All payments by a Stockholder must be
made in United States dollars by money order or check drawn on a bank located in
the United States of America and payable to ROYCE VALUE TRUST, INC.

      Issuance and delivery of certificates for the Shares purchased are subject
to collection of checks and actual payment through any Notice of Guaranteed
Delivery.

      If a Stockholder who acquires Shares pursuant to the Primary Subscription
or Over-Subscription Privilege does not make payment of all amounts due by the
10th day after the Confirmation Date, the Fund reserves the right to (i) find
other purchasers for such subscribed and unpaid Shares; (ii) apply any payment
actually received by it toward the purchase of the greatest number of whole
Shares which could be acquired by such Stockholder upon exercise of the Primary
Subscription and/or Over-Subscription Privilege; and/or (iii) exercise any and
all other rights and/or remedies to which it may be entitled, including, without
limitation, the right to set-off against payments actually received by it with
respect to such subscribed Shares.

      All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations will
be final and binding. The Fund in its sole discretion may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as the Fund determines
in its sole discretion. The Fund will not be under any duty to give notification
of any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.

NOTICE OF NET ASSET VALUE DECLINE / POSSIBLE SUSPENSION OR WITHDRAWAL OF THE
OFFER

      The Fund has, as required by the SEC's registration form, undertaken to
suspend the Offer until it amends this Prospectus if, subsequent to January 28,
2003, the effective date of the Fund's Registration Statement, the Fund's NAV
declines more than 10% from its NAV as of January 28, 2003. Accordingly, the
Fund will notify Stockholders of any such decline and thereby permit them to
cancel their exercise of Rights.

DELIVERY OF SHARE CERTIFICATES

      Participants in the Fund's Distribution Reinvestment and Cash Purchase
Plan (the "Plan") will have any Shares acquired in the Primary Subscription and
pursuant to the Over-Subscription Privilege credited to their accounts in the
Plan. Stock certificates will not be issued for Shares credited to Plan
accounts. Stockholders whose

                                       15
<PAGE>

Shares are held of record by a Nominee on their behalf will have any Shares
acquired in the Primary Subscription and pursuant to the Over-Subscription
Privilege credited to the account of such Nominee. For all other Stockholders,
stock certificates for all Shares acquired will be mailed promptly after full
payment for the subscribed Shares has been received and cleared.

FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER

      Stockholders who receive Rights pursuant to the Offer will not recognize
taxable income for U.S. Federal income tax purposes upon their receipt of the
Rights. If Rights issued to a Stockholder expire without being exercised, no
basis will be allocated to such Rights, and such stockholder will not recognize
any gain or loss for U.S. Federal income tax purposes upon such expiration.

      The tax basis of a Stockholder's Common Stock will remain unchanged, and
the Stockholder's basis in the Rights will be zero. A Stockholder who exercises
Rights will not recognize any gain or loss for U.S. Federal income tax purposes
upon the exercise. The basis of the newly acquired Common Stock will equal the
Subscription Price paid for the Common Stock. Upon a sale or exchange of the
Common Stock so acquired, the Stockholder will recognize gain or loss measured
by the difference between the proceeds of the sale or exchange and the cost
basis of such Common Stock. Assuming the Stockholder holds the Common Stock as a
capital asset, any gain or loss realized upon its sale will generally be treated
as a capital gain or loss, which gain or loss will be short-term or long-term,
depending on the length of the Stockholder's holding period for such Common
Stock. However, it currently appears that any loss recognized upon the sale of
shares of Common Stock with a tax holding period of 6 months or less will be
treated as a long-term capital loss to the extent of any capital gain
distribution previously received by the Stockholder with respect to such Shares,
and a loss may be disallowed under wash sale rules to the extent that the
Stockholder purchases additional Common Stock (including by reinvestment of
distributions) within 30 days before or after the sale date. The holding period
for Common Stock acquired upon the exercise of Rights will begin on the date of
exercise of the Rights.

      The foregoing is a summary of the material U.S. Federal income tax
consequences of the Offer under the provisions of the U.S. Internal Revenue Code
of 1986, as amended (the "Code"), and applicable existing and proposed
regulations thereunder, all as currently in effect and all subject to change at
any time, perhaps with retroactive effect. It does not include any state, local
or foreign tax consequences of the Offer. This summary is generally applicable
to Stockholders that are United States persons as defined in the Code. Further,
this summary is not intended to be, nor should it be, construed as legal or tax
advice, and stockholders are urged to consult their own tax advisors to
determine the tax consequences to them of the Offer and their ownership of
Rights and Common Stock.

DILUTION

      If you do not fully exercise your Rights, you should expect that you will,
at the completion of the Offer, own a smaller proportional interest in the Fund
than would otherwise be the case if you exercised your Rights. We cannot
determine the extent of this dilution at this time because we do not know what
proportion of the Fund's Shares will be purchased as a result of the Offer.

      You may experience dilution in your holdings because you will indirectly
bear the expenses of the Offer. Further, if you do not submit subscription
requests pursuant to the Over-Subscription Privilege, you may also experience
dilution in your holdings if the Fund offers Additional Shares for subscription.
We cannot state precisely the amount of any such decrease in NAV because we do
not know at this time how many Shares will be subscribed for or what the NAV or
market price per share will be at the Pricing Date. As of January 22, 2003, the
Fund's shares traded at a 9.4% premium above NAV. If the Fund's shares trade at
a premium above NAV as of the Pricing Date, the Fund estimates that such
dilution would be minimal. See "Risk Factors and Special Considerations at a
Glance -- Dilution - Net Asset Value and Non-Participation in the Offer." Except
as described in this Prospectus, you will have no right to rescind your
subscription requests after receipt of your payment for Shares by the
Subscription Agent.

                                       16
<PAGE>

OTHER RIGHTS OFFERINGS

      The Fund had below-NAV rights offerings during each of the seven years
ended December 31, 1995, and may have similar rights offerings in the future.
Any such future rights offerings would be separately registered with the SEC and
made by means of separate prospectuses.

                                 USE OF PROCEEDS

      We estimate the net proceeds of the Offer to be approximately $55,697,581
($66,882,092 if all of the Additional Shares are available for subscription).
These figures assume (i) all Rights are exercised in full, (ii) a Subscription
Price of $13.00 and (iii) payment of offering expenses of approximately
$225,000. Royce anticipates that investment of the net proceeds of the Offer in
accordance with the Fund's investment goal and policies will take up to six
months from January 28, 2003, depending on market conditions and the
availability of appropriate securities. Pending investment, the net proceeds of
the Offer will be held in the types of short-term debt securities and
instruments in which the Fund may invest. See "Investment Goal and Policies --
Investment Methods/Policies." As a result of this short-term investment of the
proceeds, a lower yield may be realized.

                          INVESTMENT GOAL AND POLICIES

INVESTMENT GOAL

      The Fund's primary investment goal and one of its fundamental policies is
long-term capital growth. Royce normally invests more than 75% of the Fund's
assets in the equity securities of small- and micro-cap companies, with stock
market capitalizations ranging from $100 million to $2 billion. (Stock market
capitalization is calculated by multiplying the total number of common shares
issued and outstanding by the per share market price of the common stock.) See
"Changes in Investment Goal and Methods/Policies." There are market risks
inherent in any investment, and there is no assurance that the Fund's primary
investment goal will be achieved.

INVESTMENT METHODS/POLICIES

      Royce uses a value method in managing the Fund's assets. In selecting
securities for the Fund, Royce evaluates the quality of a company's balance
sheet, the level of its cash flows and various measures of a company's
profitability. Royce then uses these factors to assess the company's current
worth, basing this assessment on either what it believes a knowledgeable buyer
might pay to acquire the entire company or what it thinks the value of the
company should be in the stock market. This analysis takes a number of factors
into consideration, including the company's future growth prospects and current
financial condition.

      Royce invests in securities of companies that are trading significantly
below its estimate of the company's "current worth" in an attempt to reduce the
risk of overpaying for such companies. Royce's value approach strives to reduce
some of the other risks of investing in small- and micro-cap companies (for the
Fund's portfolio taken as a whole) by evaluating various other risk factors.
Royce attempts to lessen financial risk by buying companies that combine strong
balance sheets with low leverage. While there can be no assurance that this
risk-averse value approach will be successful, Royce believes that it can reduce
some of the risks of investing in the securities of small- and micro-cap
companies, which are inherently fragile in nature and whose securities have
substantially greater market price volatility. Although Royce's approach to
security selection seeks to reduce downside risk to the Fund's portfolio,
especially during periods of broad small-cap market declines, it may also
potentially have the effect of limiting gains in strong small-cap up markets.

      Foreign Investments. The Fund may invest up to 10% of its assets in
securities of foreign issuers. Foreign investments involve certain additional
risks, such as political or economic instability of the issuer or of the country
of issue, fluctuating exchange rates and the possibility of imposition of
exchange controls.

                                       17
<PAGE>


      Fixed Income Securities. The Fund may invest up to 25% of its assets in
direct obligations of the government of the United States or its agencies and/or
in non-convertible preferred stocks and non-convertible debt securities of
various issuers, including up to 5% of its net assets in below investment-grade
debt securities, also known as high-yield fixed income securities. Such below
investment-grade debt securities may be in the lowest-grade categories of
recognized ratings agencies (C in the case of Moody's Investor Service, Inc.
("Moody's") or D in the case of Standard & Poor's) or may be unrated.
High-yield/high-risk investments are primarily speculative and may entail
substantial risk of loss of principal and non-payment of interest, but may also
produce above-average returns for the Fund. Debt securities rated C or D may be
in default as to the payment of interest or repayment of principal.

      Warrants, Rights or Options. The Fund may invest up to 5% of its total
assets in warrants, rights or options. A warrant, right or call option entitles
the holder to purchase a given security within a specified period for a
specified price and does not represent an ownership interest in the underlying
security. A put option gives the holder the right to sell a particular security
at a specified price during the term of the option. These securities have no
voting rights, pay no dividends and have no liquidation rights. In addition,
market prices of warrants, rights or call options do not necessarily move
parallel to the market prices of the underlying securities; market prices of put
options tend to move inversely to the market prices of the underlying
securities.

      Securities Lending. The Fund may lend up to 25% of its assets to brokers,
dealers and other financial institutions. However, under the Moody's current
rating agency guidelines relating to the Issued Preferred, the Fund may not lend
portfolio securities in excess of 5% of its total assets. Moody's current rating
agency guidelines may in the future be amended to permit the Fund to lend a
greater percentage of its total assets. Securities lending allows the Fund to
retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties that participate in a
Global Securities Lending Program organized and monitored by the Fund's
custodian and who are deemed by it to be of good standing. Furthermore, such
loans will be made only if, in Royce's judgment, the consideration to be earned
from such loans would justify the risk.

      The current view of the staff of the SEC is that a fund may engage in such
loan transactions only under the following conditions: (i) the fund must receive
100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury
bills or notes) from the borrower; (ii) the borrower must increase the
collateral whenever the market value of the securities loaned (determined on a
daily basis at the close of regular trading) rises above the value of the
collateral; (iii) after giving notice, the fund must be able to terminate the
loan at any time; (iv) the fund must receive reasonable interest on the loan or
a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned; (v) the fund may pay
only reasonable custodian fees in connection with the loan; and (vi) the fund
must be able to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.

      Temporary Investments. The assets of the Fund are normally invested in the
equity securities of small- and micro-cap companies. However, for temporary
defensive purposes (i.e., when Royce determines that market conditions warrant)
or when it has uncommitted cash balances, the Fund may also invest in U.S.
Treasury bills, domestic bank certificates of deposit, repurchase agreements
with its custodian bank covering United States Treasury and agency obligations
having a term of not more than one week, high-quality commercial paper and money
market funds registered under the 1940 Act, or retain all or part of its assets
in cash. Accordingly, the composition of the Fund's portfolio may vary from time
to time.

CHANGES IN INVESTMENT GOAL AND METHODS/POLICIES

      The Fund's primary investment goal of long-term capital growth is a
fundamental policy of the Fund and may not be changed without approvals of the
holders of a majority of the Fund's outstanding shares of Common Stock and
Issued Preferred and any other Preferred Stock, voting together as a single
class, and a majority of the Issued Preferred 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"
in the Statement of Additional Information, the Fund does not

                                       18
<PAGE>

consider its other policies, such as seeking current income, to be fundamental,
and such policies may be changed by the Board of Directors without stockholder
approval or prior notice to stockholders. Although the Fund may seek current
income by investing in dividend-paying equity securities of small- and micro-cap
companies, this is not the Fund's primary investment goal.

      The Fund's investment policies are subject to certain restrictions. See
"Investment Restrictions" in the Statement of Additional Information.

                                ----------------

RISK FACTORS - INVESTING IN SMALL- AND MICRO-CAP COMPANIES

      Royce views the large and diverse universe of small-cap companies as
having two investment segments or tiers. Royce defines small-cap as those
companies with market capitalizations between $400 million and $2 billion; it
refers to the segment with market capitalizations less than $400 million as
micro-cap.

      The securities of small- and micro-cap companies offer investment
opportunities and additional risks. They may not be well known to the investing
public, may not be significantly owned by institutional investors and may not
have steady earnings growth. In addition, the securities of such companies may
be more volatile in price, have wider spreads between their bid and ask prices
and have significantly lower trading volumes than larger capitalization stocks.
As a result, the purchase or sale of more than a limited number of shares of a
small- or micro-cap security may affect its market price. Royce may need a
considerable amount of time to purchase or sell its positions in these
securities, particularly when other accounts managed by Royce or other investors
are also seeking to purchase or sell them. Accordingly, Royce's investment focus
on small- and micro-cap companies generally requires it to have a long-term (at
least three years) investment outlook for a portfolio security.

      The micro-cap segment consists of more than 6,900 companies. These
companies are followed by relatively few, if any, securities analysts, and there
tends to be less publicly available information about them. Their securities
generally have even more limited trading volumes and are subject to even more
abrupt or erratic market price movements than are the securities in the upper
tier, and Royce may be able to deal with only a few market-makers when
purchasing and selling these securities. Such companies may also have limited
markets, financial resources or product lines, may lack management depth and may
be more vulnerable to adverse business or market developments. These conditions,
which create greater opportunities to find securities trading well below Royce's
estimate of the company's current worth, also involve increased risk. This leads
Royce to more broadly diversify most of the Fund's assets invested in micro-cap
stocks by holding proportionately smaller positions in more companies.

      The upper tier of the small-cap universe of securities consists of
approximately 1,400 companies. In this segment, there is a relatively higher
level of ownership by institutional investors and more research coverage by
securities analysts than generally exists for micro-cap companies. This greater
attention makes the market for these securities more efficient than that of
micro-cap companies because they have somewhat greater trading volumes and
narrower bid/ask spreads. As a result, Royce normally employs a more
concentrated approach when investing in the upper tier of small-caps, holding
proportionately larger positions in a relatively limited number of securities.

RISKS TO COMMON STOCKHOLDERS OF BORROWING MONEY AND ISSUING SENIOR SECURITIES

      General. The 1940 Act and the Fund's fundamental policies (see "Investment
Restrictions" in the Statement of Additional Information) 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 (see "Risk Factors and Special Considerations -- Risks to
Common Stockholders of Borrowing Money and Issuing Senior Securities -- Asset
Coverage Test" in the Statement of Additional Information) 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 certain senior security holders the right to elect directors in the event
specified asset coverage tests are not met or

                                       19
<PAGE>

dividends are not paid. As of December 31, 2002, the aggregate involuntary
liquidation preference of the Issued Preferred was $160 million. At this level,
a decrease of 56% of the Fund's total assets or 43% of its net assets would be
necessary to reduce the asset coverage for the Issued Preferred to less than
200%. 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 and increased share price
volatility. So long as the Issued Preferred is rated by Moody's, the Fund cannot
borrow for investment leverage purposes.

      Borrowings. The following factors could increase the investment risk and
the volatility of the price of the Fund's shares of Common Stock: (i) leveraging
exaggerates any increase or decrease in the value of the Fund's portfolio; (ii)
the costs of borrowing may exceed the income from the portfolio securities
purchased with the borrowed money; (iii) a decline in NAV results if the
investment performance of the additional securities purchased fails to cover
their cost to the Fund (including any interest paid on the money borrowed); (iv)
a decline in NAV could affect the ability of the Fund to make Common Stock
dividend payments; (v) a failure to pay net investment income dividends or make
capital gains distributions could result in the Fund's ceasing to qualify as a
regulated investment company under the Code, or in its having to pay certain
entity level taxes even if it maintains its status as a regulated investment
company (see "Taxation" in this Prospectus and in the Statement of Additional
Information); and (vi) if the asset coverage for debt securities declines to
less than 300% (as a result of market fluctuations or otherwise), the Fund may
be required to sell a portion of its investments when it may be disadvantageous
to do so.

      Preferred Stock. Preferred Stock may result in higher volatility of the
NAV of the Common Stock and potentially more volatility in the market price of
the Common Stock. Holders of Common Stock will realize a higher current rate of
return than if the Fund were not leveraged only so long as the Fund, after
accounting for its costs and operating expenses, is able to realize a higher net
return on its investment portfolio than the then current dividend rates paid on
Preferred Stock. Similarly, since a pro rata portion of the Fund's net realized
capital gains are generally payable to holders of Common Stock, the use of
leverage will increase the amount of such gains distributed to holders of Common
Stock. To the extent that the dividend rates on Preferred Stock approach the net
return on the Fund's investment portfolio, the benefit of leverage to holders of
Common Stock will be decreased. (If the dividend rates on Preferred Stock were
to exceed the net return on the Fund's portfolio, holders of Common Stock would
receive a lower rate of return than if the Fund were not leveraged.) Similarly,
since both the cost of issuing Preferred Stock and any decline in the value of
the Fund's investments (including investments purchased with the proceeds from
Preferred Stock offerings) is borne entirely by holders of Common Stock, the
effect of leverage in a declining market would result in a greater decrease in
NAV to holders of Common Stock than if the Fund were not leveraged. Such
decrease in NAV likely would be reflected in a greater decline in the market
price for shares of the Fund's Common Stock. If the Fund is liquidated, holders
of Preferred Stock will be entitled to receive liquidating distributions before
any distribution is made to holders of Common Stock. Redemption of Preferred
Stock or insufficient investment income to make dividend payments may reduce the
NAV of the Common Stock by requiring the Fund to liquidate a portion of its
investments at a time when it may be disadvantageous to do so.

      In an extreme case, a decline in NAV could affect the Fund's ability to
pay dividends on the Common Stock. Failure to make such dividend payments could
adversely affect the Fund's qualification as a regulated investment company
under the Code. See "Taxation" in this Prospectus and in the Statement of
Additional Information. However, the Fund intends to take all measures necessary
to make such Common Stock dividend payments. If the Fund's current investment
income is ever insufficient to meet dividend payments on either the Common Stock
or the Preferred Stock, the Fund may have to liquidate certain of its
investments. In addition, the Fund will have the authority to redeem the 7.80%
Preferred for any reason on or after August 15, 2003, to redeem the 7.30%
Preferred for any reason on or after June 22, 2003, and may redeem all or part
of the Issued Preferred prior to such dates to the extent required by the 1940
Act and the terms of the Issued Preferred. See "Description of Capital Stock --
Preferred Stock -- Redemption."

      The class and other voting rights of the Preferred Stock could make it
more difficult for the Fund to take certain actions that may, in the future, be
proposed by the Board of Directors and/or the holders of Common Stock, such as
(i) a merger, exchange of securities, liquidation or alteration of the rights of
a class of the Fund's securities if such actions would be adverse to the
Preferred Stock, (ii) converting the Fund to an open-end investment company or
acting inconsistently with its fundamental investment restrictions or other
fundamental policies or (iii) seeking to operate other than as an investment
company.

                                       20
<PAGE>

      The future issuance of any Preferred Stock convertible into Common Stock
might also reduce the net income and NAV per share of the Common Stock upon
conversion. Such income dilution would occur if the Fund could not, from the
investments made with the proceeds of the Preferred Stock, earn an amount per
share of Common Stock issuable upon conversion greater than the dividend
required to be paid on the amount of Preferred Stock convertible into one share
of Common Stock. Such NAV dilution would occur if Preferred Stock were converted
at a time when the NAV per share of Common Stock was greater than the conversion
price.

                                ----------------

      On December 31, 2002, the Fund had 42,417,362 shares of Common Stock
issued and outstanding, with an aggregate NAV of $13.22, 2,400,000 shares of
7.80% Cumulative Preferred Stock, par value $0.001 per share (the "7.80%
Preferred"), with an aggregate liquidation preference of $60,000,000, issued and
outstanding, and 4,000,000 shares of 7.30% Tax-Advantaged Cumulative Preferred
Stock, par value $0.001 per share (the "7.30% Preferred," and together with the
7.80% Preferred, the "Issued Preferred"), with an aggregate liquidation
preference of $100,000,000, issued and outstanding, and no outstanding
indebtedness. Accordingly, as of such date, the Fund could have, under the above
policies and restrictions, issued and sold senior securities representing
indebtedness of up to $360,387,811 or additional shares of Preferred Stock
having an aggregate involuntary liquidation preference of up to $400,775,623 or
various combinations of lesser amounts of both securities representing
indebtedness and Preferred Stock.

      Effects of Preferred Stock Leverage on Common Stockholders. Dividends are
payable on the Issued Preferred at the annual rates of 7.80% and 7.30%,
respectively. The Fund's portfolio must experience a return of 1.7% after
expenses for the year ending December 31, 2003 in order to cover that year's
dividend on the Issued Preferred.

      The fees paid to Royce for investment advisory services are higher than if
the Fund did not have Preferred Stock outstanding because they are calculated on
the basis of the Fund's average net assets (including assets obtained from the
sale of Preferred Stock). See "Investment Advisory and Other Services."

      The following table is designed to illustrate the effect on the return to
a holder of the Fund's Common Stock of the leverage obtained with the Issued
Preferred, assuming hypothetical annual returns on the Fund's portfolio of minus
10% to plus 10%. As the table shows, leverage generally increases the return to
stockholders when portfolio return is positive and decreases the return when
portfolio return is negative. See "Risk Factors and Special Considerations at a
Glance -- Preferred Stock - Leverage Risk." The figures appearing in the
following table are hypothetical. Actual returns may be greater or less than
those appearing in the table.
<TABLE>
<CAPTION>

<S>                              <C>       <C>        <C>       <C>        <C>      <C>       <C>
Assumed return on portfolio
   (net of expenses)                -15%      -10%       -5%        0%        5%       10%       15%
Corresponding NAV return to
   Common Stockholder            -21.42%   -14.99%    -8.56%    -2.14%     4.29%    10.72%    17.14%
</TABLE>

      Financial Impact of Senior Securities on Common Stockholders. The costs
related to the issue and sale of senior securities such as Preferred Stock,
including underwriting discount, rating agency fees and offering expenses, are
paid by the Fund and, therefore, borne by its Common Stockholders. Also, the
interest and dividend requirements of such senior securities will reduce the
amount of and may entirely eliminate any net investment income dividends
otherwise payable by the Fund to its Common Stockholders.

                     INVESTMENT ADVISORY AND OTHER SERVICES

      Royce & Associates, LLC (which term as used in this Prospectus includes
its corporate predecessor) ("Royce"), a Delaware limited liability company, is
an investment advisory firm whose predecessor was organized in February 1967.
Royce is registered as an investment adviser under Investment Advisers Act of
1940, as amended. Royce became investment adviser of the Fund in November 1986,
when the Fund commenced operations. Royce also serves as investment adviser to
other management investment companies and institutional accounts. As of December
31, 2002, Royce managed approximately $8.3 billion in assets for the Fund and
other registered


                                       21
<PAGE>

investment companies advised and sponsored by Royce and other client accounts.
Substantially all of Royce's client accounts are managed as small- and micro-cap
investment products.

      On October 1, 2001, Royce became an indirect wholly-owned subsidiary of
Legg Mason, Inc. ("Legg Mason"). On March 31, 2002, Royce's corporate
predecessor was merged into Royce Holdings, LLC (a wholly-owned subsidiary of
Legg Mason), which then changed its name to Royce & Associates, LLC. As a result
of this merger, Royce & Associates, LLC became the Fund's investment adviser and
a direct wholly-owned subsidiary of Legg Mason. Founded in 1899, Legg Mason is a
publicly-held financial services company primarily engaged in providing asset
management, securities brokerage, investment banking and related financial
services through its subsidiaries. As of December 31, 2002, Legg Mason's asset
management subsidiaries had aggregate assets under management of approximately
$184.7 billion.

      Under the Fund's Articles of Incorporation, as amended and supplemented
(the "Charter"), and Maryland 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

      Royce is responsible for the management of the Fund's assets. Royce has
been investing in small-cap companies with a value approach for more than 25
years. Its offices are located at 1414 Avenue of the Americas, New York, NY
10019. Charles M. Royce has been the firm's President and Chief Investment
Officer during this period. He is also the primary portfolio manager of the
Fund.

      Royce's investment staff also includes three other Senior Portfolio
Managers: W. Whitney George, Managing Director and Vice President; Boniface A.
Zaino, Managing Director; and Charles R. Dreifus, Principal. Royce's investment
staff is assisted by Jack E. Fockler, Jr., Managing Director and Vice President.
Mr. George has been a Portfolio Manager at Royce since 2000, and prior thereto
was a Senior Analyst. He has been employed by Royce since 1991. Mr. Zaino joined
Royce in April 1998 as a Senior Portfolio Manager and previously was a Portfolio
Manager and Group Managing Director at Trust Company of the West (since 1984).
Mr. Dreifus joined Royce in February 1998 as a Senior Portfolio Manager and
previously was a Portfolio Manager and Managing Director (since June 1995) and
General Partner (from 1983 until June 1995) of Lazard Freres & Co. LLC. Mr.
Fockler has been employed by Royce since 1989 as its Director of Marketing.

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; and pays all expenses incurred in performing its investment advisory
duties under the Agreement.

      The Fund pays all of its own administrative and other costs and expenses
attributable to its operations and transactions (except those set forth above),
including, without limitation, registrar, transfer agent and custodian fees;
legal, administrative and clerical services; rent for its office space and
facilities; auditing; preparation, printing and distribution of its proxy
statements, stockholder reports and notices; Federal and state registration
fees; listing fees and expenses; Federal, state and local taxes; non-affiliated
directors fees; interest on its borrowings; brokerage commissions; and the cost
of issue, sale and repurchase of its shares. Thus, unlike most other investment
companies, the Fund is required to pay substantially all of its expenses, and
Royce does not incur substantial fixed expenses.

ADVISORY FEE

      As compensation for its services under the Investment Advisory Agreement,
Royce is entitled to receive a fee comprised of a Basic Fee (the "Basic Fee") at
the rate of 1% per annum of the Fund's average net assets (including assets
obtained from the sale of Preferred Stock) and an adjustment to the Basic Fee
based on the investment performance of the Fund in relation to the investment
record of the S&P 600 Index. A rolling period of 60 months ending with the most
recent calendar month is utilized for measuring performance and average net
assets.

                                       22
<PAGE>

      The Basic Fee for each such month will be increased or decreased at the
rate of 1/12 of .05% per percentage point, depending on the extent, if any, by
which the investment performance of the Fund exceeds by more than two percentage
points, or is exceeded by more than two percentage points by, the percentage
change in the investment record of the S&P 600 Index for the performance period.
The maximum increase or decrease in the Basic Fee for any month is 1/12 of 0.5%.
Accordingly, for each month the maximum monthly fee rate as adjusted for
performance will be 1/12 of 1.5% and will be payable if the investment
performance of the Fund exceeds the percentage change in the investment record
of the S&P 600 Index by 12 or more percentage points for the performance period,
and the minimum monthly fee rate as adjusted for performance will be 1/12 of
0.5% and will be payable if the percentage change in the investment record of
the S&P 600 Index exceeds the investment performance of the Fund by 12 or more
percentage points for the performance period. As a result, the actual investment
advisory fee rate may at times be greater than the fee rate paid by many other
funds.

      Because the Basic Fee is a function of the Fund's net assets and not of
its total assets, Royce will not receive any fee in respect of those assets of
the Fund equal to the aggregate unpaid principal amount of any indebtedness of
the Fund. Royce will receive a fee in respect of any assets of the Fund equal to
the liquidation preference of the outstanding 7.80% Cumulative Preferred Stock,
7.30% Tax-Advantaged Cumulative Preferred Stock and for any other Preferred
Stock that may be issued and sold by the Fund.

      The following table illustrates, on an annualized basis, the full range of
permitted increases or decreases to the Basic Fee.

DIFFERENCE BETWEEN PERFORMANCE
OF FUND AND % CHANGE IN S & P          ADJUSTMENT TO 1%
       600 INDEX RECORD                   BASIC FEE             FEES AS ADJUSTED
- ------------------------------         ----------------         ----------------
        +12 or more                        +0.50%                    1.50%
        +11                                +0.45%                    1.45%
        +10                                +0.40%                    1.40%
        +9                                 +0.35%                    1.35%
        +8                                 +0.30%                    1.30%
        +7                                 +0.25%                    1.25%
        +6                                 +0.20%                    1.20%
        +5                                 +0.15%                    1.15%
        +4                                 +0.10%                    1.10%
        +3                                 +0.05%                    1.05%
        +/-2                                0.00%                    1.00%
        -3                                 -0.50%                    0.95%
        -4                                 -0.10%                    0.90%
        -5                                 -0.15%                    0.85%
        -6                                 -0.20%                    0.80%
        -7                                 -0.25%                    0.75%
        -8                                 -0.30%                    0.70%
        -9                                 -0.35%                    0.65%
        -10                                -0.40%                    0.60%
        -11                                -0.45%                    0.55%
        -12 or less                        -0.50%                    0.50%

      In calculating the investment performance of the Fund and the percentage
change in the investment record of the S&P 600 Index, all dividends and other
distributions during the performance period are treated as having been
reinvested, and no effect is given to gain or loss resulting from capital share
transactions of the Fund. Fractions of a percentage point are rounded to the
nearest whole point (to the higher whole point if exactly one-half).

      Notwithstanding the foregoing, Royce will not be entitled to receive any
fee for any month when the investment performance of the Fund for the rolling
36-month period ending with such month is negative on an absolute basis. In the
event that the Fund's investment performance for such a performance period is
less than zero, Royce will not be required to refund to the Fund any fee earned
in respect of any prior performance period.

                                       23
<PAGE>

      Royce has committed to voluntarily waive the portion of its investment
advisory fee attributable to a series of Issued Preferred for any month when the
Fund's average annual net asset value total return since issuance of the series
fails to exceed the applicable series' dividend rate.

CODE OF ETHICS

      The Fund's Board of Directors approved a Code of Ethics under Rule 17j-1
of the 1940 Act that covers the Fund and Royce. The Code of Ethics establishes
procedures for personal investing and restricts certain transactions. Employees
subject to the Code of Ethics may invest in securities for their personal
investment accounts, including, in certain cases, securities that may be
purchased or held by the Fund. See "Code of Ethics and Related Matters" in the
Statement of Additional Information.

                          DESCRIPTION OF CAPITAL STOCK

GENERAL

      The Fund, which was incorporated under the laws of the State of Maryland
on July 1, 1986, is authorized to issue 150,000,000 shares of Common Stock, par
value $.001 per share. Each share of Common Stock has equal dividend,
distribution and liquidation rights and is entitled to one vote per share on
each matter submitted to a vote of Common Stockholders. The shares of Common
Stock outstanding and those Shares offered hereby, when issued and paid for
pursuant to the terms of the Offer, will be fully paid and non-assessable.
Shares of Common Stock are not redeemable and have no preemptive, exchange,
conversion or cumulative voting rights. As a NYSE-listed company, the Fund is
required to hold annual meetings of its stockholders.

      The Fund's Board of Directors has authority to cause the Fund to issue and
sell up to 50,000,000 shares of Preferred Stock, $.001 par value per share, that
may be convertible into shares of the Fund's Common Stock. The terms of such
Preferred Stock are, or would be, fixed by the Board of Directors and materially
limit and/or qualify, or would materially limit and/or qualify, the rights of
the holders of the Fund's Common Stock. See "Investment Goal and Policies --
Risks to Common Stockholders of Borrowing Money and Issuing Senior Securities."

      The following table shows the number of shares of (i) capital stock
authorized and (ii) capital stock outstanding for each class of authorized
securities of the Fund as of December 31, 2002 and as adjusted for the Offer.

                                                                   AMOUNT
                               AMOUNT           AMOUNT           OUTSTANDING,
   TITLE OF CLASS            AUTHORIZED       OUTSTANDING*       AS ADJUSTED
- ----------------------    ---------------    --------------    -----------------
Common Stock                150,000,000        42,417,362       46,719,099**

Preferred Stock              50,000,000         6,400,000         6,400,000
    7.80% Preferred          10,000,000         2,400,000         2,400,000
    7.30% Preferred          10,000,000         4,000,000         4,000,000
- -------------
 *   The Fund does not hold any shares of Common Stock or Preferred Stock for
     its own account.
**   If the Fund increases the amount of Shares subject to the Offer
     by 20% in order to satisfy over-subscription requests, the amount of shares
     of Common Stock outstanding as adjusted would be increased by 860,347
     Shares to an aggregate of 47,579,446 Shares.



                                       24
<PAGE>

COMMON STOCK

      Net Asset Values and Sales Prices. The Fund's shares of Common Stock are
publicly held and are listed and traded on the NYSE under the symbol "RVT." The
following table sets forth for the periods indicated the high and low sales
prices on the NYSE per share of Common Stock of the Fund, the NAV per share on
the dates of the market highs and lows and the number of shares traded.

<TABLE>
<CAPTION>
                                                                   NET ASSET VALUE
                                 MARKET PRICE PER SHARE           PER SHARE ON DATE
                                      AND RELATED                  OF MARKET HIGH         REPORTED NYSE
                             DISCOUNT (-)/PREMIUM (+) (1)(2)         AND LOW (3)              VOLUME
                             --------------------------------  -----------------------  --------------------
Quarter Ended                    High               Low           High          Low
                             ---------------  ---------------  ----------- -----------

<S>                          <C>      <C>     <C>      <C>       <C>           <C>        <C>
March 31, 2001               $16.61   -8.5%   $13.80   -10.7%    $16.83        $15.09     3.2 million shs
June 30, 2001                 16.73   -9.9     13.95    -7.1      18.56         15.01     3.7 million shs
September 30, 2001            16.25   -9.3     12.57    -9.4      17.92         13.87     6.2 million shs
December 31, 2001             16.10   -4.4     12.98    -9.5      17.41         14.35     5.8 million shs
March 31, 2002                17.95   -3.8     15.45    -9.0      18.66         16.97     6.9 million shs
June 30, 2002                 18.90   -1.6     15.59    -3.2      19.28         16.09     7.1 million shs
September 30, 2002            16.05   -0.3     12.59    +0.2      16.10         12.41     5.9 million shs
December 31, 2002             15.22   +4.9     11.66    +2.1      14.51         11.42     4.7 million shs
</TABLE>

- ---------------------
(1)   Highest and lowest market price per share reported on the NYSE.
(2)   "Related Discount (-) / Premium (+)" represents the discount or premium
      from NAV of the shares on the date of the high and low market price for
      the respective quarter.
(3)   Based on the Fund's computations.

      As evidenced by the above table, the Common Stock has generally traded in
the market below NAV. On January 3, 2003, when the Offer was publicly announced,
the NAV per share of Common Stock was $13.53, and the closing price on the NYSE
was $13.98, representing a premium of 3.3% above NAV. On January 22, 2003, such
NAV was $13.07, and such closing price was $14.30, representing a premium of
9.4% above NAV.

      There can be no assurance that the Common Stock will trade in the future
at, above or below NAV.

      Distributions. So long as any shares of Preferred Stock are outstanding,
holders of the Fund's Common Stock will not be entitled to receive any dividends
or other distributions from the Fund unless all accumulated dividends on
outstanding shares of Preferred Stock have been paid, and unless asset coverage
(as defined in the 1940 Act) with respect to such Preferred Stock would be at
least 200% after giving effect to such distributions.

         Net Asset Value. The NAV of the Fund's shares of Common Stock is
calculated at the close of regular trading on the NYSE (generally 4:00 p.m.
Eastern time) every day that the NYSE is open. The Fund makes this information
available daily by telephone (800-221-4268), via its web site
(www.roycefunds.com) and through electronic distribution for media publication,
including major internet-based financial services web sites and portals
(bloomberg.com, yahoo.com, cbsmarketwatch.com, etc.). Currently, The Wall Street
Journal, The New York Times and Barron's publish NAVs for closed-end investment
companies weekly.

      The NAV per share of the Common Stock is calculated by dividing the
current value of the Fund's total assets less the sum of all of its liabilities
and the aggregate liquidation preferences of its outstanding shares of Preferred
Stock, by the total number of outstanding shares of Common Stock. The Fund's
investments are valued based on market prices or, if market quotations are not
readily available, at their fair value as determined in good faith under
procedures established by the Fund's Board of Directors.


                                       25

<PAGE>

PREFERRED STOCK

      General. Under the Charter, the Fund is authorized to issue up to
10,000,000 shares of 7.80% Preferred and up to 10,000,000 shares of 7.30%
Preferred. As of the date of this Prospectus, there were 2,400,000 shares of
7.80% Preferred issued and outstanding and 4,000,000 shares of 7.30% Preferred
issued and outstanding, constituting the only authorized series of Preferred
Stock. The 7.80% Preferred and 7.30% Preferred rank on a parity with each other
as to dividends and payment upon liquidation. The Board of Directors reserves
the right to issue additional shares of 7.80% Preferred, 7.30% Preferred or
other Preferred Stock from time to time, subject to the restrictions in the
Charter and the 1940 Act. The shares of all Preferred Stock will, upon issuance,
be fully paid and nonassessable. Any shares of Issued Preferred 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 may not issue any class of stock senior to the shares of
Issued Preferred.

      Under the 1940 Act, the Fund is permitted to have outstanding more than
one series of Preferred Stock so long as no single series has priority over
another series as to the distribution of assets of the Fund or the payment of
dividends. Holders of the Fund's Issued Preferred do not have preemptive rights
to purchase any shares of Preferred Stock that might be issued.

      Distributions. Holders of shares of 7.80% Preferred and 7.30% Preferred
are 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 7.80% and 7.30%, respectively, per share of their liquidation
preference of $25.00 per share, payable quarterly. The Issued Preferred is
listed and traded on the NYSE. If the Fund fails to pay dividends for two years
or more, holders of the Issued Preferred will acquire certain additional voting
rights. See "Voting Rights." Such rights will be their exclusive remedy for any
such failure.

      Redemption. Prior to August 15, 2003 (with respect to the 7.80% Preferred)
and June 22, 2003 (with respect to the 7.30% Preferred), the Fund may not redeem
the Issued Preferred unless failure to do so would cause the Fund to fail to (i)
satisfy the asset coverage test, (ii) maintain the discounted asset coverage
required by Moody's or (iii) continue to qualify for tax treatment as a
regulated investment company.

      Shares of Issued Preferred will generally be redeemable at the option of
the Fund at a price equal to their liquidation preference of $25.00 per share
plus an amount equal to all unpaid dividends accumulated to and including the
date fixed for such payment (whether or not earned or declared by the Fund, but
excluding interest thereon) (the "Liquidation Preference"). Shares of the Issued
Preferred are subject to mandatory redemption at a price equal to their
liquidation preference plus accumulated but unpaid dividends to the date of
redemption upon the occurrence of certain specified events, such as the failure
of the Fund to maintain the asset coverage for the Issued Preferred specified by
Moody's in connection with their issuance of ratings on the Issued Preferred.

      Liquidation Rights. Upon a liquidation, dissolution or winding up of the
affairs of the Fund (whether voluntary or involuntary), holders of then
outstanding shares of Preferred Stock 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, a 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 Issued Preferred and any other outstanding class or
series of Preferred Stock ranking on a parity with the Issued Preferred as to
payment upon liquidation, will be insufficient to permit the payment in full to
such holders of Issued Preferred 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 Issued Preferred 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 Issued Preferred, no dividends or
distributions will be made to holders of the Common Stock or any other stock of
the Fund ranking junior to the Issued Preferred as to liquidation.


                                       26
<PAGE>

      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.

      Rating Agency Guidelines. The Fund intends that, so long as shares of
Issued Preferred are outstanding, the composition of its portfolio will reflect
guidelines established by Moody's in connection with the Fund's receipt of a
rating for the Issued Preferred of Aaa from Moody's. Moody's issues ratings for
various securities reflecting the perceived creditworthiness of those
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 have been adopted by the Fund in
order to receive the above-described ratings for shares of Issued Preferred,
which ratings are generally relied upon by investors in purchasing such
securities. The guidelines provide a set of tests for portfolio composition and
asset coverage that supplement (and in some cases are more restrictive than) the
applicable requirements under the 1940 Act.

      The Fund intends to maintain a portfolio value at least equal to the
discounted value of the assets in its portfolio which satisfies minimum values
set by Moody's. Upon any failure to do this, the Fund will seek to alter the
composition of its portfolio to satisfy Moody's. To the extent it is not able to
do so in a timely basis, the Fund may redeem shares of Issued Preferred in
accordance with their terms.

      A securities rating is not a recommendation to buy, sell or hold
securities and is subject to revision or withdrawal at any time by the assigning
rating agency. Each rating should be evaluated independently of any other
rating.

      Voting Rights. Except as otherwise stated in this Prospectus and as
otherwise required by applicable law, holders of shares of Issued Preferred 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 each series of Issued
Preferred will be entitled as a series, to the exclusion of the holders of all
other securities, including the other series of Issued Preferred, other
Preferred Stock, Common Stock and other classes of capital stock of the Fund, to
vote on matters affecting such series of the Issued Preferred that do not
materially adversely affect any of the contract rights of holders of such other
securities, including the other series of Issued Preferred, other Preferred
Stock, Common Stock and other classes of capital stock, as expressly set forth
in the Fund's Charter, and (ii) holders of outstanding shares of each series of
Issued Preferred will not be entitled to vote on matters affecting the other
series of Issued Preferred or any other Preferred Stock that do not materially
adversely affect any of the contract rights of holders of such series of Issued
Preferred, as expressly set forth in the Charter. The foregoing voting
provisions will not apply to any shares of Issued Preferred 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 as required by the Charter.

      In connection with the election of the Fund's Directors, holders of shares
of Issued Preferred 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 Issued Preferred and any other Preferred Stock, voting
together as single class. In addition, if at any time dividends on outstanding
shares of Issued Preferred 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 other Preferred Stock are entitled, together with the
holders of shares of Issued Preferred, 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
Issued Preferred 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 Issued Preferred 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 Issued Preferred and any other Preferred Stock for all past dividend periods,
the additional voting rights of the holders of shares of Issued

                                       27
<PAGE>

Preferred 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 Issued Preferred 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 Issued
Preferred and any other Preferred Stock have the right to elect in any event)
will terminate automatically.

      So long as shares of Issued Preferred are outstanding, the Fund may not,
without the affirmative vote of the holders of two-thirds of the shares of
Issued Preferred 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 Issued Preferred.
The Board of Directors, however, without stockholder approval, may amend, alter
or repeal the rating agency guidelines applicable to the Issued Preferred 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 Issued
Preferred. Furthermore, under certain circumstances, without the vote of
stockholders, the Board of Directors may determine that it is not in the best
interests of the Fund to continue to comply with the rating agency guidelines.
See "Rating Agency Guidelines" above. The affirmative vote of a majority of the
votes entitled to be cast by holders of outstanding shares of the Issued
Preferred and any other Preferred Stock, voting as a separate class, will be
required to approve any plan of reorganization adversely affecting such shares
or any action requiring a vote of security holders under Section 13(a) of the
1940 Act, including, among other things, changes in the Fund's primary
investment goal or changes in the investment restrictions described as
fundamental policies under "Investment Restrictions" in the Statement of
Additional Information. The class vote of holders of shares of the Issued
Preferred 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 Issued Preferred and any other Preferred Stock, voting together as a
single class, necessary to authorize the action in question.

      Issuance of Additional Issued Preferred. So long as any shares of Issued
Preferred are outstanding, the Fund may issue and sell up to 7,600,000
additional shares of 7.80% Preferred, 6,000,000 additional shares of 7.30%
Preferred and/or shares of one or more other series of Preferred Stock, provided
that the provisions of the Charter relating to such issuance are satisfied.

      Repurchase of Issued Preferred. The Fund is a closed-end investment
company and, as such, holders of Issued Preferred do not, and will not, have the
right to redeem their shares of the Fund. The Fund may, however, repurchase
shares of the Issued Preferred and/or any other Preferred Stock when it is
deemed advisable by the Board of Directors in compliance with the requirements
of the 1940 Act and the rules and regulations thereunder.

CERTAIN CORPORATE GOVERNANCE PROVISIONS

      The six Fund Directors who are elected by the holders of Common Stock and
Preferred Stock voting together are divided into three classes, each having a
staggered term of three years. The two Directors elected only by the holders of
Preferred Stock stand for election at each annual meeting of stockholders.
Accordingly, it likely would take three years to change a majority of the Board
of Directors. Vacancies on the Board of Directors for one or more of the six
classified positions may be filled by the remaining Directors for the balance of
the term of the class.

      The Fund's By-laws permit stockholders to call a special meeting of
stockholders only if certain procedural requirements are met and the request is
made by stockholders entitled to cast at least a majority of the votes entitled
to be cast at such a meeting. The By-laws also require that advance notice be
given to the Fund in the event a stockholder desires to nominate a person for
election to the Board of Directors or to transact any other business at an
annual meeting of stockholders. With respect to an annual meeting of
stockholders, notice of any such nomination or business must be delivered to or
received at the principal executive offices of the Fund not less than 90
calendar days nor more than 120 calendar days prior to the anniversary of the
date of mailing of the notice for the preceding year's annual meeting (subject
to certain exceptions). Any advance notice by a stockholder must be accompanied
by certain information as provided in the By-laws.

      Certain provisions of the 1940 Act and the Charter require a separate
additional vote of the holders of Preferred Stock to approve certain
transactions, including certain mergers, asset dispositions and conversion of
the Fund to open-end status.

                                       28
<PAGE>

      These provisions may have the effect of maintaining the continuity of
management and thus may make it more difficult for the Fund's stockholders to
change the majority of Directors.

                            REPURCHASES OF SECURITIES

      The Fund is a closed-end diversified management investment company and, as
such, its stockholders do not, and will not, have the right to redeem their
shares of the Fund. Although the Fund will not offer to repurchase its shares of
Common Stock and/or Issued Preferred on a periodic basis, it may repurchase its
shares of Common Stock and/or Issued Preferred on such occasions when it is
deemed advisable by the Fund. Under the 1940 Act, the Fund may repurchase its
securities (i) on a securities exchange or such other open market designated by
the SEC (provided that the Fund has, in the case of purchases of its stock,
informed holders of the class of stock involved within the preceding six months
of its intention to repurchase such stock), (ii) by a tender offer open to all
holders of the class of securities involved or (iii) as otherwise permitted by
the SEC. Where a repurchase of shares of the Fund is to be made that is not to
be effected on a securities exchange or an open market or by the making of a
tender offer, the 1940 Act provides that certain conditions must be met
regarding, among other things, distribution of net income, identity of the
seller, price paid, brokerage commissions, prior notice to holders of the class
of its securities involved of an intention to purchase such securities and the
purchase not being made in a manner or on a basis which discriminates unfairly
against the other holders of such class. The Fund may incur debt, in an amount
not exceeding 10% of its total assets, to finance share repurchase transactions.
Any related interest charges will be paid by the Fund and borne pro rata by the
stockholders indirectly through their interest in the Fund. See "Investment Goal
and Policies -- Risks to Common Stockholders of Borrowing Money and Issuing
Senior Securities."

      If the Fund repurchases its shares of Common Stock for a price below their
NAV, the NAV of those shares of Common Stock that remain outstanding would be
enhanced, but this does not necessarily mean that the market price of those
outstanding shares would be affected, either positively or negatively.
Repurchases of shares of Common Stock by the Fund would also decrease its total
assets and accordingly may increase its expenses as a percentage of average net
assets. Further, interest on any borrowings to finance any such share repurchase
transactions would reduce the Fund's net income.

      The Board of Directors of the Fund has authorized the Fund to repurchase
up to 300,000 shares of its Common Stock and up to 10% of each series of Issued
Preferred during the year ending December 31, 2003. Any such repurchases would
take place at then prevailing prices in the open market or in other
transactions. Common Stock repurchases would be effected at a price per share
that is less than the share's then current NAV, and Preferred Stock repurchases
would be effected at a price per share that is less than the share's liquidation
preference.

                 DIVIDENDS, DISTRIBUTIONS AND REINVESTMENT PLAN

      The Fund currently has a policy of paying quarterly distributions to its
Common Stockholders. Distributions are currently being made at the annual rate
of 9% of the rolling average of the prior four calendar quarter-end NAVs of the
Fund's Common Stock, with the fourth quarter distribution being the greater of
2.25% of the rolling average or the distribution required by the Code. The
Fund's final distribution for each calendar year will include any remaining net
investment income and net realized capital gains deemed, for Federal income tax
purposes, undistributed during the year, and may, but need not, include all net
long-term capital gains realized during the year. If, for any calendar year, the
total distributions exceed net investment income and net realized capital gains,
the excess will generally be treated as a tax-free return of capital (up to the
amount of the stockholder's tax basis in his or her shares). The amount treated
as a tax-free return of capital will reduce a stockholder's adjusted basis in
his or her shares, thereby increasing his or her potential gain or reducing his
or her potential loss on the sale of his or her shares. Pursuant to the
requirements of the 1940 Act and other applicable laws, a notice will accompany
each quarterly distribution with respect to the estimated source of the
distribution made. Such distribution policy may, under certain circumstances,
have certain adverse consequences to the Fund and its stockholders. In addition,
in order to make such distributions, the Fund may have to sell a portion of its
investment portfolio at a time when independent investment judgment might not
dictate such action. The Fund's quarterly distribution policy may be changed by
the Board of Directors without stockholder approval.

      The Fund has adopted a Distribution Reinvestment and Cash Purchase Plan
(the "Plan"), through which all such net investment income dividends and capital
gains distributions are paid to stockholders in the form of

                                       29
<PAGE>

additional shares of the Fund's Common Stock (plus cash in lieu of any
fractional shares which otherwise would have been issuable), unless a
stockholder elects to receive cash as provided below. In this way, a stockholder
can maintain an undiluted investment in the Fund and still allow the Fund to pay
out the required distributable income.

      Distributions to Issued Preferred stockholders are recorded on an accrual
basis and paid quarterly. See "Description of Capital Stock -- Preferred Stock
- -- Distributions."

      No action is required on the part of a registered stockholder to receive a
distribution in shares of Common Stock of the Fund. A registered stockholder may
elect to receive an entire distribution in cash by notifying Equiserve, the Plan
Agent and the Fund's transfer agent and registrar, in writing so that such
notice is received by Equiserve no later than 10 days prior to the record date
for distributions to stockholders. Equiserve will set up an account for shares
acquired through the Plan for each stockholder who has not elected to receive
distributions in cash ("Participant") and hold such shares in non-certificated
form. Upon request by a Participant, received in writing not less than 10 days
prior to the record date, Equiserve will, instead of crediting shares to the
Participant's account, issue a certificate registered in the Participant's name
for the number of whole shares of the Fund's Common Stock and a check for any
fractional share.

      Those stockholders whose shares are held by a broker or other financial
intermediary may receive distributions in cash by notifying their broker or
other financial intermediary.

      The Fund uses only newly-issued shares to implement the Plan, whether its
shares are trading at a premium or at a discount to NAV. The number of shares to
be issued to a stockholder is determined by dividing the total dollar amount of
the distribution payable to such stockholder by the market price per share of
the Fund's Common Stock at the close of regular trading on the NYSE on the
valuation date for such distribution. Market price per share on that date will
be the closing price for such shares on NYSE or, if no sale is reported for such
day, at the average of their electronically-reported bid and asked prices. The
number of shares of the Fund's Common Stock to be outstanding after giving
effect to payment of the distribution cannot be established until the value per
share at which additional shares will be issued has been determined and
elections of the Fund's stockholders have been tabulated.

      There is no charge to stockholders for receiving their distributions in
the form of additional shares of the Fund's Common Stock. Equiserve's fees for
handling distributions in stock are paid by the Fund. There are no brokerage
charges with respect to shares issued directly by the Fund as a result of
distributions payable in stock. If a Participant elects by written notice to
Equiserve to have Equiserve sell part or all of the shares held by Equiserve in
the Participant's account and remit the proceeds to the Participant, Equiserve
is authorized to deduct a $2.50 transaction fee plus brokerage commissions from
the proceeds.

      Stockholders who receive distributions in the form of stock are subject to
the same Federal, state and local tax consequences as are stockholders who elect
to receive their distributions in cash. A stockholder's basis for determining
gain or loss upon the sale of stock received in a distribution from the Fund
will be equal to the total dollar amount of the distribution payable to the
stockholder.

                                    TAXATION

      The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Code. The Fund currently intends to distribute all
or substantially all its investment company taxable income (all taxable net
investment income and net short-term capital gains) and its net capital gain
each year, thereby avoiding the imposition on the Fund of Federal income and
excise taxes on such distributed income and gain.

      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
"ordinary income dividends") are taxable to stockholders as ordinary income.
Distributions made from an excess of net long-term gains over net short-term
losses (including gains or losses from certain transactions in warrants 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. After the end of each taxable year, the Fund will notify stockholders of
the Federal income tax status of any distributions or deemed distributions made
by the Fund during such year.

                                       30
<PAGE>

      Ordinary income dividends 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 advisors concerning the applicability of the United States withholding
tax.

      Under certain Code provisions, some stockholders may be subject to a
backup withholding tax on certain ordinary income dividends and on capital gain
dividends ("backup withholding"). Generally, stockholders subject to backup
withholding are those for whom no certified taxpayer identification number is on
file with the Fund or who, to the Fund's knowledge, have furnished an incorrect
number.

      This section summarizes some of the consequences under current Federal
income tax law of an investment in the Fund. It is not a substitute for personal
tax advice. Fund stockholders are urged to consult their own tax advisors to
determine the Federal income tax as well as state and local tax consequences to
them of the ownership of stock of the Fund. See "Taxation" in the Statement of
Additional Information.

                     CUSTODIAN, TRANSFER AGENT AND REGISTRAR

      State Street Bank and Trust Company, Two Heritage Drive, North Quincy,
Massachusetts 02171, acts as custodian of the cash and other assets of the Fund.
Equiserve Trust Company, N.A., 225 Franklin Street, Boston, Massachusetts 02110,
acts as transfer agent and registrar for the Fund's shares and as Plan Agent
under its Plan. Stockholder inquiries should be directed to P.O. Box 8200,
Boston, Massachusetts 02266-8200 (Tel. No. (800) 426-5523).

                                     EXPERTS

      Tait, Weller & Baker, independent auditors, are the independent auditors
of the Fund. The audited financial statements of the Fund and certain of the
information appearing under the caption "Financial Highlights" included in this
Prospectus have been audited by Tait, Weller & Baker and Ernst & Young LLP for
the periods indicated in their reports with respect thereto, and are included in
reliance upon such reports and upon the authority of such firms as experts in
accounting and auditing. Tait, Weller & Baker has an office at 1818 Market
Street, Suite 2400, Philadelphia, Pennsylvania 19103, and also performs tax and
other professional services for the Fund. Ernst & Young LLP has an office at 5
Times Square, New York, New York 10036.

                             ADDITIONAL INFORMATION

      A Statement of Additional Information dated January 28, 2003 has been
filed with the SEC and is incorporated by reference in this Prospectus. The
Table of Contents of the Statement of Additional Information is as follows:

                                                                            Page
                                                                            ----
     Risk Factors and Special Considerations...........................      B-2
     Investment Restrictions...........................................      B-5
     Principal Stockholders............................................      B-6
     Directors and Officers............................................      B-7
     Code of Ethics and Related Matters................................     B-12
     Investment Advisory and Other Services............................     B-13
     Taxation..........................................................     B-13
     Brokerage Allocation and Other Practices..........................     B-15
     Net Asset Value...................................................     B-16
     Financial Statements..............................................     B-17


                                       31
<PAGE>


                                       32

<TABLE>
<CAPTION>
======================================================        ========================================================


<S>                                                                             <C>
     YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED                          4,301,737 SHARES OF
IN THIS PROSPECTUS AND THE RELATED STATEMENT OF                                 COMMON STOCK ISSUABLE
ADDITIONAL INFORMATION. WE HAVE NOT AUTHORIZED ANY                              UPON EXERCISE OF
OTHER PERSON TO PROVIDE YOU WITH DIFFERENT                                      NON-TRANSFERABLE RIGHTS
INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT                              TO SUBSCRIBE FOR SUCH
OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY                                SHARES OF COMMON STOCK
ON IT. WE ARE NOT MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE
INFORMATION APPEARING IN THIS PROSPECTUS AND THE
RELATED STATEMENT OF ADDITIONAL INFORMATION IS
ACCURATE ONLY AS OF THE DATE ON THE FRONT COVERS OF
THIS PROSPECTUS AND THE RELATED STATEMENT OF
ADDITIONAL INFORMATION. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY
HAVE CHANGED SINCE THAT DATE.

                --------------------

                  TABLE OF CONTENTS
                                                 PAGE                                ROYCE VALUE
                                                 ----                                 TRUST, INC.
Prospectus Summary...........................       3
Fund Expenses................................       7
Financial Highlights.........................       8
Investment Performance.......................      10
The Offer....................................      11
Use of Proceeds..............................      17
Investment Goal and Policies.................      17
Investment Advisory and Other Services.......      21
Description of Capital Stock.................      24
Repurchases of Securities....................      29
Dividends, Distributions and
   Reinvestment Plan.........................      29
Taxation.....................................      30
Custodian, Transfer Agent and Registrar......      31
Experts......................................      31                                _______________
Additional Information.......................      31
                                                                                    PROSPECTUS
                                                                                  _______________





                                                                                  January 28, 2003




======================================================        ========================================================
</TABLE>


<PAGE>

                             ROYCE VALUE TRUST, INC.

                       STATEMENT OF ADDITIONAL INFORMATION


         ROYCE VALUE TRUST, INC. (the "Fund") is a closed-end diversified
management investment company, whose shares of Common Stock are listed on the
New York Stock Exchange under the symbol "RVT." Its primary investment objective
is long-term capital appreciation, with current income as a secondary objective.

         This Statement of Additional Information is not a prospectus, but
should be read in conjunction with the Fund's Prospectus dated January 28, 2003.
Please retain this document for future reference. To obtain a copy of the
Prospectus or the Fund's Annual Report to Stockholders for the year ended
December 31, 2001, Semi-Annual Report to Stockholders for the six months ended
June 30, 2002 or Annual Report to Stockholders for the year ended December 31,
2002 (which is expected to be mailed to stockholders and available on the Fund's
website (www.roycefunds.com) on or around February 28, 2003), please call
Investor Information at 1-800-221-4268.


                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
Risk Factors and Special Considerations................................     B-2
Investment Restrictions................................................     B-5
Principal Stockholders.................................................     B-6
Directors and Officers.................................................     B-7
Code of Ethics and Related Matters.....................................     B-12
Investment Advisory and Other Services.................................     B-13
Taxation...............................................................     B-13
Brokerage Allocation and Other Practices...............................     B-15
Net Asset Value........................................................     B-16
Financial Statements...................................................     B-17


                                JANUARY 28, 2003
<PAGE>


                     RISK FACTORS AND SPECIAL CONSIDERATIONS

FUND'S RIGHTS AS STOCKHOLDER

         The Fund may not invest in a company for the purpose of exercising
control of management. However, the Fund may exercise its rights as a
stockholder and communicate its views on important matters of policy to
management, the board of directors and/or stockholders if Royce & Associates,
LLC (which term as used in this Statement of Additional Information includes its
corporate predecessor) ("Royce" or the "Investment Adviser") or the Board of
Directors determines that such matters could have a significant effect on the
value of the Fund's investment in the company. The activities that the Fund may
engage in, either individually or in conjunction with others, may include, among
others, supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's board of
directors or management; seeking changes in a company's direction or policies;
seeking the sale or reorganization of a company or a portion of its assets; or
supporting or opposing third party takeover attempts. This area of corporate
activity is increasingly prone to litigation, and it is possible that the Fund
could be involved in lawsuits related to such activities. Royce will monitor
such activities with a view to mitigating, to the extent possible, the risk of
litigation against the Fund and the risk of actual liability if the Fund is
involved in litigation. However, no assurance can be given that litigation
against the Fund will not be undertaken or liabilities incurred.

         The Fund may, at its expense or in conjunction with others, pursue
litigation or otherwise exercise its rights as a security holder to seek to
protect the interests of security holders if Royce and the Board of Directors
determine this to be in the best interests of the Fund's stockholders.

HIGH-YIELD AND INVESTMENT GRADE DEBT SECURITIES

         The Fund may invest up to 5% of its net assets in  high-yield,
non-convertible debt securities. They may be rated from Ba to Ca by Moody's or
from BB to D by Standard & Poor's ("S&P") or may be unrated. These securities
have poor protection with respect to the payment of interest and repayment of
principal and may be in default as to the payment of principal or interest.
These securities are often speculative and involve greater risk of loss or price
changes due to changes in the issuer's capacity to pay. The market prices of
high-yield debt securities may fluctuate more than those of higher-rated debt
securities and may decline significantly in periods of general economic
difficulty, which may follow periods of rising interest rates.

         The market for high-yield debt securities may be thinner and less
active than that for higher-rated debt securities, which can adversely affect
the prices at which the former are sold. If market quotations cease to be
readily available for a high-yield debt security in which the Fund has invested,
the security will then be valued in accordance with procedures established by
the Board of Directors. Judgment may play a greater role in valuing high-yield
debt securities than is the case for securities for which more external sources
for quotations and last sale information are available. Adverse publicity and
changing investor perceptions may affect the Fund's ability to dispose of
high-yield debt securities.

         Since the risk of default is higher for high-yield debt securities,
Royce's research and credit analysis may play an important part in managing
securities of this type for the Fund. In considering such investments for the
Fund, Royce will attempt to identify those issuers of high-yield debt securities
whose financial condition is adequate to meet future obligations, has improved
or is expected to improve in the future. Royce's analysis may focus on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects and the experience and managerial strength of the issuer.

         The Fund may also invest in non-convertible debt securities in the
lowest rated category of investment grade debt. Such securities may have
speculative characteristics, and adverse changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities.

         The Fund may also invest in higher rated investment grade non-
convertible debt securities. Such securities include those rated Aaa by Moody's
or AAA by S&P (which are considered to be of the highest credit quality and
where the capacity to pay interest and repay principal is extremely strong),
those rated Aa by Moody's or AA by

                                      B-2
<PAGE>


S&P (where the capacity to repay principal is considered very strong, although
elements may exist that make risks appear somewhat larger than expected with
securities rated Aaa or AAA), securities rated A by Moody's or A by S&P (which
are considered to possess adequate factors giving security to principal and
interest) and securities rated Baa by Moody's or BBB by S&P (which are
considered to have an adequate capacity to pay interest and repay principal, but
may have some speculative characteristics).

FOREIGN INVESTMENTS

         The Fund may invest up to 10% of its total assets in the securities
of foreign issuers. (For purposes of this restriction, securities issued by a
foreign domiciled company that are registered with the SEC under Section 12(b)
or (g) of the Securities Exchange Act of 1934 are not treated as securities of
foreign issuers.) Foreign investments involve certain risks which typically are
not present in securities of domestic issuers. There may be less information
publicly available about a foreign company than a domestic company; foreign
companies may not be subject to accounting, auditing and reporting standards and
requirements comparable to those applicable to domestic companies; and foreign
markets, brokers and issuers are generally subject to less extensive government
regulation than their domestic counterparts. Markets for foreign securities may
be less liquid and may be subject to greater price volatility than those for
domestic securities. Foreign brokerage commissions and custodial fees are
generally higher than those in the United States. Foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, thereby making it difficult to conduct such
transactions. Delays or problems with settlements might affect the liquidity of
the Fund's portfolio. Foreign investments may also be subject to local economic
and political risks, political, economic and social instability, military action
or unrest or adverse diplomatic developments, and possible nationalization of
issuers or expropriation of their assets, which might adversely affect the
Fund's ability to realize on its investment in such securities. Royce may not be
able to anticipate these potential events or counter their effects. Furthermore,
some foreign securities are subject to brokerage taxes levied by foreign
governments, which have the effect of increasing the cost of such investment and
reducing the realized gain or increasing the realized loss on such securities at
the time of sale. Foreign markets may also give less protection to investors
such as the Fund.

         Although changes in foreign currency rates may adversely affect the
Fund's foreign investments, Royce does not expect to purchase or sell foreign
currencies for the Fund to hedge against declines in the U.S. dollar or to lock
in the value of any foreign securities it purchases for the Fund. Consequently,
the risks associated with such investments may be greater than if the Fund were
to engage in foreign currency transactions for hedging purposes.

         Exchange control  regulations in such foreign markets may also
adversely affect the Fund's foreign investments, and the Fund's ability to make
certain distributions necessary to maintain its eligibility as a regulated
investment company and avoid the imposition of income and excise taxes may, to
that extent, be limited.

         The considerations noted above are generally intensified for
investments in developing countries. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.

         The Fund may purchase the securities of foreign companies in the form
of American Depositary Receipts (ADRs). ADRs are certificates held in trust by a
bank or similar financial institution evidencing ownership of securities of a
foreign-based issuer. Designed for use in U.S. securities markets, ADRs are
alternatives to the purchase of the underlying foreign securities in their
national markets and currencies.

         Depositories may establish either unsponsored or sponsored ADR
facilities. While ADRs issued under these two types of facilities are in some
respects similar, there are distinctions between them relating to the rights and
obligations of ADR holders and the practices of market participants. A
depository may establish an unsponsored facility without participation by (or
even necessarily the acquiescence of) the issuer of the deposited securities,
although typically the depository requests a letter of non-objection from such
issuer prior to the establishment of the facility. Holders of unsponsored ADRs
generally bear all the costs of such facilities. The depository usually charges
fees upon the deposit and withdrawal of the deposited securities, the conversion
of dividends into U.S. dollars, the disposition of non-cash distributions and
the performance of other services. The depository of an unsponsored facility
frequently is under no obligation to distribute stockholder communications

                                      B-3
<PAGE>

received from the issuer of the deposited securities or to pass through voting
rights to ADR holders in respect of the deposited securities. Depositories
create sponsored ADR facilities in generally the same manner as unsponsored
facilities, except that the issuer of the deposited securities enters into a
deposit agreement with the depository. The deposit agreement sets out the rights
and responsibilities of the issuer, the depository and the ADR holders. With
sponsored facilities, the issuer of the deposited securities generally will bear
some of the costs relating to the facility (such as deposit and withdrawal
fees). Under the terms of most sponsored arrangements, depositories agree to
distribute notices of stockholder meetings and voting instructions and to
provide stockholder communications and other information to the ADR holders at
the request of the issuer of the deposited securities.

REPURCHASE AGREEMENTS

         In a repurchase agreement, the Fund in effect makes a loan by
purchasing a security and simultaneously committing to resell that security to
the seller at an agreed upon price on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement requires or obligates the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked to market daily) of the underlying
security.

         The Fund may engage in repurchase agreements, provided that such
agreements are collateralized by cash or securities issued by the U.S.
Government or its agencies having a value at least equal to the amount loaned.
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. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility of a
decline in the market value of the underlying securities, as well as delays and
costs to the Fund in connection with bankruptcy proceedings), it is the policy
of the Fund to enter into repurchase agreements only with its custodian, State
Street Bank and Trust Company, and having a term of seven days or less.

WARRANTS, RIGHTS AND OPTIONS

         The Fund may invest up to 5% of its total assets in  warrants, rights
and 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. 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, their market prices do not necessarily move parallel to the
market prices of the underlying securities.

         The sale of warrants, rights or options held for more than one year
generally results in a long-term capital gain or loss to the Fund, and the sale
of warrants, rights or options held for one year or less generally results in a
short term capital gain or loss. The holding period for securities acquired upon
exercise of a warrant, right or call option, however, generally begins on the
day after the date of exercise, regardless of how long the warrant, right or
option was held. The securities underlying warrants, rights and options could
include shares of common stock of a single company or securities market indices
representing shares of the common stocks of a group of companies, such as the
S&P SmallCap Stock Price 600 Index ("S&P 600 Index").

         Investing in warrants, rights and call options on a given security
allows the Fund to hold an interest in that security without having to commit
assets equal to the market price of the underlying security and, in the case of
securities market indices, to participate in a market without having to purchase
all of the securities comprising the index. Put options, whether on shares of
common stock of a single company or on a securities market index, would permit
the Fund to protect the value of a portfolio security against a decline in its
market price and/or to benefit from an anticipated decline in the market price
of a given security or of a market. Thus, investing in warrants, rights and
options permits the Fund to incur additional risk and/or to hedge against risk.

                                      B-4
<PAGE>

RISKS TO COMMON STOCKHOLDERS OF BORROWING MONEY AND ISSUING SENIOR SECURITIES

         Asset Coverage  Test. Section 18(a)(1) of the Investment Company Act of
1940, as amended (the "1940 Act") permits a registered closed-end company such
as the Fund to issue and sell a class of senior securities (such as the Issued
Preferred) only if, immediately after such issuance and sale, the net asset
value ("NAV") of the Fund's portfolio is at least 200% of the liquidation
preference of the Issued Preferred. Section 18(g) of the 1940 Act defines a
senior security to mean any stock of a class having priority over any other
class as to distribution of assets or payment of dividends. Under Section 18(h)
of the 1940 Act, asset coverage of a class of senior securities of an issuer
which is a stock means the ratio which the value of the issuer's total assets,
less all of its liabilities and indebtedness not represented by senior
securities, bears to the aggregate amount of the issuer's senior securities
representing indebtedness plus the aggregate of the involuntary liquidation
preference of such class of senior security which is a stock. Section 18(a)(1)
of the 1940 Act also prevents the Fund from declaring any cash or other
non-stock dividends or distributions on its Common Stock or purchasing any
shares of its capital stock if, immediately thereafter, the NAV of the Fund's
portfolio (determined after deducting the amount of such dividend or
distribution) is at least 200% of the liquidation preference of its outstanding
Preferred Stock.

         If the asset coverage for outstanding Preferred Stock as of the last
day of March, June, September or December in any calendar year should fall below
200%, the Fund would redeem such Preferred Stock at a price equal to its
liquidation preference plus accumulated but unpaid dividends to the date of
redemption and/or any other senior securities of the Fund then outstanding to
the extent necessary to restore such asset coverage to at least 200%. See
"Description of Capital Stock - Preferred Stock - Redemption" in the Prospectus.

         The Articles Supplementary governing the Issued Preferred (the
"Articles Supplementary") contains more restrictive provisions concerning the
Fund's obligation to maintain asset coverage for the Issued Preferred than those
required by Section 18(a)(1) of the 1940 Act. See "Description of Capital
Stock-Preferred Stock-Rating Agency Guidelines" in the Prospectus.

                                ----------------

         Royce believes that the Fund is suitable for investment only by persons
who can invest without concern for current income, and that the Fund is suitable
only for those investors who are in a financial position to assume above-average
risks in search for long-term capital appreciation.

                             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 set forth under "Investment Goal
and Policies-Changes in Investment Objectives and Policies" in the Prospectus.
The Fund may not:

          1.      Issue any class of senior security, or sell any such security
                  of which it is the issuer, except as permitted by the 1940
                  Act.

          2.      Purchase on margin or write call options on its portfolio
                  securities.

          3.      Sell securities short.

          4.      Underwrite the securities of other issuers, or invest in
                  restricted securities unless such securities are redeemable
                  shares issued by money market funds registered under the 1940
                  Act.

          5.      Invest more than 25% of its total assets in any one industry.

          6.      Purchase or sell real estate or real estate mortgage loans,
                  or invest in the securities of real estate companies unless
                  such securities are publicly-traded.

                                      B-5

<PAGE>

          7.      Purchase or sell commodities or commodity contracts.

          8.      Make loans, except for (a) purchases of portions of issues of
                  publicly-distributed bonds, debentures and other securities,
                  whether or not such purchases are made on the original
                  issuance of such securities, (b) repurchase agreements with
                  any bank that is the custodian of its assets covering U.S.
                  Treasury and agency obligations and having a term of not more
                  than one week and (c) loans of up to 25% of its assets to
                  qualified brokers, dealers or institutions for their use
                  relating to short sales or other security transactions
                  (provided that such loans are secured by collateral equal at
                  all times to at least 100% of the value of the securities
                  loaned).

          9.      Invest in companies for the purpose of exercising control of
                  management.

          10.     Purchase portfolio securities from or sell such securities
                  directly to any of its officers, directors, employees or
                  investment adviser, as principal for their own accounts.

          11.     Invest in the securities of any one issuer (other than the
                  United States or any agency or instrumentality of the United
                  States) if, at the time of acquisition, the Fund would own
                  more than 10% of the voting securities of such issuer or, as
                  to 75% of the Fund's total assets, more than 5% of such assets
                  would be invested in the securities of such issuer.

          12.     Invest more than 5% of its total assets in warrants, rights or
                  options.

         If a percentage restriction is met at the time of investment, a later
increase or decrease in percentage resulting from a change in the value of
portfolio securities or amount of total assets is not considered a violation of
any of the above restrictions.

         In addition to issuing and selling senior securities as set forth in
No. 1 above, the Fund may obtain (i) temporary bank borrowings (not in excess of
5% of the value of its total assets) for emergency or extraordinary purposes and
(ii) such short-term credits (not in excess of 5% of the value of its total
assets) as are necessary for the clearance of securities transactions. Under the
1940 Act and the Articles Supplementary, such temporary bank borrowings would be
treated as indebtedness in determining whether or not asset coverage was at
least 200% for senior securities of the Fund representing indebtedness.

         Although there are no liquidity restrictions on investments made by the
Fund and the Fund may, therefore, invest without limit in illiquid securities,
the Fund expects to invest only in securities for which market quotations are
readily available.


                             PRINCIPAL STOCKHOLDERS

         As of January 22, 2003, there were 42,417,362 shares of Common Stock
and 6,400,000 shares of Preferred Stock of the Fund outstanding. The following
persons were known to the Fund to be beneficial owners or owners of record of 5%
or more of its outstanding shares of Common Stock or Preferred Stock as of the
Record Date:

<TABLE>
<CAPTION>
                                                                       AMOUNT AND NATURE                 PERCENT OF
    NAME AND ADDRESS OF OWNER         CLASS/SERIES OF STOCK              OF OWNERSHIP                   CLASS/SERIES
  -----------------------------    ---------------------------  ------------------------------    -------------------------
  <S>                               <C>                           <C>                                      <C>
  Cede & Co.*                              Common Stock           40,657,633 shares--Record                95.85%
  Depository Trust Company
  P.O. Box #20
  Bowling Green Station                  7.80% Cumulative         2,380,516 shares--Record                 99.19%
  New York, NY 10028                     Preferred Stock

                                       7.30% Tax-Advantaged       3,974,430 shares--Record                 99.40%
                                    Cumulative Preferred Stock
</TABLE>
  ---------------
 *  Shares held by brokerage firms, banks and other financial intermediaries on
    behalf of beneficial owners are registered in the name of Cede & Co.

                                      B-6
<PAGE>

                             DIRECTORS AND OFFICERS

         The Board of Directors of the Fund is comprised of the eight
individuals named below. Two of the Directors, William L. Koke and David L.
Meister, are elected annually by the holders of Issued Preferred, voting as a
separate class. The remaining six Directors are divided into three classes and
are elected by the holders of Common Stock and Issued Preferred, voting together
as a single class. The Class I Directors, Charles M. Royce and G. Peter O'Brien,
have terms that expire in 2003; the Class II Directors, Mark R. Fetting and
Richard M. Galkin, have terms that expire in 2004; and the Class III Directors,
Donald R. Dwight and Stephen L. Isaacs, have terms that expire in 2005. To the
extent permitted by the 1940 Act and Maryland law, vacancies on the Board can be
filled by the remaining Directors for the remainder of the term of the
respective Board position.

         There are no family relationships between any of the Fund's Directors
and officers. Each Director will hold office until his term expires and his
successor has been duly elected or until his earlier resignation or removal.
Each of the Fund's Directors is also a director/trustee of the other management
investment companies comprising The Royce Funds, which have seventeen
portfolios.

DIRECTORS

         Interested Directors. Certain biographical and other information
concerning the Directors who are "interested persons" as defined in the 1940
Act, of the Fund, including their designated classes, is set forth below.
Officers are elected by and serve at the pleasure of the Board of Directors.
Each officer will hold office for the year ending December 31, 2003, and
thereafter until his respective successor is duly elected and qualified.

<TABLE>
<CAPTION>
                                    TERM OF                                                           OTHER PUBLIC
                                   OFFICE AND                                                           COMPANY
  NAME, AGE AND     POSITION(S)    LENGTH OF                                                         DIRECTORSHIPS
    ADDRESS*       WITH THE FUND  TIME SERVED     PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS      HELD BY DIRECTOR
    --------       -------------  -----------     --------------------------------------------      ----------------
<S>                  <C>           <C>           <C>                                                       <C>
Charles M. Royce**    Class I      Term as       President, Chief Investment Officer and                   None
      (63)          Director and   Director      Manager/Director of Royce; and President of The
                      President    expires       Royce Funds.
                                    2003;
                                   Director
                                  and Officer
                                   since 1986

Mark R. Fetting**    Class II       Term as     Executive Vice President of Legg Mason;               Director of
      (48)           Director       Director    Manager/Director of Royce; and Division                registered
                                    expires     President and Senior Officer of Prudential             investment
                                     2004;      Financial Group, Inc. and related companies,           companies
                                    Director    including Fund Boards and consulting services to   constituting four
                                   since 2001   subsidiary companies (from 1991 to 2000). Mr.       Legg Mason Funds
                                                Fetting's prior business experience also
                                                includes having served as Partner, Greenwich
                                                Associates, and Vice President, T. Rowe Price
                                                Group, Inc.
</TABLE>

 ---------
*   Mr. Royce's address is c/o Royce, 1414 Avenue of the Americas, New York, New
    York 10019.  Mr. Fetting's address is c/o Legg Mason, 100 Light Street,
    Baltimore, Maryland 21202.
**  Messrs. Royce and Fetting are "interested persons" of the Fund within the
    meaning of Section 2(a)(19) of the 1940 Act due to the positions they hold
    with Royce and for Mr. Fetting, Legg Mason, and their ownership in Legg
    Mason.

                                      B-7
<PAGE>

         Non-Interested Directors. Certain biographical and other information
concerning the Fund Directors who are not "interested persons," as defined in
the 1940 Act, of the Fund, including their designated classes, is set forth
below. Each non-interested Director is also a member of the Fund's audit
committee.

<TABLE>
<CAPTION>
                                      TERM OF                                                        OTHER PUBLIC
                                    OFFICE AND                                                          COMPANY
   NAME, AGE AND     POSITION(S)     LENGTH OF                                                       DIRECTORSHIPS
     ADDRESS*       WITH THE FUND   TIME SERVED    PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS    HELD BY DIRECTOR
     --------       -------------   -----------    --------------------------------------------    ----------------
<S>                   <C>           <C>          <C>                                               <C>
Donald R. Dwight      Class III       Term as    President of Dwight Partners, Inc., corporate      Trustee of the
       (71)            Director      Director    communications consultants; and Chairman (from       registered
                                      expires    1982 until March 1998) of Newspapers New             investment
                                       2005;     England, Inc. Mr. Dwight's prior experience           companies
                                     Director    includes having served as Lieutenant Governor     constituting the
                                    since 1998   of the Commonwealth of Massachusetts and as        94 Eaton Vance
                                                 President and Publisher of Minneapolis Star and         Funds
                                                 Tribune Company.

Richard M. Galkin      Class II       Term as    Private investor.  Mr. Galkin's prior business          None
       (64)            Director      Director    experience includes having served as President
                                      expires    of Richard M. Galkin Associates, Inc.,
                                       2004;     telecommunications consultants, President of
                                     Director    Manhattan Cable Television (a subsidiary of
                                    since 1986   Time Inc.), President of Haverhills Inc.
                                                 (another Time Inc. subsidiary), President of
                                                 Rhode Island Cable Television and Senior Vice
                                                 President of Satellite Television Corp. (a
                                                 subsidiary of Comsat).

Stephen L. Isaacs     Class III       Term as    President of The Center for Health and Social           None
       (63)            Director      Director    Policy (since September 1996); Attorney and
                                      expires    President of Health Policy Associates, Inc.,
                                       2005;     consultants. Mr. Isaacs' prior experience
                                     Director    includes having served as Director of Columbia
                                    since 1986   University Development Law and Policy Program
                                                 and Professor at Columbia University.

 William L. Koke       Director       Term as    Financial planner with Shoreline Financial              None
       (68)           elected by     Director    Consultants. Mr. Koke's prior business
                      Preferred       expires    experience includes having served as Director
                     Stockholders    annually;   of Financial Relations of SONAT, Inc.,
                                     Director    Treasurer of Ward Foods, Inc. and President of
                                    since 2001   CFC, Inc.
</TABLE>

                                      B-8
<PAGE>

<TABLE>
<CAPTION>
                                    TERM OF                                                           OTHER PUBLIC
                                   OFFICE AND                                                           COMPANY
  NAME, AGE AND     POSITION(S)    LENGTH OF                                                         DIRECTORSHIPS
    ADDRESS*       WITH THE FUND  TIME SERVED     PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS      HELD BY DIRECTOR
    --------       -------------  -----------     --------------------------------------------      ----------------
 <S>                 <C>            <C>          <C>                                                     <C>
 David L. Meister      Director       Term as    Chairman and Chief Executive Officer of The             None
       (63)           elected by     Director    Tennis Channel (since June 2000); and Chief
                      Preferred       expires    Executive Officer of Seniorlife.com (from
                     Stockholders    annually;   December 1999 to May 2000). Mr. Meister's prior
                                     Director    business experience includes having served as a
                                    since 1986   consultant to the communications industry,
                                                 President of Financial News Network, Senior Vice
                                                 President of HBO, President of Time-Life Films
                                                 and Head of Broadcasting for Major League
                                                 Baseball.

 G. Peter O'Brien      Class I        Term as    Trustee of Colgate University, President of           Director/
       (57)            Director      Director    Hill House, Inc. and Managing Director/Equity      Trustee of the
                                      expires    Capital Markets Group of Merrill Lynch & Co.         registered
                                       2003;     (from 1971 to 1999).                                 investment
                                     Director                                                          companies
                                    since 2001                                                     constituting the
                                                                                                     18 Legg Mason
                                                                                                    Funds; Director
                                                                                                    of Renaissance
                                                                                                        Capital
                                                                                                    Greenwich Fund.
- ---------
*     Messrs.  Dwight,  Galkin,  Isaacs,  Koke, Meister and O'Brien's address is c/o Royce, 1414 Avenue of the Americas,
      New York, New York 10019.
</TABLE>


OFFICERS

         Certain biographical and other information concerning the officers of
the Fund is set forth below. Officers are elected by and serve at the pleasure
of the Board of Directors. Each officer will hold office for the year ending
December 31, 2003, and thereafter until his respective successor is duly elected
and qualified.

<TABLE>
<CAPTION>
                                                TERM OF OFFICE
                                POSITION(S)      AND LENGTH OF            PRINCIPAL OCCUPATIONS DURING
   NAME, AGE AND ADDRESS*      WITH THE FUND      TIME SERVED                    PAST FIVE YEARS
   ----------------------      -------------      -----------                    ---------------
<S>                           <C>                <C>             <C>
   John D. Diederich (51)     Vice President,    Officer since   Manager/Director, Chief Operating Officer
                                Director of          2001        (since October 2001), Chief Financial Officer
                               Administration                    (since March 2002) and Managing Director of
                               and Treasurer                     Royce; Vice President, Treasurer and Director
                                                                 of Administration of the other Royce Funds;
                                                                 and President of Royce Fund Services, Inc.

 Jack E. Fockler, Jr. (44)     Vice President    Officer since   Managing Director and Vice President of Royce;
                                                     1995        Vice President of The Royce Funds.
</TABLE>

                                      B-9
<PAGE>

<TABLE>
<CAPTION>
                                                TERM OF OFFICE
                                POSITION(S)      AND LENGTH OF            PRINCIPAL OCCUPATIONS DURING
   NAME, AGE AND ADDRESS*      WITH THE FUND      TIME SERVED                    PAST FIVE YEARS
   ----------------------      -------------      -----------                    ---------------
   <S>                         <C>               <C>             <C>

   W. Whitney George (44)      Vice President    Officer since   Managing Director and Vice President of Royce;
                                                     1995        and Vice President of The Royce Funds.

   Daniel A. O'Byrne (40)      Vice President    Officer since   Principal and Vice President of Royce; and
                               and Assistant         1994        Vice President of The Royce Funds.
                                 Secretary

    John E. Denneen (35)       Secretary and     Officer from    General Counsel of Royce (since January 2003);
                              General Counsel    1996 to 2001    Deputy General  Counsel, Principal, Chief
                                                   and since     Compliance Officer and Secretary of Royce
                                                  April 2002     (since March 2002); Secretary of The Royce
                                                                 Funds (1996-2001 and since April 2002);
                                                                 Associate General Counsel, Principal and Chief
                                                                 Compliance Officer of Royce (1996-2001); and
                                                                 Principal of  Credit Suisse First Boston
                                                                 Private Equity (2001-2002).
</TABLE>
     ---------------
   *   The address of each officer is c/o Royce, 1414 Avenue of the Americas,
       New York, New York 10019.

OWNERSHIP OF SECURITIES

         Information relating to each Director's share ownership in the Fund and
in The Royce Funds as of December 31, 2002 is set forth in the tables below.

<TABLE>
<CAPTION>
                                           Aggregate Dollar Range of Equity       Aggregate Dollar Range of Equity
                 Name                           Securities in the Fund              Securities in The Royce Funds
                 ----                           ----------------------              -----------------------------
<S>                                                   <C>                                 <C>
Interested Directors
     Charles M. Royce..................                Over $100,000                        Over $100,000
     Mark R. Fetting...................                     None                            Over $100,000

Non-Interested Directors
     Donald R. Dwight..................                  $1-$10,000                         Over $100,000
     Richard M. Galkin.................                  $1-$10,000                         Over $100,000
     Stephen L. Isaacs.................               $10,001-$50,000                      $10,001-$50,000
     William L. Koke...................               $50,001-$100,000                      Over $100,000
     David L. Meister..................                     None                            Over $100,000
     G. Peter O'Brien..................               $10,001-$50,000                       Over $100,000
</TABLE>

BOARD COMMITTEES AND MEETINGS

         The Board of Directors has an Audit Committee, comprised of Donald R.
Dwight, Richard M. Galkin, Stephen L. Isaacs, William L. Koke, David L. Meister
and G. Peter O'Brien. The Audit Committee is responsible for, among other
things, recommending the selection and nomination of the Fund's independent
accountants and for conducting post-audit reviews of the Fund's financial
condition with such independent accountants. The Fund has adopted an Audit
Committee charter. Mr. Galkin serves as Chairman of the Audit Committee. The
members of the Audit Committee are "independent" within the meaning of the 1940
Act and the New York Stock Exchange corporate governance standards for audit
committees. The Fund's Audit Committee held three meetings during the year ended
December 31, 2002. Although the Board of Directors does not have a standing
compensation committee or a nominating committee, the non-interested Directors
review and nominate candidates to serve as

                                      B-10
<PAGE>

non-interested Directors. The non-interested Directors generally will not
consider nominees recommended by stockholders of the Fund.

COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS

         For the year ended December 31, 2002, the following Directors of the
Fund received compensation from the Fund and The Royce Funds, as follows:

<TABLE>
<CAPTION>
                           Aggregate      Pension or Retirement         Estimated           Total Compensation
                         Compensation      Benefits Accrued as       Annual Benefits       from The Royce Funds
         Name              from Fund      Part of Fund Expenses      upon Retirement        paid to Directors
         ----              ---------      ---------------------      ---------------        -----------------
<S>                         <C>                    <C>                     <C>                     <C>
Donald R. Dwight,           $15,000                None                    None                    $65,250
Director(1)

Richard M. Galkin,          $15,000                None                    None                    $65,250
Director(2)

Stephen L. Isaacs,          $15,000                None                    None                    $65,250
Director

William L. Koke,            $15,000                None                    None                    $65,250
Director

David L. Meister,           $15,000                None                    None                    $65,250
Director

G. Peter O'Brien,           $15,000                None                    None                    $65,250
Director
</TABLE>

- --------------
(1)      Includes  $2,250 from the Fund  ($9,562.50  from the Fund and other
         Royce Funds) deferred during 2002 at the election of Mr. Dwight under
         The Royce Funds' Deferred Compensation Plan for Trustees/Directors.
(2)      Includes $15,000 from the Fund ($63,750 from the Fund and other Royce
         Funds) deferred during 2002 at the election of Mr. Galkin under The
         Royce Funds' Deferred Compensation Plan for Trustees/Directors.

DIRECTORS' CONSIDERATION OF INVESTMENT ADVISORY AGREEMENT

         The Fund's Board of Directors determined at meetings held on
July 16-17, 2001 to approve the Fund's current Investment Advisory Agreement. In
making their determinations, the Directors considered a wide range of
information of the type they regularly consider when determining whether to
continue the Fund's advisory arrangements as in effect from year to year. In
addition, the Directors gave particular consideration to matters relating to the
possible effects of the October 1, 2001 acquisition of Royce by Legg Mason on
Royce and the Fund. In its consideration of the current Investment Advisory
Agreement, the Board of Directors focused on information it had received
relating to, among other things: (a) the nature, quality and extent of the
advisory and other services to be provided to the Fund by Royce, (b) comparative
data with respect to advisory fees paid by other funds with similar investment
objectives, (c) the operating expenses and expense ratio of the Fund compared to
funds with similar investment objectives, (d) the performance of the Fund as
compared to such comparable funds, (e) the relative profitability of the present
arrangements and the proposed arrangements to Royce, (f) information about the
services to be performed and the personnel performing such services under the
previous Investment Advisory Agreement and the current Investment Advisory
Agreement, (g) the general reputation and financial resources of Legg Mason, (h)
compensation payable by the Fund to affiliates of Royce for other services, (i)
Royce's practices regarding the selection and compensation of brokers that
execute portfolio transactions for the Fund and the brokers' provision of
brokerage and research services to Royce, (j) the ability of Royce to continue
providing investment advisory services of the same character and at least the
same quality as provided prior to the October 1, 2001 acquisition of Royce by
Legg Mason, (k) potential effect on portfolio management or other Fund services
due to new affiliates and (l) potential effect on Fund performance. The Board of
Directors was advised by separate legal

                                      B-11
<PAGE>

counsel in connection with its review of the Fund's investment advisory
arrangements.

         In addition, the Directors considered that the Stock Purchase Agreement
for the transaction provided that Legg Mason would (subject to certain
qualifications) use its reasonable best efforts to assure compliance with the
safe-harbor provided by Section 15(f) of the 1940 Act. Section 15(f) provides
that a registered investment company's investment adviser or its affiliates can
receive benefit or compensation in connection with a change of control of the
investment adviser (e.g., the change of control of Royce as a result of its
acquisition by Legg Mason) if two conditions are satisfied. First, for three
years after the change of control, at least 75% of the members of the board of
any registered investment company advised by the adviser must consist of persons
who are not "interested persons," as defined in the 1940 Act, of the adviser.
Second, no "unfair burden" may be imposed on any such registered investment
company as a result of the change of control transaction or any express or
implied terms, conditions or understandings applicable to the transaction.
"Unfair burden" means any arrangement, during the two years after the
transaction, by which the investment adviser or any "interested person" of the
adviser receives or is entitled to receive any compensation, directly or
indirectly, from such investment company or its security holders (other than
fees for bona fide investment advisory or other services) or from any other
person in connection with the purchase or sale of securities or other property
to, from or on behalf of such investment company.

INFORMATION CONCERNING ROYCE

         On October 1, 2001, Royce became an indirect wholly-owned subsidiary
of Legg Mason. On March 31, 2002, Royce's corporate predecessor was merged into
Royce Holdings, LLC (a wholly-owned subsidiary of Legg Mason), which then
changed its name to Royce & Associates, LLC. As a result of this merger, Royce &
Associates, LLC became the Fund's investment adviser and a direct wholly-owned
subsidiary of Legg Mason.


                       CODE OF ETHICS AND RELATED MATTERS

         Royce and the Fund have adopted a Code of Ethics under which directors
(other than non-management directors), officers and employees of Royce
("Royce-related persons") and interested trustees/directors, officers and
employees of the Fund are generally prohibited from personal trading in any
security which is then being purchased or sold or considered for purchase or
sale by the Fund or any other Royce account. The Code of Ethics permits such
persons to engage in other personal securities transactions if (i) the
securities involved are certain debt securities, money market instruments,
shares of registered open-end investment companies or shares acquired from an
issuer in a rights offering or under an automatic dividend reinvestment or
employer-sponsored automatic payroll deduction cash purchase plan, (ii) the
transactions are either non-volitional or are effected in an account over which
such person has no direct or indirect influence or control or (iii) they first
obtain permission to trade from Royce's Compliance Officer and either an
executive officer or Senior Portfolio Manager of Royce. The Code contains
standards for the granting of such permission, and permission to trade will
usually be granted only in accordance with such standards.

         Royce's clients include several private investment companies in which
Royce, Royce-related persons and/or other Legg Mason affiliates have (and,
therefore, 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 25% of the company's equity interests. The Code of
Ethics does not restrict transactions effected by Royce for such private
investment company accounts, and transactions for such accounts are subject to
Royce's allocation policies and procedures. See "Brokerage Allocation and Other
Practices."

         As of December 31, 2002, Royce-related persons, interested trustees/
directors, officers and employees of The Royce Funds and members of their
immediate families beneficially owned shares of The Royce Funds having a total
value of over $40.6 million, and such persons beneficially owned equity
interests in Royce-related private investment companies totaling approximately
$8.6 million.

                                      B-12
<PAGE>

                     INVESTMENT ADVISORY AND OTHER SERVICES

ADVISORY FEE

         For the years ended December 31, 2002, 2001 and 2000, Royce received
investment advisory fees from the Fund of $10,024,212, $9,410,553 and $7,342,211
(net of $665,068, $249,670 and $505,624 voluntarily waived by Royce),
respectively.

OTHER

         The Investment Advisory Agreement provides that the Fund may use
"Royce" as part of its name only for as long as the Investment Advisory
Agreement remains in effect. The name "Royce" is a property right of Royce, and
it may at any time permit others, including other investment entities, to use
such name.

         The Investment Advisory Agreement protects and indemnifies Royce
against liability to the Fund, its stockholders or others for any action taken
or omitted to be taken by Royce in connection with the performance of any of its
duties or obligations under Investment Advisory Agreement or otherwise as an
investment adviser to the Fund. However, Royce is not protected or indemnified
against liabilities to which it would otherwise be subject by reason of willful
malfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its duties and obligations under the
Investment Advisory Agreement.

         Royce's services to the Fund are not deemed to be exclusive, and Royce
or any of its affiliates may provide similar services to other investment
companies and other clients or engage in other activities.

         The Investment Advisory Agreement will remain in effect until June 30,
2003 and may be continued in effect from year to year thereafter if such
continuance is specifically approved at least annually by the Board of Directors
or by the vote of a majority of the Fund's outstanding voting securities and, in
either case, by a majority of the directors who are not parties to the Agreement
or interested persons of any such party. The Investment Advisory Agreement will
automatically terminate if it is assigned (as defined by the 1940 Act and the
rules thereunder) and may be terminated without penalty by vote of a majority of
the Fund's outstanding voting securities or by either party thereto on not less
than 60 days' written notice.

SERVICE CONTRACT WITH STATE STREET

         State Street Bank and Trust Company ("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 generally
assisting in the preparation of reports to the Fund's stockholders, to the SEC
and others and in the auditing of accounts and in other ministerial matters of
like nature, as agreed to between the Fund and State Street. For the fiscal
years ended December 31, 2002, 2001 and 2000, the Fund paid $213,265, $235,710
and $218,247 in fees to the Fund's custodian and transfer agent.

                                    TAXATION

GENERAL

         The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as it so qualifies, the Fund (but not
its stockholders) will not be subject to Federal income tax to the extent that
it distributes its net investment income and net realized capital gains. The
Fund intends to distribute substantially all of such income.

         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 income and capital gains in the manner necessary to minimize imposition of

                                      B-13
<PAGE>

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.

         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 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 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). Certain categories of
capital gains are taxable at different rates. Generally 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 capital gain dividends as well
as any amounts of capital gain dividends in the different categories of capital
gain referred to above.

         Dividends are taxable to stockholders even though they are reinvested
in additional shares of the Fund. A portion of the Fund's ordinary income may be
eligible for the dividends received deduction allowed to corporations under the
Code, if certain requirements are met.

         A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) 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.

         The IRS has taken the position in a revenue ruling that if a RIC has
two or more classes of shares, it may designate distributions made to each class
in any year as consisting of no more than such class' proportionate share of
particular types of income, including exempt interest and net long-term capital
gains. A class's proportionate share of a particular type of income is
determined according to the percentage of total dividends paid by the RIC during
such year that was paid to such class. Thus, the Fund is required to allocate a
portion of its net capital gains and other taxable income to the shares of
Preferred Stock.

         If at any time when shares of Preferred Stock are outstanding the Fund
does not meet the asset coverage requirements of the 1940 Act, the Fund will be
required to suspend distributions to holders of Common Stock until the asset
coverage is restored. See "Risk Factors and Special Considerations - Risks to
Common Stockholders of Borrowing Money and Issuing Senior Securities - Asset
Coverage Test." This may prevent the Fund from distributing at least 90% of its
net income and may, therefore, jeopardize the Fund's qualification for taxation
as a RIC. Upon any failure to meet the asset coverage requirements of the 1940
Act, the Fund, in its sole discretion, may, and under certain circumstances will
be required to, redeem shares of 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. See "Description of Capital
Stock -- Preferred Stock -- Redemption" in the Prospectus. There can be no
assurance, however, that any such action would achieve such objectives.

         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 bonds"), as previously described. Some of these high
yield bonds may be purchased at a discount and may therefore cause the Fund to
accrue and distribute 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; in such case, if
the issuer of such high yield/high risk securities is a domestic corporation,
dividend payments by the Fund will be eligible for the dividends received
deduction to the extent of the deemed dividend portion of such interest
payments.

         Ordinary income dividends paid to stockholders who are non-resident
aliens or foreign entities will be subject to a 30% United States withholding
tax under existing provisions of the Code applicable to foreign

                                      B-14
<PAGE>

individuals and entities unless a reduced rate of withholding or a withholding
exemption is provided under applicable treaty law. Non-resident stockholders are
urged to consult their own tax advisers concerning the applicability of the
United States withholding tax.

         Under certain provisions of the Code, some stockholders may be subject
to a withholding tax on ordinary income dividends and capital gain dividends
("backup withholding"). Generally, stockholders subject to backup withholding
will be those for whom no certified taxpayer identification number is on file
with the Fund or who, to the Fund's knowledge, have furnished an incorrect
number. When establishing an account, an investor must certify under penalty of
perjury that such number is correct and that such investor is not otherwise
subject to backup withholding.

         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.

         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.

         Ordinary income and capital gain dividends may also be subject to state
and local taxes.

         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.

         Stockholders are urged to consult their own tax advisers regarding
specific questions as to Federal, foreign, state or local taxes. Foreign
investors should consider applicable foreign taxes in their evaluation of an
investment in the Fund.


                    BROKERAGE ALLOCATION AND OTHER PRACTICES

         Royce is responsible for selecting the brokers who effect the purchases
and sales of the Fund's portfolio securities. No broker is selected to effect a
securities transaction for the Fund unless such broker is believed by Royce to
be capable of obtaining the best price for the security involved in the
transaction. Best price and execution is comprised of several factors, including
the liquidity of the security, the commission charged, the promptness and
reliability of execution, priority accorded the order and other factors
affecting the overall benefit obtained. In addition to considering a broker's
execution capability, Royce generally considers the brokerage and research
services which the broker has provided to it, including any research relating to
the security involved in the transaction and/or to other securities. Such
services may include general economic research, market and statistical
information, industry and technical research, strategy and company research and
performance measurement, and may be written or oral. Brokers that provide both
research and execution services are generally paid higher commissions than those
paid to brokers who do not provide such research and execution services. Royce
determines the overall reasonableness of brokerage commissions paid, after
considering the amount another broker might have charged for effecting the
transaction and the value placed by Royce upon the brokerage and/or research
services provided by such broker, viewed in terms of either that particular
transaction or Royce's overall responsibilities with respect to its accounts.

         Royce is authorized, under Section 28(e) of the Securities Exchange Act
of 1934 and under its Investment Advisory Agreement with the Fund, to pay a
broker a commission in excess of that which another broker might have charged
for effecting the same transaction, in recognition of the value of brokerage and
research services provided by the broker.

                                      B-15
<PAGE>

         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 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, securities of the same
issuer are frequently purchased, held or sold by more than one Royce 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 account on the same
trading day, Royce may seek 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'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 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 believes 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. In addition, from time to time, certain other Royce accounts managed by
Royce portfolio managers other than Charles M. Royce, may establish short
positions in securities in which the Fund has a long position.

         The Fund may effect brokerage transactions on a securities exchange
with Legg Mason Wood Walker, Incorporated ("Legg Mason Wood Walker") and any
other affiliated broker-dealers in accordance with the procedures and
requirements set forth in Rule 17e-1 under the 1940 Act. Any such transactions
would involve the use of the affiliated broker-dealer for execution purposes
only and/or for locating the purchasers or sellers involved in the transaction.
The affiliated broker-dealer would not be compensated because of any other
research-related service or product provided or to be provided by it and may not
be used to effect brokerage transactions in Nasdaq or other over-the-counter
securities. Although the Fund will not effect any principal transactions with
any affiliated broker-dealers, they may purchase securities that are offered in
certain underwritings in which an affiliated broker-dealer is a participant in
accordance with the procedures and requirements set forth in Rule 10f-3 under
the 1940 Act. Charles M. Royce and/or trusts primarily for the benefit of
members of his family may own or acquire substantial amounts of Legg Mason
common stock.

         During the year ended December 31, 2002, 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, 2002, 2001 and 2000,
the Fund paid brokerage commissions of approximately $1,043,502, $602,336 and
$694,188, respectively. Since October 1, 2001, when Royce became an indirect
wholly-owned subsidiary of Legg Mason, the Fund paid no brokerage commissions to
Legg Mason Wood Walker or to any other affiliates of Legg Mason.


                                 NET ASSET VALUE

         The NAV of the Fund's shares of Common Stock is calculated at the close
of regular trading on the New York Stock Exchange ("NYSE") (generally 4:00 p.m.
Eastern time) every day that the NYSE is open. The Fund makes this information
available daily by telephone (800-221-4268) and via its web site
(www.roycefunds.com) and through electronic distribution for media publication,
including major internet-based financial services web sites and portals
(bloomberg.com, yahoo.com, cbsmarketwatch.com, etc.) Currently, The Wall Street
Journal, The New York Times and Barron's publish NAVs for closed-end investment
companies weekly.

         The net asset value per share of the Fund's Common Stock is calculated
by dividing the current value of the Fund's total assets less the sum of all of
its liabilities and the aggregate liquidation preferences of its outstanding
shares of Preferred Stock, by the total number of outstanding shares of Common
Stock. The Fund's investments are valued based on market value or, if market
quotations are not readily available, at their fair value as determined in good
faith under procedures established by the Fund's Board of Directors.

                                      B-16
<PAGE>

         For the years ended December 31, 2002, 2001 and 2000, the Fund's
portfolio turnover rates were 35%, 30% and 36%, respectively.

                              FINANCIAL STATEMENTS

         The audited financial statements included in the Annual Report to the
Fund's Stockholders for the fiscal year ended December 31, 2001, together with
the report of Tait, Weller & Baker thereon, and the unaudited financial
statements included in the Semi-Annual Report to the Fund's Stockholders for the
six months ended June 30, 2002 are incorporated herein by reference. It is
expected that the audited financial statements included in the Annual Report to
the Fund's Stockholders for the fiscal year ended December 31, 2002, together
with the report of Tait, Weller & Baker thereon, will be mailed to stockholders
and available on the Fund's website (www.roycefunds.com) on or around
February 28, 2003.

                                      B-17

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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