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<SEC-DOCUMENT>0000905148-03-002913.txt : 20030813
<SEC-HEADER>0000905148-03-002913.hdr.sgml : 20030813
<ACCEPTANCE-DATETIME>20030813153957
ACCESSION NUMBER:		0000905148-03-002913
CONFORMED SUBMISSION TYPE:	N-2
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20030813

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ROYCE FOCUS TRUST INC
		CENTRAL INDEX KEY:			0000825202
		IRS NUMBER:				592876580
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-107928
		FILM NUMBER:		03841115

	BUSINESS ADDRESS:	
		STREET 1:		1414 AVENUE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10019
		BUSINESS PHONE:		2125084578

	MAIL ADDRESS:	
		STREET 1:		C/O QUEST ADVISORY CORP
		STREET 2:		1414 AVENUE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10019

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ROYCE GLOBAL TRUST INC
		DATE OF NAME CHANGE:	19961203

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ALL SEASONS GLOBAL FUND INC
		DATE OF NAME CHANGE:	19950803

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMERICAS ALL SEASON FUND INC
		DATE OF NAME CHANGE:	19920703

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ROYCE FOCUS TRUST INC
		CENTRAL INDEX KEY:			0000825202
		IRS NUMBER:				592876580
		STATE OF INCORPORATION:			MD
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		N-2
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-05379
		FILM NUMBER:		03841116

	BUSINESS ADDRESS:	
		STREET 1:		1414 AVENUE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10019
		BUSINESS PHONE:		2125084578

	MAIL ADDRESS:	
		STREET 1:		C/O QUEST ADVISORY CORP
		STREET 2:		1414 AVENUE OF THE AMERICAS
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10019

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ROYCE GLOBAL TRUST INC
		DATE OF NAME CHANGE:	19961203

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ALL SEASONS GLOBAL FUND INC
		DATE OF NAME CHANGE:	19950803

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMERICAS ALL SEASON FUND INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>N-2
<SEQUENCE>1
<FILENAME>efc3-1210_formn2.txt
<TEXT>


   As filed with the Securities and Exchange Commission on August 13, 2003

                                             Securities Act File No. 333-_____
                                     Investment Company Act File No. 811-05397

================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                            ______________________

                                   FORM N-2

            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_/
                          Pre-Effective Amendment No.               /_/
                         Post-Effective Amendment No.               /_/
                                    and/or
                       REGISTRATION STATEMENT UNDER THE
                        INVESTMENT COMPANY ACT OF 1940
                               Amendment No. 11                     /X/
                            ______________________


                            Royce Focus Trust, Inc.
              (Exact Name of Registrant as Specified In Charter)
                            ______________________

             1414 Avenue of the Americas, New York, New York 10019
                   (Address of Principal Executive Offices)
                                (800) 221-4268
             (Registrant's Telephone Number, including Area Code)

                          Charles M. Royce, President
                            Royce Focus Trust, Inc.
                          1414 Avenue of the Americas
                           New York, New York 10019
                    (Name and Address of Agent for Service)
                            ______________________

                                  Copies to:

<TABLE>
<CAPTION>
<S>                                       <C>                                   <C>
     Frank P. Bruno, Esq.                    John E. Denneen, Esq.                 Cynthia G. Cobden, Esq.
Sidley Austin Brown & Wood LLP              Royce Focus Trust, Inc.             Simpson Thacher & Bartlett LLP
      787 Seventh Avenue                  1414 Avenue of the Americas                425 Lexington Avenue
   New York, New York 10019                New York, New York 10019                New York, New York 10017
</TABLE>
                            ______________________
                 Approximate Date of Proposed Public Offering:
 As soon as practicable after the effective date of this Registration Statement.
                            ______________________

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /_/


<PAGE>


<TABLE>
<CAPTION>
                           CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
======================================================================================================================
                                                                            Proposed       Proposed
                                                                             Maximum       Maximum         Amount
                                                               Amount       Offering      Aggregate          of
                                                               Being        Price Per      Offering     Registration
          Title of Securities Being Registered             Registered (1)   Unit (1)       Price(1)        Fee(2)
- ---------------------------------------------------------- --------------- ------------ --------------- --------------
<S>                                                        <C>             <C>          <C>             <C>
__% Cumulative Preferred Stock ($.001 par value)......      40,000 shares     $25.00       $1,000,000         $81

======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.

(2) Transmitted prior to the filing date to the designated lockbox of the
Securities and Exchange Commission at Mellon Bank in Pittsburgh, PA.
                            ______________________

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
   DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
     THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
     STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
    EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
    1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
   SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT
                   TO SAID SECTION 8(A), MAY DETERMINE.



<PAGE>






The information in this Prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state or other jurisdictions where the offer or sale is not
permitted.


                SUBJECT TO COMPLETION, DATED ________ __, 2003

PRELIMINARY PROSPECTUS


                               _________ SHARES
                            ROYCE FOCUS TRUST, INC.
                       ____% Cumulative Preferred Stock
                    LIQUIDATION PREFERENCE $25.00 PER SHARE
                               _________________

     The ____% Cumulative Preferred Stock, liquidation preference $25.00 per
share (the "Cumulative Preferred Stock"), to be issued by Royce Focus Trust,
Inc. (the "Fund") will be senior securities of the Fund. The Fund is a
closed-end diversified management investment company. The Fund's investment
goal is long-term capital growth. The Fund normally invests at least 75% of
its assets in equity securities. The Fund's address is 1414 Avenue of the
Americas, New York, New York 10019, and its telephone number is (212)
355-7311. Royce & Associates, LLC ("Royce") is the Fund's investment adviser.


     Dividends on the Cumulative Preferred Stock offered hereby, at the annual
rate of ____% of the liquidation preference of $25.00 per share, are
cumulative from the Date of Original Issue thereof and are payable quarterly
on March __, June __, September __ and December __, commencing on December __,
2003.

                                                 (Continued on following page)
                               _________________

     Investing in the Cumulative Preferred Stock involves risks. See
"Prospectus Summary -- Special Considerations and Risk Factors" beginning on
page __ and "Investment Goal, Policies and Risks" beginning on page ___.
                               _________________

     Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
                               _________________

<TABLE>
<CAPTION>
                                                                           Cumulative Preferred Stock
                                                            -------------------------------------------------------
                                                                     Per Share                      Total
                                                            ---------------------------  --------------------------
<S>                                                         <C>                          <C>
     Public Offering Price (1)..........................    $                             $
     Underwriting Discount (2)..........................    $                             $
     Proceeds to the Fund (before expenses)(3)..........    $                             $
</TABLE>
     ___________________
     (1)  Plus accumulated dividends, if any, from ____________, 2003.

     (2)  The Fund and Royce have agreed to indemnify the Underwriters against
          certain liabilities, including liabilities under the Securities Act
          of 1933, as amended.
     (3)  Offering expenses payable by the Fund are estimated at $____________.
                               _________________

     The Underwriters are offering the Cumulative Preferred Stock subject to
various conditions. It is expected that delivery of the Cumulative Preferred
Stock will be made in book-entry form through the facilities of The Depository
Trust Company ("DTC") on or about __________ __, 2003.

                               _________________

Citigroup                                                   UBS Investment Bank

              __________ __, 2003

<PAGE>

(Continued from cover page)

     Application will be made to list the Cumulative Preferred Stock on the
American Stock Exchange (the "AMEX"). If offered, trading of the Cumulative
Preferred Stock on the AMEX is expected to commence within 30 days of the date
of this Prospectus. Prior to this offering, there has been no public market
for the Cumulative Preferred Stock. See "Underwriting."

     Distributions paid on the Cumulative Preferred Stock will consist of: (i)
long-term capital gains, (ii) qualified dividend income, (iii) other ordinary
income and/or (iv) returns of capital. The Jobs and Growth Tax Relief
Reconciliation Act of 2003 (the "2003 Tax Act") reduced the individual Federal
income tax rate on long-term capital gains and qualified dividend income to a
maximum of 15%. Under the 2003 Tax Act, the maximum individual Federal income
tax rate on other ordinary income is 35%. These tax rates are scheduled to
apply through 2008. Assuming the 2003 Tax Act had been in effect during the
past one, three and five years ended December 31, 2002, approximately __%, __%
and __% of the distributions paid by the Fund would have consisted of less
highly taxed long-term capital gains and qualified dividend income. It is
currently expected that dividends paid on the Cumulative Preferred Stock will
consist primarily of such long-term capital gains and qualified dividend
income, which are taxed at lower rates for individuals than other ordinary
income. See "Tax Attributes of Preferred Stock Dividends" and "Taxation". No
assurance can be given, however, as to what percentage, if any, of the
dividends paid on the Cumulative Preferred Stock will consist of long-term
capital gains and qualified dividend income.

     It is a condition to the issuance of the Cumulative Preferred Stock that
it be rated Aaa by Moody's Investors Service, Inc. ("Moody's"). In connection
with the receipt of such rating, the Fund will be required to maintain a
discounted asset coverage with respect to the Cumulative Preferred Stock
reflecting guidelines established by Moody's. See "Rating Agency Guidelines".

     The Cumulative Preferred Stock is subject to mandatory redemption, in
whole or in part, by the Fund for cash at a price equal to $25.00 per share
plus accumulated but unpaid dividends (whether or not earned or declared) (the
"Redemption Price") if the Fund fails to maintain a quarterly asset coverage
of at least 200% or to maintain the discounted asset coverage required by
Moody's. Commencing __________ __, 2008 and thereafter, the Fund at its option
may redeem the Cumulative Preferred Stock, in whole or in part, for cash at a
price equal to the Redemption Price. Prior to __________ __, 2008, the
Cumulative Preferred Stock will be redeemable, at the option of the Fund, for
cash at a price equal to the Redemption Price, only to the extent necessary
for the Fund to continue to qualify for tax treatment as a regulated
investment company. See "Description of Cumulative Preferred Stock --
Redemption".

     If the Fund voluntarily terminates compliance with the Moody's
guidelines, the Fund will no longer be required to maintain the discounted
asset coverage required by Moody's. However, at the time of such termination,
the Cumulative Preferred Stock must have received a rating from at least one
nationally recognized statistical rating organization that is at least
comparable to the then current rating from Moody's. The Fund will then be
required to comply with the guidelines established by such successor rating
organization. See "Rating Agency Guidelines" and "Description of Cumulative
Preferred Stock -- Termination of Rating Agency Guidelines".

     This Prospectus concisely sets forth certain information an investor
should know before investing and should be retained for future reference.

     A Statement of Additional Information dated ___________ __, 2003 has been
filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus. The table of contents of the Statement of
Additional Information appears on page __ of this Prospectus. A copy of the
Statement of Additional Information may be obtained without charge by writing
to the Fund at its address at 1414 Avenue of the Americas, New York, New York
10019, or by calling the Fund toll-free at (800) 221-4268.



                                      2
<PAGE>

     In connection with this offering, the Underwriters may over-allot or
effect transactions which stabilize, maintain or otherwise affect the market
price of the Cumulative Preferred Stock, including the entry of stabilizing
bids, syndicate covering transactions or the imposition of penalty bids. For a
description of these activities, see "Underwriting".

     You should rely on the information contained in or incorporated by
reference into this Prospectus. Neither the Fund nor the Underwriters have
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. Neither the Fund nor the Underwriters are 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 is
accurate as of the date on the front cover of this Prospectus only.

                               _________________


                               Table of Contents
                                                                          Page
                                                                          ----

PROSPECTUS SUMMARY...........................................................4
FINANCIAL HIGHLIGHTS........................................................14
TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS.................................16
THE FUND ...................................................................18
USE OF PROCEEDS.............................................................18
CAPITALIZATION..............................................................19
PORTFOLIO COMPOSITION.......................................................20
INVESTMENT GOAL, POLICIES AND RISKS.........................................20
RATINGS AGENCY GUIDELINES...................................................27
INVESTMENT ADVISORY AND OTHER SERVICES......................................28
DESCRIPTION OF CUMULATIVE PREFERRED STOCK...................................30
DESCRIPTION OF CAPITAL STOCK................................................39
TAXATION ...................................................................41
CUSTODIAN, DIVIDEND-PAYING AGENT, TRANSFER AGENT AND REGISTRAR..............42
UNDERWRITING................................................................43
LEGAL MATTERS...............................................................44
EXPERTS ....................................................................44
ADDITIONAL INFORMATION......................................................45
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...........................45
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION....................45
GLOSSARY ...................................................................47


<PAGE>

                              PROSPECTUS SUMMARY

     This is only a summary. You should review the more detailed information
included elsewhere in this Prospectus and the Statement of Additional
Information. Capitalized terms not otherwise defined in this Summary are
defined in the Glossary that appears at the end of this Prospectus.

The Fund..........................     Royce Focus Trust, Inc. (the "Fund") has
                                       been engaged in business as a closed-
                                       end diversified management investment
                                       company since its initial offering in
                                       March 1988. Since November 1, 1996,
                                       when Royce & Associates, LLC ("Royce")
                                       became its investment adviser, the
                                       Fund's investment goal has been long-
                                       term capital growth. Royce normally
                                       invests more than 75% of the Fund's
                                       assets in equity securities.
                                       Royce uses a value approach to invest
                                       the Fund's assets in a limited number
                                       of domestic and foreign companies.
                                       While the Fund is not restricted as to
                                       stock market capitalization, Royce
                                       focuses the Fund's investments
                                       primarily in small-cap companies
                                       (companies with stock market
                                       capitalizations below $2 billion) with
                                       significant business activities in the
                                       United States. See "Investment Goal,
                                       Policies and Risks".

The Offering......................     The Fund is offering _________ shares of
                                       ____% Cumulative Preferred Stock, par
                                       value $.001 per share, liquidation
                                       preference $25.00 per share (the
                                       "Cumulative Preferred Stock"), at a
                                       purchase price of $25.00 per share.

Use of Proceeds...................     The Fund will use a substantial portion
                                       of the net proceeds from the offering of
                                       the Cumulative Preferred Stock to redeem
                                       the issued and outstanding shares of
                                       7.45% Cumulative Preferred Stock, par
                                       value $.001 per share, of the Fund (the
                                       "7.45% Preferred"). In order for the
                                       Fund to redeem the 7.45% Preferred, the
                                       Fund must pay the 7.45% Preferred's

                                      4
<PAGE>

                                       aggregate liquidation preference of
                                       $20,000,000, plus an amount equal to
                                       accumulated and unpaid dividends
                                       (whether or not earned or declared) on
                                       any 7.45% Preferred through the
                                       redemption date. Royce expects to use
                                       any proceeds remaining after the
                                       redemption of the 7.45% Preferred to
                                       purchase additional portfolio
                                       securities in accordance with the
                                       Fund's investment goal and policies.
                                       See "Use of Proceeds".

Dividends.........................     Dividends on the Cumulative Preferred
                                       Stock, at the annual rate of ____% of
                                       the liquidation preference of $25.00
                                       per share, are cumulative from the Date
                                       of Original Issue and are payable,
                                       when, as and if authorized by the Board
                                       of Directors and declared by the Fund,
                                       out of funds legally available
                                       therefor, quarterly on March __, June
                                       __, September __, and December __,
                                       commencing on December __, 2003, to the
                                       holders of record on the preceding
                                       March __, June __, September __ and
                                       December __, respectively. See
                                       "Description of Cumulative Preferred
                                       Stock-- Dividends".

Long-Term Capital Gains and
  Qualified Dividend Income.......     The Jobs and Growth Tax Relief
                                       Reconciliation Act of 2003 (the "2003
                                       Tax Act") reduced the individual
                                       Federal income tax rate on long-term
                                       capital gains and qualified dividend
                                       income to a maximum of 15%. Long-term
                                       capital gains and qualified dividend
                                       income included in distributions of a
                                       regulated investment company (such as
                                       the Fund) to its stockholders are
                                       generally passed through to such
                                       stockholders, including preferred
                                       stockholders, and taxed at the related
                                       rates. See "Tax Attributes of Preferred
                                       Stock Dividends" and "Taxation".

                                       The 15% income tax rate applicable to
                                       capital gains and qualified dividend
                                       income is scheduled to expire after
                                       December 31, 2008. After this date,
                                       absent extension or modification of the
                                       relevant legislative provisions,
                                       long-term capital gains distributions
                                       paid by the Fund generally will be
                                       taxable at the previously applicable
                                       maximum 20% rate, and distributions
                                       attributable to qualified dividend
                                       income will be taxed to the stockholder
                                       at his or her marginal Federal income
                                       tax rate (which generally will be
                                       higher than 15%).

Tax Attributes of
  Preferred Stock Dividends.......     The distributions paid on the Cumulative
                                       Preferred Stock will, for Federal
                                       income tax purposes, consist of varying
                                       proportions of long-term capital gains,
                                       qualified dividend



                                      5
<PAGE>

                                       income, other ordinary income
                                       (including short-term capital gain and
                                       interest income and non-qualified
                                       dividend income), and/or returns of
                                       capital. Ordinary income, other than
                                       qualified dividend income but including
                                       short-term capital gains, interest
                                       income and non-qualified dividend
                                       income, is referred to in this
                                       Prospectus as "Other Ordinary Income".
                                       The Fund is required to allocate
                                       long-term capital gains, qualified
                                       dividend income and/or Other Ordinary
                                       Income proportionately among holders of
                                       shares of its Common Stock and the
                                       Cumulative Preferred Stock offered
                                       hereby. Assuming the 2003 Tax Act had
                                       been in effect during the past one,
                                       three and five years ended December 31,
                                       2002, the distributions of taxable
                                       income by the Fund would have consisted
                                       of approximately ____%, ____% and ____%
                                       long-term capital gains and qualified
                                       dividend income and approximately
                                       ____%, ____% and ____% Other Ordinary
                                       Income. Certain investors in the
                                       Cumulative Preferred Stock may realize
                                       a tax benefit to the extent that Fund
                                       distributions are composed of long-term
                                       capital gains and qualified dividend
                                       income rather than more highly taxed
                                       Other Ordinary Income. See "Tax
                                       Attributes of Preferred Stock
                                       Dividends". No assurance can be given,
                                       however, as to what percentage, if any,
                                       of the distributions to be paid on the
                                       Cumulative Preferred Stock will consist
                                       of long-term capital gains and/or
                                       qualified dividend income. To the
                                       extent that such distributions do not
                                       consist of long-term capital gains and
                                       qualified dividend income, they will be
                                       paid from Other Ordinary Income taxable
                                       at higher Federal income tax rates, or
                                       will represent a return of capital.

                                       Subject to statutory limitations,
                                       investors may also be entitled to
                                       offset the long-term capital gains
                                       portion of a Cumulative Preferred Stock
                                       dividend with capital losses incurred
                                       by such investors. See "Taxation".

Rating............................     It is a condition to its issuance that
                                       the Cumulative Preferred Stock be
                                       issued with a rating of Aaa from
                                       Moody's Investors Service, Inc.
                                       ("Moody's"). The Articles Supplementary
                                       creating and fixing the rights and
                                       preferences of the Cumulative Preferred
                                       Stock (the "Articles Supplementary")
                                       contain certain provisions which
                                       reflect guidelines established by
                                       Moody's (the "Rating Agency
                                       Guidelines") in order to obtain such


                                      6
<PAGE>

                                       rating on the Cumulative Preferred
                                       Stock on the Date of Original Issue.
                                       Although it is the Fund's present
                                       intention to continue to comply with
                                       the Rating Agency Guidelines, the Board
                                       of Directors of the Fund may determine
                                       that it is not in the best interests of
                                       the Fund to continue to comply with the
                                       Rating Agency Guidelines. If the Fund
                                       voluntarily terminates compliance with
                                       the Rating Agency Guidelines, the Fund
                                       will no longer be required to maintain
                                       the discounted asset coverage required
                                       by Moody's. However, at the time of
                                       such termination, the Cumulative
                                       Preferred Stock must have received a
                                       rating from at least one nationally
                                       recognized statistical rating
                                       organization ("NRSRO") that is at least
                                       comparable to the then current rating
                                       from Moody's. The Fund will then be
                                       required to comply with the guidelines
                                       established by such successor NRSRO.
                                       See "Description of Cumulative
                                       Preferred Stock-- Termination of Rating
                                       Agency Guidelines".

Asset Maintenance.................     The Fund will be required to maintain,
                                       as of the last Business Day of March,
                                       June, September and December of each
                                       year, Asset Coverage of at least 200%
                                       with respect to the Cumulative
                                       Preferred Stock. Assuming the Fund had
                                       issued and sold the Cumulative
                                       Preferred Stock and redeemed the 7.45%
                                       Preferred as of June 30, 2003, the
                                       Asset Coverage would have been ___%.
                                       See "Description of Cumulative
                                       Preferred Stock-- Asset Maintenance--
                                       Asset Coverage".

                                       Also, pursuant to the Rating Agency
                                       Guidelines, the Fund will be required
                                       to maintain, as of each Valuation Date,
                                       a Portfolio Calculation for Moody's at
                                       least equal to the Basic Maintenance
                                       Amount. The discount factors and
                                       guidelines for determining the
                                       Portfolio Calculation have been
                                       established by Moody's in connection
                                       with the Fund's receipt from Moody's of
                                       a rating on the Cumulative Preferred
                                       Stock on the Date of Original Issue of
                                       Aaa. See "Description of Cumulative
                                       Preferred Stock -- Asset Maintenance --
                                       Basic Maintenance Amount" and "Rating
                                       Agency Guidelines".

Voting Rights.....................     At all times, holders of shares of
                                       Cumulative Preferred Stock and any
                                       other Preferred Stock will elect two
                                       members of the Fund's Board of
                                       Directors, and holders of shares of
                                       Cumulative Preferred Stock, any other
                                       Preferred Stock and Common Stock,
                                       voting as a single



                                      7
<PAGE>

                                       class, will elect the remaining
                                       directors. However, upon a failure by
                                       the Fund to pay dividends on the
                                       Cumulative Preferred Stock and/or any
                                       other Preferred Stock in an amount
                                       equal to two full years' dividends,
                                       holders of Cumulative Preferred Stock,
                                       voting as a separate class together
                                       with the holders of any other Preferred
                                       Stock, will have the right to elect the
                                       smallest number of directors that would
                                       constitute a majority of the directors
                                       until cumulative dividends have been
                                       paid or provided for. Holders of
                                       Cumulative Preferred Stock and any
                                       other Preferred Stock will vote
                                       separately as a class on certain other
                                       matters, as required under the Articles
                                       Supplementary and the Investment
                                       Company Act of 1940, as amended (the
                                       "1940 Act").

                                       Except as otherwise indicated in this
                                       Prospectus and as otherwise required by
                                       applicable law, holders of Cumulative
                                       Preferred Stock will be entitled to one
                                       vote per share on each matter submitted
                                       to a vote of stockholders and will vote
                                       together with holders of shares of
                                       Common Stock and any other Preferred
                                       Stock as a single class. See
                                       "Description of Cumulative Preferred
                                       Stock -- Voting Rights".

Mandatory Redemption..............     The Cumulative Preferred Stock is subject
                                       to mandatory redemption, in whole or in
                                       part, by the Fund in the event that the
                                       Fund fails to: (i) maintain the
                                       quarterly Asset Coverage, or (ii)
                                       maintain a Portfolio Calculation at
                                       least equal to the Basic Maintenance
                                       Amount required by Moody's and does not
                                       cure such failure by the applicable
                                       cure date. Any such redemption will be
                                       made for cash at a price equal to
                                       $25.00 per share plus accumulated and
                                       unpaid dividends (whether or not earned
                                       or declared) through the redemption
                                       date (the "Redemption Price"). In the
                                       event that shares of Cumulative
                                       Preferred Stock are redeemed due to a
                                       failure to maintain the quarterly Asset
                                       Coverage, the Fund may redeem a
                                       sufficient number of shares of
                                       Cumulative Preferred Stock so that the
                                       asset coverage, as defined in the 1940
                                       Act, of the remaining outstanding
                                       shares of Cumulative Preferred Stock
                                       and any other Preferred Stock after
                                       such redemption is up to 275%. In the
                                       event that shares of Cumulative
                                       Preferred Stock are redeemed due to a
                                       failure to maintain a Portfolio
                                       Calculation at least equal to the Basic
                                       Maintenance Amount, the Fund may redeem
                                       a sufficient number of shares of
                                       Cumulative Preferred



                                      8
<PAGE>

                                       Stock and any other Preferred Stock so
                                       that the Portfolio Calculation exceeds
                                       the Basic Maintenance Amount of the
                                       remaining outstanding shares of
                                       Cumulative Preferred Stock and any
                                       other Preferred Stock by up to 10%. See
                                       "Description of Cumulative Preferred
                                       Stock-- Redemption-- Mandatory
                                       Redemption".

Optional Redemption...............     Commencing __________ __, 2008 and
                                       thereafter, the Fund at its option may
                                       redeem the Cumulative Preferred Stock,
                                       in whole or in part, for cash at a
                                       price equal to the Redemption Price.
                                       Prior to __________ __, 2008, the
                                       Cumulative Preferred Stock will be
                                       redeemable at the option of the Fund at
                                       the Redemption Price, only to the
                                       extent necessary for the Fund to
                                       continue to qualify for tax treatment
                                       as a regulated investment company. See
                                       "Description of Cumulative Preferred
                                       Stock - Redemption - Optional
                                       Redemption".

Liquidation Preference............     The liquidation preference of each share
                                       of Cumulative Preferred Stock is $25.00
                                       plus an amount equal to all unpaid
                                       dividends accumulated to and including
                                       the date fixed for such distribution or
                                       payment (whether or not earned or
                                       declared but excluding interest
                                       thereon). See "Description of
                                       Cumulative Preferred Stock --
                                       Liquidation Rights".

Listing...........................     Prior to this offering, there has been no
                                       public market for the Cumulative
                                       Preferred Stock. Application will be
                                       made to list the shares of Cumulative
                                       Preferred Stock on the American Stock
                                       Exchange (the "AMEX"). However, during
                                       an initial period, which is not
                                       expected to exceed 30 days from the
                                       date of this Prospectus, the Cumulative
                                       Preferred Stock will not be listed on
                                       any securities exchange. During such
                                       period, the Underwriters intend to make
                                       a market in the Cumulative Preferred
                                       Stock; however, they have no obligation
                                       to do so. Consequently, an investment
                                       in the Cumulative Preferred Stock may
                                       be illiquid during such period.

Special Considerations and
   Risk Factors...................     General. The market price for the
                                       Cumulative Preferred Stock will be
                                       influenced by changes in interest
                                       rates, the perceived credit quality of
                                       the Cumulative Preferred Stock and
                                       other factors.

                                       Liquidity. During an initial period
                                       which is not expected



                                      9
<PAGE>

                                       to exceed 30 days after the date of
                                       issuance, the Cumulative Preferred
                                       Stock will not be listed on any
                                       securities exchange. During such
                                       period, the Underwriters intend to make
                                       a market in the Cumulative Preferred
                                       Stock; however, they have no obligation
                                       to do so. Consequently, the Cumulative
                                       Preferred Stock may be illiquid during
                                       such period. No assurance can be
                                       provided that listing on any securities
                                       exchange or market making by the
                                       Underwriters will result in the market
                                       for Cumulative Preferred Stock being
                                       liquid at any time.

                                       Credit Rating. The credit rating on the
                                       Cumulative Preferred Stock could be
                                       reduced or withdrawn by Moody's while
                                       an investor holds shares of Cumulative
                                       Preferred Stock, either as a result of
                                       the Fund's termination of compliance
                                       with the Rating Agency Guidelines or
                                       otherwise. The credit rating does not
                                       eliminate or mitigate the risks of
                                       investing in the Cumulative Preferred
                                       Stock. A reduction or withdrawal of the
                                       credit rating by Moody's may have an
                                       adverse effect on the liquidity and
                                       market value of the Cumulative
                                       Preferred Stock. See "Description of
                                       Cumulative Preferred Stock --
                                       Termination of Rating Agency
                                       Guidelines".

                                       Market, Selection and Style Risk. As
                                       with any investment company that
                                       invests in common stocks, the value of
                                       the Fund's portfolio may decline. For
                                       example, if an issuer of a common stock
                                       in which the Fund invests experiences
                                       financial difficulties, defaults on its
                                       senior securities, has the credit
                                       rating on its senior securities reduced
                                       or withdrawn, or otherwise is affected
                                       by adverse market factors, the Fund's
                                       portfolio will be negatively impacted.
                                       In particular, the prices of small-cap
                                       companies are generally more volatile
                                       and their markets are generally less
                                       liquid relative to larger-cap
                                       companies. Therefore, an investment in
                                       the Fund may involve more risk of loss
                                       than funds investing in larger-cap
                                       companies or other asset classes. See
                                       "Investment Goal, Policies and Risks --
                                       Risk Factors - Investing in Small-Cap
                                       Companies". In addition, different
                                       types of investment styles 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



                                      10
<PAGE>

                                       other types of stocks or have a broader
                                       investment style.

                                       Declines in the value of the Fund's
                                       portfolio may reduce the asset coverage
                                       for the Cumulative Preferred Stock or
                                       the Fund's income. As indicated above,
                                       the Cumulative Preferred Stock is
                                       subject to redemption under specified
                                       circumstances. To the extent that the
                                       Fund experiences a substantial decline
                                       in the value of its net assets, it may
                                       be required to redeem Cumulative
                                       Preferred Stock to restore compliance
                                       with the applicable asset maintenance
                                       requirements. See "Description of
                                       Cumulative Preferred Stock --
                                       Redemption -- Mandatory Redemption".
                                       Sufficiently sharp declines in the
                                       value of the Fund's assets could leave
                                       the Fund with insufficient assets to
                                       redeem all of the Cumulative Preferred
                                       Stock for the full redemption price.

                                       Concentration Risk. Because the Fund
                                       invests in a limited number of
                                       securities, developments affecting an
                                       individual issuer are likely to have a
                                       greater impact on the Fund's net asset
                                       value and the market price of its
                                       Common Stock

                                       Foreign Investments. The Fund invests a
                                       portion 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, less
                                       government regulation of foreign
                                       securities markets and the possibility
                                       of imposition of exchange controls,
                                       nationalization or expropriation of
                                       assets and more difficulty obtaining
                                       information on the foreign companies.

                                       Indebtedness and Other Preferred Stock.
                                       Payments to the holders of Cumulative
                                       Preferred Stock of dividends or upon
                                       redemption or in liquidation will be
                                       subject to the prior payments of
                                       interest and repayment of principal
                                       then due on any outstanding
                                       indebtedness of the Fund and the
                                       contemporaneous payment to holders of
                                       any other outstanding Preferred Stock
                                       of dividends, upon redemption or in
                                       liquidation. Assuming the Fund had
                                       issued and sold the Cumulative
                                       Preferred Stock and redeemed the 7.45%
                                       Preferred as of June 30, 2003, the



                                      11
<PAGE>

                                       Fund would have had no outstanding
                                       indebtedness and no Preferred Stock
                                       ranking on parity with the Cumulative
                                       Preferred Stock offered hereby as to
                                       dividends and payment upon liquidation.
                                       See "Investment Goal, Policies and
                                       Risks -- Senior Securities". The Fund
                                       may issue additional Preferred Stock
                                       under the circumstances set forth under
                                       "Description of Cumulative Preferred
                                       Stock-- Limitations on Issuance of
                                       Additional Preferred Stock".

                                       Certain Corporate Governance
                                       Provisions. Certain provisions of the
                                       Fund's Charter and Bylaws may have the
                                       effect of maintaining the continuity of
                                       management and may make it more
                                       difficult for the Fund's stockholders
                                       to change the majority of the Board of
                                       Directors. See "Description of Capital
                                       Stock -- Certain Corporate Governance
                                       Provisions".

Federal Income Tax
   Considerations.................     The Fund has qualified, and intends to
                                       remain qualified for Federal income tax
                                       purposes, as a regulated investment
                                       company. Qualification requires, among
                                       other things, compliance by the Fund
                                       with certain distribution requirements.
                                       Limitations on distributions if the
                                       Fund failed to satisfy the Asset
                                       Coverage or Portfolio Calculation
                                       requirements could jeopardize the
                                       Fund's ability to meet tax-related
                                       distribution requirements. The Fund
                                       presently intends, however, to the
                                       extent possible, to purchase or redeem
                                       Cumulative Preferred Stock and/or any
                                       other Preferred Stock if necessary in
                                       order to maintain compliance with such
                                       distribution requirements. See
                                       "Taxation" for a more complete
                                       discussion of these and other Federal
                                       income tax considerations.

Investment Adviser................     Royce has served as the investment
                                       adviser to the Fund since November 1,
                                       1996. Royce also serves as
                                       investment adviser to other registered
                                       management investment companies,
                                       privately offered funds and
                                       institutional accounts. As of June 30,
                                       2003, Royce managed approximately $10.7
                                       billion in assets for the Fund and
                                       other client accounts.

                                       Charles M. Royce is Royce's President
                                       and Chief Investment Officer. Royce's
                                       investment staff also includes three
                                       other Senior Portfolio Managers: W.
                                       Whitney George, Managing Director and
                                       Vice President, is the Fund's portfolio
                                       manager; 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.



                                      12
<PAGE>

                                       See "Investment Advisory and Other
                                       Services-- Portfolio Management" herein
                                       and "Directors and Officers" in the
                                       Statement of Additional Information.

                                       As compensation for its services under
                                       the Investment Advisory Agreement,
                                       Royce is entitled to receive a monthly
                                       fee equal to 1/12 of 1% (1% on an
                                       annualized basis) of the Fund's average
                                       net assets for each month during the
                                       term of such Agreement.

                                       Royce has volunteered to waive the
                                       portion of its investment advisory fee
                                       attributable to the liquidation
                                       preference of the 7.45% Preferred and
                                       the Cumulative Preferred Stock (net of
                                       the liquidation preference of the 7.45%
                                       Preferred) for any month when the
                                       Fund's net asset value average annual
                                       total return since the initial issuance
                                       of the 7.45% Preferred or the
                                       Cumulative Preferred Stock fails to
                                       exceed the blended dividend rate on
                                       those assets. See "Investment Advisory
                                       and Other Services -- Advisory Fee"

Custodian, Dividend-Paying
  Agent, Transfer Agent and
  Registrar.......................     State Street Bank and Trust Company, acts
                                       as custodian of the cash and other
                                       assets of the Fund. Equiserve Trust
                                       Company, N.A. acts as transfer agent,
                                       dividend-paying agent and registrar for
                                       the Fund's shares and as agent to
                                       provide notice of redemption and
                                       certain voting rights for the
                                       Cumulative Preferred Stock. See
                                       "Custodian, Dividend-Paying Agent,
                                       Transfer Agent and Registrar".



                                      13
<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 share of the Fund's Common Stock. The total returns in
the table represent the rate that an investor would have earned on an
investment in the Fund's Common Stock (assuming reinvestment of all dividends
and distributions). The information for the six months ended June 30, 2003 has
not been audited and is included in the Fund's 2003 Semiannual Report to
Stockholders, which is available upon request. The information for each of the
five years in the period ended December 31, 2002 has been audited by ____,
______ & _____, whose report, along with the Fund's financial statements, is
included in the Fund's 2002 Annual Report to Stockholders, which is available
upon request.




                                      14
<PAGE>

<TABLE>
<CAPTION>

                             Six months
                               ended
                              June 30,
                                2003                                     Years ended December 31,
                            (unaudited) --------------------------------------------------------------------------------------------
                                         2002      2001     2000      1999     1998      1997     1996+     1995     1994     1993
                            ----------- ------- --------- -------- --------- --------- -------- -------- --------- -------- --------
<S>                         <C>         <C>     <C>       <C>      <C>       <C>       <C>      <C>      <C>       <C>      <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD.....................              $7.28    $6.77     $5.94    $5.63     $6.04    $5.52     $5.09    $4.70     $5.24    $4.99

                            ----------- ------- --------- -------- --------- --------- -------- -------- --------- -------- --------
INVESTMENT
OPERATIONS:
   Net investment
   income (loss)...........              (0.01)    0.05      0.12     0.08      0.12     0.08      0.06     0.13      0.19     0.04
   Net realized and
   unrealized gain
   (loss) on
   investments and
   foreign currency........              (0.74)    0.79      1.26     0.58     (0.35)    1.12      0.35     0.36     (0.62)    0.46
                            --------------------------------------------------------------------------------------------------------
    Total investment
    operations.............              (0.75)    0.84      1.38     0.66     (0.23)    1.20      0.41     0.49     (0.43)    0.50
                            --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
PREFERRED
STOCKHOLDERS:
   Net investment income...              (0.03)   (0.04)    (0.03)   (0.01)    (0.16)    -         -        -         -        -
   Net realized gain on
   investments.............              (0.13)   (0.13)    (0.14)   (0.17)    (0.02)   (0.01)     -        -         -        -
                            --------------------------------------------------------------------------------------------------------
    Total distribution to
    Preferred Stockholders.              (0.16)   (0.17)    (0.17)   (0.18)    (0.18)   (0.01)     -        -         -        -
                            --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
COMMON
STOCKHOLDERS:
   Net investment income...              (0.02)   (0.03)    (0.06)   (0.01)     -       (0.12)     -       (0.16)    (0.11)   (0.03)
   Net realized gain on
   investments and
   foreign currency                      (0.07)   (0.11)    (0.28)   (0.14)     -       (0.41)     -       (0.01)     -       (0.22)
                            --------------------------------------------------------------------------------------------------------
    Total distribution to
    Common
    Stockholders...........              (0.09)   (0.14)    (0.34)   (0.15)     -       (0.53)     -       (0.17)    (0.11)   (0.25)
                            --------------------------------------------------------------------------------------------------------
CAPITAL STOCK
TRANSACTIONS:
   Effect of reinvestment of
   distributions
   by Common Stockholder...              (0.01)   (0.02)    (0.04)   (0.02)     -       (0.04)     -        -         -        -
   Effect of Preferred
   Stock offering..........               -        -         -        -         -       (0.10)     -        -         -        -
                            --------------------------------------------------------------------------------------------------------
    Total capital stock                  (0.01)   (0.02)    (0.04)   (0.02)     -       (0.14)     0.02     0.07      -        -
    transactions...........
                            ========================================================================================================
NET ASSET VALUE,
END OF PERIOD                 $          $6.27    $7.28     $6.77    $5.94     $5.63    $6.04     $5.52    $5.09     $4.70    $5.24
                            ========================================================================================================
MARKET VALUE,
END OF PERIOD                 $          $5.56    $6.65     $5.69    $4.72     $4.88    $5.06     $4.59    $4.19     $3.56    $4.31
                            ========================================================================================================

TOTAL RETURN(a):
Market Value...............   %***      (15.1)%   19.7%     27.9%    (0.3)%    (3.7)%   21.3%      9.6%    22.3%    (17.4)%    9.3%
Net Asset Value............   %***      (12.5)%   10.0%     20.9%     8.7%     (6.8)%   20.5%      -        -         -        -
RATIOS BASED ON
AVERAGE NET
ASSETS APPLICABLE
TO COMMON
STOCKHOLDERS:
Total expenses (b,c).......    %**        1.88%    1.47%     1.44%    1.51%     1.62%    0.94%     1.91%    2.14%     2.27%    2.43%
   Management fee
   expense.................    %**        1.13%    1.11%     1.00%    1.00%     1.14%    0.39%    -        -         -        -
   Other operating
   expenses................    %**        0.75%    0.36%     0.44%    0.51%     0.48%    0.55%    -        -         -        -
Net investment
income (loss)..............    %**       (0.16)%   0.70%     1.93%    1.47%     1.95%    1.35%     1.80%    2.80%     3.81%    0.74%
SUPPLEMENTAL DATA:
Net Assets;
End of Period
(in thousands).............       $     $77,956  $86,654   $80,933  $71,003   $67,457  $70,893   $44,154  $41,385   $41,106  $45,839
Portfolio Turnover Rate....       %      61%      54%       69%      60%       90%      74%      159%      76%      483%     445%
Average Commission
Rate Paid..................      -        -        -         -        -         -        -      $0.0396     -         -        -
PREFERRED STOCK:
Total shares outstanding...    800,000 800,000   800,000  800,000   800,000  800,000   800,000      -       -         -        -
Asset coverage per share...             $97.44   $108.32  $101.17    $88.75   $84.32    $88.62     -        -         -        -
Liquidation preference
per share..................     $25.00  $25.00    $25.00   $25.00    $25.00   $25.00    $25.00     -        -         -        -
Average market value
per share(c)...............             $25.64    $25.09   $22.23    $24.00   $25.16    $25.25     -        -         -        -

</TABLE>

+    Royce has served as investment adviser to the Fund since November 1, 1996.
(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.
(b)  Expense ratios based on total average net assets were ___%, 1.43%, 1.11%,
     1.05%, 1.06%, 1.16%, ___%, ___%, ___%, ___%, and ___% for the years ended
     December 31, 2002, 2001, 2000, 1999, 1998, 1997, 1996, 1995, 1994, and
     1993, respectively.
(c)  Expense ratios based on average net assets applicable to Common
     Stockholders before waiver of fees by the investment adviser would have
     been ___%, 2.06%, 1.69%, 1.81%, 1.93%, 1.88%, ___%, ___%, ___%, ___%, and
     ___% for the years ended December 31, 2002, 2001, 2000, 1999, 1998, 1997,
     1996, 1995, 1994, and 1993, respectively.
(d)  The average of month-end market values during the period.
(e)  For fiscal years beginning after October 1, 1995, the Fund is required to
     disclose its average commission rate paid per share for purchases and
     sales of investments.

*    To be allocated to net investment income and capital gains at year-end.
**   Annualized.
***  Not annualized.


                                      15
<PAGE>

                  TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS

     The Fund intends to distribute to its stockholders substantially all of
its long-term capital gains, qualified dividend income, and Other Ordinary
Income. The Fund is a regulated investment company ("RIC"), and a RIC's
distributions generally retain their character as long-term capital gains,
qualified dividend income, or Other Ordinary Income when received by its
preferred and common stockholders. Thus, distributions paid by the Fund to
holders of the Cumulative Preferred Stock will, for Federal income tax
purposes, consist of varying proportions of long-term capital gains, qualified
dividend income, described below, Other Ordinary Income, and/or returns of
capital.

     The 2003 Tax Act reduced the individual Federal income tax rate on
long-term capital gains and qualified dividend income to a maximum of 15%.
Qualified dividend income consists of dividends paid by domestic corporations
and certain foreign corporations. Under the 2003 Tax Act, the maximum
individual Federal income tax rate on Other Ordinary Income is 35%. These tax
rates are scheduled to apply through 2008. Assuming the 2003 Tax Act had been
in effect during the past one, three and five years ended December 31, 2002,
the distributions of taxable income by the Fund would have consisted of
approximately ____%, ____% and ____% long-term capital gains and qualified
dividend income and approximately ____%, ____% and ____% Other Ordinary
Income. No assurance can be given, however, as to what percentage, if any, of
the dividends paid on the Cumulative Preferred Stock will consist of long-term
capital gains and qualified dividend income, which are taxed at lower rates
for individuals than Other Ordinary Income.

     Although the Fund is not managed utilizing a tax-focused investment
strategy and does not seek to achieve any particular distribution composition,
its primary investment goal is long-term capital growth. Accordingly, certain
individual investors in the Cumulative Preferred Stock would, under current
Federal income tax law, also realize a tax advantage on their investment to
the extent that Fund distributions continue to consist primarily of long-term
capital gains and qualified dividend income rather than more highly taxed
Other Ordinary Income. The Federal income tax characteristics of the Fund and
the taxation of its stockholders are described more fully under "Taxation".

Assumptions

     The following table shows examples of the pure Other Ordinary Income
equivalent yield that would be generated by the indicated dividend rate on the
Cumulative Preferred Stock, assuming distributions consisting of three
different proportions of long-term capital gains, qualified dividend income
and Other Ordinary Income for an individual investor in the 35% Federal
marginal income tax bracket. In reading these tables, prospective investors
should understand that a number of factors could affect the actual composition
for Federal income tax purposes of the Fund's distributions each year. Such
factors include (i) the Fund's investment performance for any particular year,
which may result in varying proportions of long-term capital gains, qualified
dividend income, Other Ordinary Income and/or return of capital in the year's
distribution and (ii) the timing of the realization of gains and losses during
the Fund's taxable year.




                                      16
<PAGE>

         THESE TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY AND CANNOT BE TAKEN
AS AN INDICATION OF THE ACTUAL COMPOSITION FOR FEDERAL INCOME TAX PURPOSES OF
THE FUND'S FUTURE DISTRIBUTIONS.

    Percentage of Cumulative Preferred          A Cumulative Preferred Stock
    Stock Annual Dividend Composed of              Annual Dividend Rate of
- ------------------------------------------   -----------------------------------
                                                 _____%      _____%     _____%


 Long-Term Capital
Gains and Qualified                                  Is Equivalent to an
  Dividend Income    Other Ordinary Income      Other Ordinary Income Yield of
- -------------------  ---------------------   -----------------------------------
       90%                    10%                _____%      _____%     _____%
       75%                    25%                _____%      _____%     _____%
       50%                    50%                _____%      _____%     _____%

     Assuming that long-term capital gains and qualified dividend income
comprise 90% of a stated Cumulative Preferred Stock dividend and that Other
Ordinary Income comprises the remaining 10% of that Cumulative Preferred Stock
dividend, the following table shows the pure Other Ordinary Income equivalent
yields that would be generated at the stated dividend rate for taxpayers in
the indicated tax brackets.

                                                A Cumulative Preferred Stock
                                                   Annual Dividend Rate of
                                             -----------------------------------
                                                 _____%      _____%     _____%

                                                     Is Equivalent to an
2003 Federal Marginal Income Tax Bracket*       Other Ordinary Income Yield of
- ------------------------------------------   -----------------------------------
35.0%.....................................     _____%        _____%      _____%
33.0%.....................................     _____%        _____%      _____%
28.0%.....................................     _____%        _____%      _____%
25.0%**...................................     _____%        _____%      _____%

______________

*   Annual taxable income levels corresponding to the 2003 Federal marginal tax
brackets are as follows: 35.0% -- over $311,950 for both single and joint
returns; 33.0% -- $143,501 - $311,950 for single returns, $174,701 - $311,950
for joint returns; 28.0% -- $68,801 - $143,500 for single returns, $114,651 -
$174,700 for joint returns; and 25.0% -- $28,401 - $68,800 for single returns,
$56,801 - $114,650 for joint returns. An investor's Federal marginal income
tax rates may exceed the rates shown in the above table due to the reduction,
or possible elimination, of the personal exemption deduction for high-income
taxpayers and an overall limit on itemized deductions. Income also may be
subject to certain state, local and foreign taxes. For investors who pay
alternative minimum tax, equivalent yields may be lower than those shown
above. The tax rates shown above do not apply to corporate taxpayers.

**  Assumes that such individuals are taxed at a 15% rate on long-term capital
gains and qualified dividend income received from the Fund.


                                      17
<PAGE>

                                   THE FUND

     The Fund is a closed-end diversified management investment company. It
was incorporated under the name "America's All Season Fund, Inc." under the
laws of the State of Maryland on October 30, 1987 and registered under the
1940 Act. The Fund commenced operations in March 1988. Assuming the Fund had
issued and sold the Cumulative Preferred Stock and redeemed the 7.45%
Preferred as of June 30, 2003, the Fund would have had _________ shares of
Common Stock issued and outstanding, with an aggregate net asset value of
$_________, and _________ shares of Cumulative Preferred Stock issued and
outstanding, with an aggregate liquidation preference of $_________. The
Fund's principal office is located at 1414 Avenue of the Americas, New York,
New York 10019, and its telephone number is (800) 221-4268.

     Since November 1, 1996, when Royce became its investment adviser, the
Fund's investment goal has been long-term capital growth. Royce normally
invests at least 75% of the Fund's assets in equity securities. An investment
in the Fund is not appropriate for all investors. No assurance can be given
that the Fund's investment goal will be realized. See "Investment Goal,
Policies and Risks".


                                USE OF PROCEEDS

     The net proceeds from the offering of the Cumulative Preferred Stock are
estimated at $________, after deduction of the underwriting discounts and
estimated offering expenses payable by the Fund. The Fund will use a
substantial portion of the net proceeds from the offering of the Cumulative
Preferred Stock to redeem the 7.45% Preferred. In order for the Fund to redeem
the 7.45% Preferred, the Fund must pay the 7.45% Preferred's aggregate
liquidation preference of $20,000,000, plus an amount equal to accumulated and
unpaid dividends (whether or not earned or declared) on the 7.45% Preferred
through the redemption date. Royce expects to invest any proceeds remaining
after the redemption of the 7.45% Preferred in accordance with the Fund's
investment goal and policies within approximately six months from the
completion of the offering, depending on market conditions for the types of
securities in which the Fund principally invests. Pending any such investment,
the proceeds will be held in high quality short-term debt securities and
instruments and money market mutual funds. Any delay by Royce in investing
such remaining proceeds may hinder the Fund's ability to achieve its
investment goal.

                                      18
<PAGE>

                                CAPITALIZATION

     The following table sets forth the capitalization of the Fund as of June
30, 2003, and as adjusted to give effect to the issuance of the Cumulative
Preferred Stock and the redemption of the 7.45% Preferred.

<TABLE>
<CAPTION>

                                                                                     Outstanding      As Adjusted
                                                                                    -------------     -----------
<S>                                                                                 <C>               <C>
Stockholders' equity:
     Preferred stock, $.001 par value per share, authorized ________ shares of
       which the following series has been classified and designated: 7.45%
       Cumulative Preferred Stock, authorized 5,000,000 shares,
              issued and outstanding 800,000 shares...........................      $ 20,000,000          $ 0
       ____% Cumulative Preferred Stock, as adjusted, authorized
              __________ shares, issued and outstanding _________ shares......          $ 0           $
                                                                                    -------------     -----------
                                                                                    $ 20,000,000      $
                                                                                    =============     ===========
     Common stock, $.001 par value per share:
         Authorized ____________ shares, issued and outstanding
              __________ shares..............................................
         Additional paid-in capital..........................................                                     (1)
         Accumulated net investment loss.....................................
         Accumulated net realized gains on investments.......................
         Net unrealized appreciation on investments..........................
                                                                                    -------------     -----------
         Net assets applicable to outstanding common stock...................       $                 $
                                                                                    =============     ===========
</TABLE>

_____________
(1)  After deducting underwriting discounts and estimated costs of this
     offering of $__________.



                                      19
<PAGE>

                             PORTFOLIO COMPOSITION

     The following tables set forth certain information with respect to the
Fund's investment portfolio as of June 30, 2003.

                                                            Value     Percentage
                                                        ------------  ----------
Common stock..........................................  $                     %
Preferred stock.......................................
Corporate bonds.......................................
U.S. Treasury obligations.............................
Repurchase agreements.................................
Liabilities less cash and other assets................
                                                        ------------  ----------
       Total investments..............................  $                     %
                                                        ============  ==========

Sector Weightings in Common Stock Portfolio
Industrial Products...................................   $                    %
Financial Intermediaries..............................
Industrial Services...................................
Consumer Products.....................................
Technology............................................
Financial Services....................................
Miscellaneous.........................................
Natural Resources.....................................
Retail................................................
Consumer Services.....................................
Health................................................
Utilities.............................................
                                                        ------------  ----------
       Total common stock............................. $                      %
                                                        ============  ==========

Other Information Regarding Common Stock Investments
Number of issuers.....................................
Median market capitalization..........................                 $


                      INVESTMENT GOAL, POLICIES AND RISKS

Investment Goal

     The Fund's investment goal and one of its fundamental policies is
long-term capital growth. Royce normally invests at least 75% of the Fund's
assets in equity securities. Royce uses a value approach to invest the Fund's
assets in a limited number of domestic and foreign companies. While the Fund
is not restricted as to stock market capitalization, Royce focuses the Fund's
investments primarily in small-cap companies (companies with stock market
capitalizations below $2 billion) with significant business activities in the
United States. 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.



                                      20
<PAGE>

     The Fund may invest up to 25% of its assets in direct obligations of the
U.S. Government or its agencies and in the non-convertible preferred stocks
and debt securities of domestic and foreign companies.

     There are market risks inherent in any investment, and no assurance can
be given that the Fund's primary investment goal will be achieved.

Investment Policies

     Royce invests the Fund's assets primarily in a limited number of
companies selected using a value approach. While it does not limit the stock
market capitalizations of the companies in which the Fund may invest, Royce
has historically focused on small-cap equity securities (companies with stock
market capitalizations below $2 billion).

     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-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 no assurance can be given 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-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.



                                      21
<PAGE>

     Foreign Investments. The Fund invests a portion of its assets in
securities of foreign issuers. In most instances, investments will be made in
companies principally based in the United States or the other developed
countries of North America, Europe, Asia and Australia and not in emerging
markets countries. Royce intends to invest primarily in American Depository
Receipts ("ADRs"), in U.S. exchange-listed securities and in Nasdaq National
Market System securities.

     Foreign investments involve certain risks which typically are not present
in securities of domestic issuers. There may be less information available
about a foreign company than a domestic company; foreign companies may not be
subject to accounting, auditing and reporting standards and requirements
comparable to those applicable to domestic companies; and foreign markets,
brokers and issuers are generally subject to less extensive government
regulation than their domestic counterparts. Foreign securities may be less
liquid and may be subject to greater price volatility than domestic
securities. Foreign investments also may be subject to local economic and
political risks which might adversely affect the Fund's ability to realize on
its investment in such securities. No assurance can be given that Royce will
be able to anticipate these potential events or counter their effects.

     The Fund does not expect to purchase or sell foreign currencies to hedge
against declines in the U.S. dollar or to lock in the value of the foreign
securities it purchases, and its foreign investments may be adversely affected
by changes in foreign currency rates. Consequently, the risks associated with
such investments may be greater than if the Fund did engage in foreign
currency transactions for hedging purposes.

     Income earned or received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. See "Taxation" below and in the Statement of Additional Information.

     Depositary Receipts. The Fund may invest in the securities of foreign
issuers in the form of sponsored or unsponsored ADRs, European Depositary
Receipts ("EDRs") and Global Depositary Receipts ("GDRs") (collectively,
"Depositary Receipts") or other securities convertible into securities of
foreign issuers. Depositary Receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted.
ADRs are receipts typically issued by an American bank or trust company that
evidence ownership of underlying securities issued by a foreign corporation.
EDRs are receipts issued in Europe that evidence a similar ownership
arrangement. GDRs are receipts issued throughout the world that evidence a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in the U.S. securities markets, and EDRs, in bearer form, are designed for use
in European securities markets. GDRs are tradeable both in the U.S. and in
Europe and are designed for use throughout the world. Depositary Receipts are
alternatives to the purchase of the underlying foreign securities in their
national markets and currencies. The Fund may invest in unsponsored Depositary
Receipts. The issuers of unsponsored Depositary Receipts are not obligated to
disclose material information in the United States and, therefore, there may
be less information available regarding such issuers and there may not be a
correlation between such information and the market value of the Depositary
Receipts. Depositary Receipts also involve the risks associated with other
investments in foreign securities, as discussed above.

                                      22
<PAGE>

     Fixed Income Securities. Up to 25% of the Fund's total assets may be
invested in direct obligations of the U.S. Government or its agencies and in
non-convertible preferred stocks and debt securities of various domestic and
foreign issuers. Two of the main risks of investing in fixed income securities
are credit risk and interest rate risk. Within this category, up to 5% of the
Fund's total assets may be invested in below investment-grade debt securities,
also known as high-yield/high-risk securities. Such debt securities may be in
the lowest-rated categories of recognized rating agencies (C in the case of
Moody's or D in the case of S&P) or may be unrated. Such high-yield/high-risk
investments are primarily speculative and may entail substantial risk of loss
of principal and non-payment of interest, but may also produce above-average
returns for the Fund. Debt securities rated C or D may be in default as to the
payment of interest or repayment of principal. As of the date of this
Prospectus, interest rates are near historical lows which makes it more likely
that they will increase in the future which could, in turn, result in a
decline in the market value of the fixed income securities held by the Fund.

     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.



                                      23
<PAGE>

     Securities Lending. The Fund may lend up to 25% of its assets to brokers,
dealers and other financial institutions. However, under the Rating Agency
Guidelines, the Fund may not lend portfolio securities in excess of 15% of its
total assets. The 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 Securities and Exchange Commission
(the "Commission") 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 as
described above. However, for temporary defensive purposes (i.e., when Royce
determines that market conditions warrant) or when it has uncommitted cash
balances, the Fund may also invest in U.S. Treasury bills, domestic bank
certificates of deposit, repurchase agreements with its custodian bank
covering U.S. Treasury and agency obligations having a term of not more than
one week, high-quality commercial paper and money market funds registered
under the 1940 Act or retain all or part of its assets in cash. Accordingly,
the composition of the Fund's portfolio may vary from time to time.

     Repurchase agreements are in effect loans by the Fund to its custodian,
and the agreements for such transactions require the custodian to maintain
securities having a value at least equal to the amount loaned as collateral.
Repurchase agreements could involve certain risks if the custodian defaults or
becomes insolvent, including possible delays or restrictions upon the Fund's
ability to dispose of collateral.

Changes in Investment Goal and Policies

     The Fund's 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 Cumulative
Preferred Stock and any other Preferred Stock, voting together as a single
class, and a majority of the Cumulative Preferred Stock and any other
Preferred Stock, voting as a separate class (which for this purpose and under
the 1940


                                      24
<PAGE>

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 consider its other policies to be fundamental, and such
policies may be changed by the Board of Directors without stockholder approval
or prior notice to stockholders.

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

Risk Factors - Investing in Small-Cap Companies

     While the Fund is not restricted as to stock market capitalization, Royce
focuses the Fund's investments primarily in small-cap companies (companies
with stock market capitalizations below $2 billion) with significant business
activities in the United States.

     The securities of small-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-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-cap companies generally requires it to have a long-term (at least three
years) investment outlook for a portfolio security.

Risk Factors - Concentration Risk

     Because the Fund invests in a limited number of securities, developments
affecting an individual issuer are likely to have a greater impact on the
Fund's net asset value and the market price of its Common Stock.


                                      25
<PAGE>

Risk Factors - Liquidity Risk

     During an initial period which is not expected to exceed 30 days after
the date of issuance, the Cumulative Preferred Stock will not be listed on any
securities exchange. During such period, the Underwriters intend to make a
market in the Cumulative Preferred Stock; however, they have no obligation to
do so. Consequently, the Cumulative Preferred Stock may be illiquid during
such period. No assurance can be provided that listing on any securities
exchange or market making by the Underwriters will result in the market for
Cumulative Preferred Stock being liquid at any time.

Risk Factors - Credit Rating Risk

     The credit rating on the Cumulative Preferred Stock could be reduced or
withdrawn by Moody's while an investor holds shares of Cumulative Preferred
Stock, either as a result of the Fund's termination of compliance with the
Rating Agency Guidelines or otherwise. The credit rating does not eliminate or
mitigate the risks of investing in the Cumulative Preferred Stock. A reduction
or withdrawal of the credit rating by Moody's may have an adverse effect on
the liquidity and market value of the Cumulative Preferred Stock. See
"Description of Cumulative Preferred Stock -- Termination of Rating Agency
Guidelines".

Risk Factors - Leverage and Borrowing

     The Fund is authorized to borrow money. So long as the Cumulative
Preferred Stock is rated by Moody's, however, 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.

Senior Securities

     The 1940 Act and the Fund's fundamental investment policies and
restrictions (see "Investment Restrictions" in the Statement of Additional
Information) permit the Fund to issue and sell senior securities representing
indebtedness or consisting of Preferred Stock if various requirements are met.
Such requirements include initial asset coverage tests of 300% for
indebtedness and 200% for Preferred Stock and restrictive provisions
concerning Common Stock dividend payments and other distributions, Preferred
Stock dividend payments and other distributions (if indebtedness is incurred),
stock repurchases and maintenance of asset coverage and giving senior
securityholders the right to elect directors in the event specified asset
coverage tests are not met or dividends are not paid. While the issuance and
sale of senior securities allows the Fund to raise additional cash for
investments, it is a speculative investment technique, involving the risk
considerations of leverage, potential dilution and increased share price
volatility for the Fund's Common Stock. In addition, the Fund may be required
to sell investments in order to make required payments to senior
securityholders when it may be disadvantageous to do so.



                                      26
<PAGE>

     The Cumulative Preferred Stock offered hereby is a senior security of the
Fund. See "Description of Cumulative Preferred Stock". Payments to the holders
of Cumulative Preferred Stock of dividends or upon redemption or in
liquidation will be subject to the prior payment of interest and repayment of
principal then due on any outstanding indebtedness of the Fund.

     Assuming the Fund had issued and sold the Cumulative Preferred Stock and
redeemed the 7.45% Preferred as of June 30, 2003, the Fund would have had
_________ shares of Common Stock issued and outstanding, with an aggregate net
asset value of $________ per share, and ___________ shares of Cumulative
Preferred Stock, par value $0.001 per share, with an aggregate liquidation
preference of $____________, issued and outstanding, and no outstanding
indebtedness. Accordingly, assuming the Fund had issued and sold the
Cumulative Preferred Stock and redeemed the 7.45% Preferred as of such date,
the Fund could have, under its investment policies and restrictions, issued
and sold senior securities representing indebtedness of up to $___________ or
additional shares of Preferred Stock having an aggregate involuntary
liquidation preference of up to $__________ or various combinations of lesser
amounts of both securities representing indebtedness and Preferred Stock.


                           RATINGS AGENCY GUIDELINES

     Certain of the capitalized terms used herein are defined in the Glossary
that appears at the end of this Prospectus.

     Moody's has established guidelines in connection with the Fund's receipt
from Moody's of a rating of Aaa for the Cumulative Preferred Stock on the Date
of Original Issue. Moody's, a nationally-recognized securities rating
organization, issues ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines have been developed by
Moody's in connection with issuances of asset-backed and similar securities,
including debt obligations and various auction rate preferred stocks,
generally on a case-by-case basis through discussions with the issuers of
these securities. The guidelines are designed to ensure that assets underlying
outstanding debt or preferred stock will be sufficiently varied and will be of
sufficient quality and amount to justify investment-grade ratings. The
guidelines do not have the force of law, but are being adopted by the Fund in
order to satisfy current requirements necessary for Moody's to issue the
above-described rating for the Cumulative Preferred Stock. The guidelines
provide a set of tests for portfolio composition and discounted asset coverage
that supplement (and in some cases are more restrictive than) the applicable
requirements of Section 18 of the 1940 Act. The Moody's guidelines are
included in the Articles Supplementary and are referred to in this Prospectus
as the "Rating Agency Guidelines".

     The Fund intends to maintain a Portfolio Calculation at least equal to
the Basic Maintenance Amount. If the Fund fails to meet such requirement and
such failure is not cured by the applicable cure date, the Fund will be
required to redeem some or all of the Cumulative Preferred Stock. See
"Description of Cumulative Preferred Stock -- Redemption -- Mandatory
Redemption". The Rating Agency Guidelines also: (i) exclude certain types of
securities in which the Fund may invest from Moody's Eligible Assets and,
therefore, from the Portfolio Calculation, (ii) prohibit the Fund's
acquisition of futures contracts or options on futures contracts, (iii)
prohibit reverse repurchase agreements, (iv) limit the writing of options on


                                      27
<PAGE>

portfolio securities and (v) limit the lending of portfolio securities to 15%
of the Fund's total assets. Royce does not believe that compliance with the
Rating Agency Guidelines will have an adverse effect on its management of the
Fund's portfolio or on the achievement of the Fund's investment goal. For a
further discussion of the Rating Agency Guidelines, see "Description of
Cumulative Preferred Stock".

     The Fund may, but is not required to, adopt any modifications to the
Rating Agency Guidelines that may hereafter be established by Moody's. Failure
to adopt such modifications, however, may result in a change in the Moody's
rating or a withdrawal of a rating altogether. In addition, Moody's may, at
any time, change or withdraw such rating. The terms of the Cumulative
Preferred Stock provide that the interpretation or applicability of any or all
of the Rating Agency Guidelines may from time to time be modified by the Board
of Directors of the Fund in its sole discretion based on a determination by
the Board of Directors that such action is necessary or appropriate with
respect to the Cumulative Preferred Stock; provided, however, that the Board
of Directors receives written confirmation from Moody's that any such
modification would not impair the then current rating assigned to the
Cumulative Preferred Stock by Moody's. Furthermore, under certain
circumstances, the Board of Directors of the Fund may determine that it is not
in the best interests of the Fund to continue to comply with the Rating Agency
Guidelines. If the Fund terminates compliance with the Rating Agency
Guidelines, it is likely that Moody's will change its rating on the Cumulative
Preferred Stock or withdraw its rating altogether. However, at the time of
such termination, the Cumulative Preferred Stock must have received a rating
from at least one NRSRO that is at least comparable to the then current rating
from Moody's. The Fund will then be required to comply with the guidelines
established by such successor NRSRO. It is the Fund's present intention to
continue to comply with the Rating Agency Guidelines.

     As recently described by Moody's, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The rating on the Cumulative Preferred Stock is not a
recommendation to purchase, hold or sell such shares, inasmuch as the rating
does not comment as to market price or suitability for a particular investor.
Moreover, the Rating Agency Guidelines do not address the likelihood that a
holder of Cumulative Preferred Stock will be able to sell such shares. The
rating is based on current information furnished to Moody's by the Fund and
Royce and information obtained from other sources. The rating may be changed,
suspended or withdrawn as a result of changes in, or the unavailability of,
such information.


                    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 the Investment Advisers Act
of 1940, as amended. Royce became investment adviser of the Fund in November
1996. Royce also serves as investment adviser to other management investment
companies and institutional accounts. As of June 30, 2003, Royce managed
approximately $10.7 billion in assets for the Fund and other client accounts.
Substantially all of Royce's client accounts are managed as small- and micro-


                                      28
<PAGE>

cap investment products. Royce's principal business address is 1414 Avenue of
the Americas, New York, New York 10019.

     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 June 30, 2003, Legg
Mason's asset management subsidiaries had aggregate assets under management of
approximately $215.4 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.

     Royce's investment staff also includes three other Senior Portfolio
Managers: W. Whitney George, Managing Director and Vice President, is the
Fund's portfolio manager; 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 dated
October 1, 2001 (the "Investment Advisory Agreement"), 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 Investment Advisory Agreement.



                                      29
<PAGE>

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

Advisory Fee

     As compensation for its services under the Investment Advisory Agreement,
Royce is entitled to receive a monthly fee equal to 1/12 of 1% (1% on an
annualized basis) of the average of the net assets of the Fund. Because the
fee is computed based on the Fund's net assets and not on its total assets,
Royce will not receive any fee in respect of those assets of the Fund equal to
the aggregate unpaid principal amount of any indebtedness of the Fund.
However, because preferred stock is a form of equity, Royce will receive a fee
in respect of any assets of the Fund equal to the liquidation preference of
and any potential redemption premium for any Preferred Stock that may be
issued and sold by the Fund, including the Cumulative Preferred Stock.

     Royce has volunteered to waive the portion of its investment advisory fee
attributable to the liquidation preference of the 7.45% Preferred and the
Cumulative Preferred Stock (net of the liquidation preference of the 7.45%
Preferred) for any month when the Fund's net asset value average annual total
return since the initial issuance of the 7.45% Preferred or the Cumulative
Preferred Stock fails to exceed the blended dividend rate on those assets.

     Because Royce's fee is partially based on the average net assets of the
Fund (including assets obtained from the sale of the Cumulative Preferred
Stock and other Preferred Stock), Royce has generally benefited from the
Fund's issuance of Preferred Stock.

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 CUMULATIVE PREFERRED STOCK

     The following is a brief description of the terms of the Cumulative
Preferred Stock. This description does not purport to be complete and is
qualified by reference to the Charter, including the Articles Supplementary,
the form of which is filed as an exhibit to the Fund's Registration Statement,
and the Bylaws. Certain of the capitalized terms used herein are defined in
the Glossary that appears at the end of this Prospectus.



                                      30
<PAGE>

General

     The Cumulative Preferred Stock offered hereby is a senior security of the
Fund. Under the terms of the Cumulative Preferred Stock, the Fund is initially
authorized to issue up to ______ shares of Cumulative Preferred Stock. No
fractional shares of Cumulative Preferred Stock will be issued. The Board of
Directors reserves the right to issue additional shares of Cumulative
Preferred Stock or other Preferred Stock from time to time, subject to the
restrictions in the Charter and the 1940 Act. The shares of Cumulative
Preferred Stock will, upon issuance, be fully paid and nonassessable and will
have no preemptive, exchange or conversion rights. Any shares of Cumulative
Preferred Stock repurchased or redeemed by the Fund will be classified as
authorized but unissued Preferred Stock. The Board of Directors may by
resolution classify or reclassify any authorized but unissued Preferred Stock
from time to time by setting or changing the preferences, rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption. The Fund will not issue
any class of stock senior to the shares of Cumulative Preferred Stock.

Dividends

     Holders of shares of Cumulative Preferred Stock will be entitled to
receive, when, as and if authorized by the Board of Directors and declared by
the Fund out of funds legally available therefor, cumulative cash dividends at
the annual rate of ____% per share of the liquidation preference of $25.00 per
share, payable quarterly on March __, June __, September __ and December __
(each, a "Dividend Payment Date"), commencing on December __, 2003, to the
persons in whose names the shares of Cumulative Preferred Stock are registered
at the close of business on the preceding March __, June __, September __ and
December __, respectively.

     Dividends on the shares of Cumulative Preferred Stock will accumulate
from the date on which such shares are originally issued (the "Date of
Original Issue").

     No dividends will be declared or paid or set apart for payment on shares
of Cumulative Preferred Stock for any dividend period or part thereof unless
full cumulative dividends have been or contemporaneously are declared and paid
on all outstanding shares of Cumulative Preferred Stock through the most
recent Dividend Payment Date thereof. If full cumulative dividends are not
paid on the Cumulative Preferred Stock, all dividends on the shares of
Cumulative Preferred Stock will be paid pro rata to the holders of the shares
of Cumulative Preferred Stock. Holders of Cumulative Preferred Stock will not
be entitled to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends. No interest, or sum of money in lieu of
interest, will be payable in respect of any dividend payment that may be in
arrears.

     For so long as any shares of Cumulative Preferred Stock are outstanding,
the Fund will not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, Common
Stock or other stock, if any, ranking junior to the Cumulative Preferred Stock
as to dividends or payment upon liquidation) in respect of the Common Stock or
any other stock of the Fund ranking junior to or on a parity with the
Cumulative Preferred Stock as to dividends or payment upon liquidation, or
call for redemption, redeem, purchase or otherwise acquire for


                                      31
<PAGE>

consideration any shares of its Common Stock or any other junior stock (except
by conversion into or exchange for stock of the Fund ranking junior to or on a
parity with the Cumulative Preferred Stock as to dividends or payment upon
liquidation), unless, in each case, (i) immediately after such transaction,
the Fund will have a Portfolio Calculation for Moody's at least equal to the
Basic Maintenance Amount and the Fund will maintain the Asset Coverage (see
"-- Asset Maintenance" and "-- Redemption" below), (ii) full cumulative
dividends on shares of Cumulative Preferred Stock due on or prior to the date
of the transaction have been declared and paid (or sufficient Deposit
Securities to cover such payment have been deposited with the Paying Agent)
and (iii) the Fund has redeemed the full number of shares of Cumulative
Preferred Stock required to be redeemed by any provision for mandatory
redemption contained in the Charter.

     If the Fund fails to pay dividends for two years or more, holders of the
Cumulative Preferred Stock will acquire certain additional voting rights. See
"-- Voting Rights" below. Such rights will be their exclusive remedy for any
such failure.

Asset Maintenance

     The Fund will be required to satisfy two separate asset maintenance
requirements under the terms of the Cumulative Preferred Stock. These
requirements are summarized below.

     Asset Coverage. For so long as any shares of Cumulative Preferred Stock
are outstanding, the Fund will be required to maintain as of the last Business
Day of each March, June, September and December of each year, an "asset
coverage" (as defined by the 1940 Act) of at least 200% (or such higher
percentage as may be required under the 1940 Act) with respect to all
outstanding senior securities of the Fund which are stock, including the
Cumulative Preferred Stock (the "Asset Coverage"). If the Fund fails to
maintain the Asset Coverage on such dates and such failure is not cured in 60
days, the Fund will be required under certain circumstances to redeem certain
of the shares of Cumulative Preferred Stock. See "-- Redemption -- Mandatory
Redemption" below.

     Assuming the Fund had issued and sold the Cumulative Preferred Stock and
redeemed the 7.45% Preferred as of June 30, 2003, the Asset Coverage
immediately following such issuance and sale of the Cumulative Preferred Stock
and such redemption of the 7.45% Preferred (after giving effect to the
deduction of the underwriting discounts and estimated offering expenses for
such shares), would have been computed as follows:

              Value of Fund assets less
   liabilities not constituting senior securities        $
- ----------------------------------------------------     ------------
  Senior securities representing indebtedness plus    =  $              =  ___%
         aggregate liquidation preference of
           the Cumulative Preferred Stock

     Basic Maintenance Amount. For so long as any shares of Cumulative
Preferred Stock are outstanding, the Fund will be required to maintain, as of
each Valuation Date, portfolio holdings meeting specified guidelines of
Moody's, as described under "Rating Agency Guidelines", having an aggregate
discounted value (a "Portfolio Calculation") at least equal to the Basic
Maintenance Amount, which is in general the sum of the aggregate liquidation
preferences of the


                                      32
<PAGE>

Cumulative Preferred Stock and any other Preferred Stock, any indebtedness for
borrowed money and current liabilities and dividends. If the Fund fails to
meet such requirement as to any Valuation Date and such failure is not cured
within 14 days after such Valuation Date, the Fund will be required to redeem
certain of the shares of Cumulative Preferred Stock. See "-- Redemption --
Mandatory Redemption" below.

     Any security not in compliance with the Rating Agency Guidelines will be
excluded from the Portfolio Calculation.

     The Moody's Discount Factors and guidelines for determining the market
value of the Fund's portfolio holdings have been based on criteria established
in connection with the rating of the Cumulative Preferred Stock. These factors
include, but are not limited to, the sensitivity of the market value of the
relevant asset to changes in interest rates, the liquidity and depth of the
market for the relevant asset, the credit quality of the relevant asset (for
example, the lower the rating of a corporate debt obligation, the higher the
related discount factor) and the frequency with which the relevant asset is
marked to market. The Moody's Discount Factor relating to any asset of the
Fund and the Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the discounted value of the Fund's portfolio and certain
definitions and methods of calculation relating thereto may be changed from
time to time by the Board of Directors, provided that, among other things,
such changes will not impair the rating then assigned to the Cumulative
Preferred Stock by Moody's.

     On or before the third Business Day after each Quarterly Valuation Date,
the Fund is required to deliver to Moody's a Basic Maintenance Report ("Basic
Maintenance Report"). At least once during each fiscal year of the Fund,
within ten Business Days after delivery of such report relating to a Quarterly
Valuation Date, the Fund will deliver a letter prepared by the Fund's
independent accountants regarding the accuracy of the calculations made by the
Fund in such a Basic Maintenance Report randomly selected by the Fund's
independent accountants. If any such letter prepared by the Fund's independent
accountants shows that an error was made in the most recent Basic Maintenance
Report, the calculation or determination made by the Fund's independent
accountants will be conclusive and binding on the Fund.

Redemption

     Mandatory Redemption. The Fund will be required to redeem, at a
redemption price equal to $25.00 per share plus accumulated and unpaid
dividends through the date of redemption (whether or not earned or declared)
(the "Redemption Price"), certain of the shares of Cumulative Preferred Stock
(to the extent permitted under the 1940 Act, Maryland law and any agreement in
respect of indebtedness of the Fund to which it may be a party or by which it
may be bound) in the event that:

          (i) the Fund fails to maintain the quarterly Asset Coverage and such
     failure is not cured on or before 60 days following such failure (a "Cure
     Date"); or

          (ii) for so long as the Fund is complying with the Rating Agency
     Guidelines, the Fund fails to maintain a Portfolio Calculation at least
     equal to the Basic Maintenance



                                      33
<PAGE>

     Amount as of any Valuation Date, and such failure is not cured on or
     before the 14th day after such Valuation Date (also, a "Cure Date").

     The amount of such mandatory redemption will equal the minimum number of
outstanding shares of Cumulative Preferred Stock and/or any other Preferred
Stock the redemption of which, if such redemption had occurred immediately
prior to the opening of business on a Cure Date, would have resulted in the
Asset Coverage having been satisfied or the Fund having a Portfolio
Calculation for Moody's equal to or greater than the Basic Maintenance Amount
on such Cure Date or, if the Asset Coverage or a Portfolio Calculation for
Moody's equal to or greater than the Basic Maintenance Amount, as the case may
be, cannot be so restored, all of the shares of Cumulative Preferred Stock, at
the Redemption Price. In the event that shares of Cumulative Preferred Stock
are redeemed due to the occurrence of (i) above, the Fund may, but is not
required to, redeem a sufficient number of shares of Cumulative Preferred
Stock in order to increase the "asset coverage" (as defined in the 1940 Act)
of the remaining outstanding shares of Cumulative Preferred Stock and any
other Preferred Stock after redemption up to 275%. In the event that shares of
Cumulative Preferred Stock and/or any other Preferred Stock are redeemed due
to the occurrence of (ii) above, the Fund may, but is not required to, redeem
a sufficient number of shares of Cumulative Preferred Stock so that the
Portfolio Calculation exceeds the Basic Maintenance Amount of the remaining
outstanding shares of Cumulative Preferred Stock and any other Preferred Stock
remaining after redemption by up to 10%.

     If the Fund does not have funds legally available for the redemption of,
or is otherwise unable to redeem, all the shares of Cumulative Preferred Stock
to be redeemed on any redemption date, the Fund is required to redeem on such
redemption date that number of shares for which it has legally available funds
and is otherwise able to redeem, pro rata from each holder whose shares are to
be redeemed, and the remainder of the shares required to be redeemed will be
redeemed on the earliest practicable date on which the Fund will have funds
legally available for the redemption of, or is otherwise able to redeem, such
shares upon written notice of redemption ("Notice of Redemption").

     If fewer than all shares of Cumulative Preferred Stock are to be
redeemed, such redemption will be made pro rata from each holder of shares in
accordance with the respective number of shares held by each such holder on
the record date for such redemption. If fewer than all shares of Cumulative
Preferred Stock held by any holder are to be redeemed, the Notice of
Redemption mailed to such holder will specify the number of shares to be
redeemed from such holder. Unless all accumulated and unpaid dividends for all
past dividend periods will have been or are contemporaneously paid or declared
and Deposit Securities for the payment thereof deposited with the Paying
Agent, no redemptions of Cumulative Preferred Stock or any other Preferred
Stock may be made.

     Optional Redemption. Prior to __________ __, 2008, the shares of
Cumulative Preferred Stock are not subject to any optional redemption by the
Fund unless such redemption is necessary, in the judgment of the Board of
Directors of the Fund, to maintain the Fund's status as a RIC under the Code.
Commencing __________ __, 2008 and thereafter, the Fund may at its option
redeem shares of Cumulative Preferred Stock at any time in whole or in part at
the Redemption Price. Such redemptions are subject to the limitations of the
1940 Act, Maryland


                                      34
<PAGE>

law and any agreement in respect of indebtedness of the Fund to which it may
be a party or by which it may be bound.

     Redemption Procedures. A Notice of Redemption will be given to the
holders of record of Cumulative Preferred Stock selected for redemption not
less than 30 or more than 45 days prior to the date fixed for the redemption.
Each Notice of Redemption will state: (i) the redemption date, (ii) the number
of shares of Cumulative Preferred Stock to be redeemed, (iii) the CUSIP
number(s) of such shares, (iv) the Redemption Price, (v) the place or places
where such shares are to be redeemed, (vi) that dividends on the shares to be
redeemed will cease to accumulate on such redemption date and (vii) the
provision of the Charter under which the redemption is being made. No defect
in the Notice of Redemption or in the mailing thereof will affect the validity
of the redemption proceedings, except as required by applicable law.

Liquidation Rights

     Upon a liquidation, dissolution or winding up of the affairs of the Fund
(whether voluntary or involuntary), holders of shares of Cumulative Preferred
Stock then outstanding will be entitled to receive out of the assets of the
Fund available for distribution to stockholders, after satisfying claims of
creditors but before any distribution or payment of assets is made to holders
of the Common Stock or any other class of stock of the Fund ranking junior to
the Cumulative Preferred Stock as to liquidation payments, a liquidation
distribution in the amount of $25.00 per share plus an amount equal to all
unpaid dividends accumulated to and including the date fixed for such
distribution or payment (whether or not earned or declared by the Fund, but
excluding interest thereon) (the "Liquidation Preference"), and such holders
will be entitled to no further participation in any distribution payment in
connection with any such liquidation, dissolution or winding up. If, upon any
liquidation, dissolution or winding up of the affairs of the Fund, whether
voluntary or involuntary, the assets of the Fund available for distribution
among the holders of all outstanding shares of Cumulative Preferred Stock and
any other outstanding class or series of Preferred Stock of the Fund ranking
on a parity with the Cumulative Preferred Stock as to payment upon
liquidation, will be insufficient to permit the payment in full to such
holders of Cumulative Preferred Stock of the Liquidation Preference and the
amounts due upon liquidation with respect to such other Preferred Stock, then
such available assets will be distributed among the holders of Cumulative
Preferred Stock and such other Preferred Stock ratably in proportion to the
respective preferential amounts to which they are entitled. Unless and until
the Liquidation Preference has been paid in full to the holders of Cumulative
Preferred Stock, no dividends or distributions will be made to holders of the
Common Stock or any other stock of the Fund ranking junior to the Cumulative
Preferred Stock as to liquidation.

     Upon any liquidation, the holders of the Common Stock, after required
payments to the holders of Preferred Stock, will be entitled to participate
equally and ratably in the remaining assets of the Fund.

Voting Rights

     Except as otherwise stated in this Prospectus and as otherwise required
by applicable law, holders of shares of Cumulative Preferred Stock and any
other Preferred Stock will be entitled to one vote per share on each matter
submitted to a vote of stockholders and will vote together with


                                      35
<PAGE>

holders of shares of Common Stock as a single class. Also, except as otherwise
required by the 1940 Act, (i) holders of outstanding shares of the Cumulative
Preferred Stock will be entitled as a series, to the exclusion of the holders
of all other securities, including other Preferred Stock, Common Stock and
other classes of capital stock of the Fund, to vote on matters affecting the
Cumulative Preferred Stock that do not materially adversely affect any of the
contract rights of holders of such other securities, including other Preferred
Stock, Common Stock and other classes of capital stock, as expressly set forth
in the Fund's Charter, and (ii) holders of outstanding shares of Cumulative
Preferred Stock will not be entitled to vote on matters affecting any other
Preferred Stock that do not materially adversely affect any of the contract
rights of holders of the Cumulative Preferred Stock, as expressly set forth in
the Charter. The foregoing voting provisions will not apply to any shares of
Cumulative Preferred Stock if, at or prior to the time when the act with
respect to which such vote otherwise would be required will be effected, such
shares will have been (i) redeemed or (ii) called for redemption and
sufficient Deposit Securities provided to the Paying Agent to effect such
redemption.

     In connection with the election of the Fund's directors, holders of
shares of Cumulative Preferred Stock and any other Preferred Stock, voting as
a separate class, will be entitled at all times to elect two of the Fund's
directors, and the remaining directors will be elected by holders of shares of
Common Stock and holders of shares of Cumulative Preferred Stock and any other
Preferred Stock, voting together as single class. In addition, if at any time
dividends on outstanding shares of Cumulative Preferred Stock and/or any other
Preferred Stock are unpaid in an amount equal to at least two full years'
dividends thereon and sufficient Deposit Securities shall not have been
deposited with the Paying Agent for the payment of such accumulated dividends,
or if at any time holders of any shares of Preferred Stock are entitled,
together with the holders of shares of Cumulative Preferred Stock, to elect a
majority of the directors of the Fund under the 1940 Act, then the number of
directors constituting the Board of Directors will automatically increase by
the smallest number that, when added to the two directors elected exclusively
by the holders of shares of Cumulative Preferred Stock and any other Preferred
Stock as described above, would constitute a majority of the Board of
Directors as so increased by such smallest number. Such additional directors
will be elected at a special meeting of stockholders which will be called and
held as soon as practicable, and at all subsequent meetings at which directors
are to be elected, the holders of shares of Cumulative Preferred Stock and any
other Preferred Stock, voting as a separate class, will be entitled to elect
the smallest number of additional directors that, together with the two
directors which such holders in any event will be entitled to elect,
constitutes a majority of the total number of directors of the Fund as so
increased. The terms of office of the persons who are directors at the time of
that election will continue. If the Fund thereafter pays, or declares and sets
apart for payment in full, all dividends payable on all outstanding shares of
Cumulative Preferred Stock and any other Preferred Stock for all past dividend
periods, the additional voting rights of the holders of shares of Cumulative
Preferred Stock and any other Preferred Stock as described above will cease,
and the terms of office of all of the additional directors elected by the
holders of shares of Cumulative Preferred Stock and any other Preferred Stock
(but not of the directors with respect to whose election the holders of shares
of Common Stock were entitled to vote or the two directors the holders of
shares of Cumulative Preferred Stock and any other Preferred Stock have the
right to elect in any event) will terminate and the number of directors
constituting the Board of Directors will automatically decrease accordingly.



                                      36
<PAGE>

     So long as shares of the Cumulative Preferred Stock are outstanding, the
Fund will not, without the affirmative vote of the holders of a majority of
the shares of Cumulative Preferred Stock outstanding at the time, voting
separately as one class, amend, alter or repeal the provisions of the Charter,
whether by merger, consolidation or otherwise, so as to materially adversely
affect any of the contract rights expressly set forth in the Charter of
holders of shares of the Cumulative Preferred Stock. Under Maryland law, the
terms of stock may be made dependent on facts ascertainable outside of the
charter of a corporation, including an action or determination of the board of
directors. Accordingly, the interpretation or applicability of any or all of
the Rating Agency Guidelines may from time to time be modified by the Board of
Directors in its sole discretion based on a determination by the Board of
Directors that such action is necessary or appropriate with respect to the
Cumulative Preferred Stock; provided, however, that the Board of Directors
receives written confirmation from Moody's that any such modification would
not impair the then current rating assigned to the Cumulative Preferred Stock
by Moody's. Furthermore, under certain circumstances, without the vote of
stockholders, the Board of Directors of the Fund may determine that it is not
in the best interests of the Fund to continue to comply with the Rating Agency
Guidelines. See "-- Termination of Rating Agency Guidelines" below. The
affirmative vote of a majority of the votes entitled to be cast by holders of
outstanding shares of the Cumulative Preferred Stock and any other Preferred
Stock, voting as a separate class, will be required to approve any plan of
reorganization adversely affecting such shares or any action requiring a vote
of security holders under Section 13(a) of the 1940 Act, including, among
other things, changes in the Fund's primary investment 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 Cumulative Preferred Stock and any other Preferred
Stock described above in each case will be in addition to a separate vote of
the requisite percentage of shares of Common Stock and Cumulative Preferred
Stock and any other Preferred Stock, voting together as a single class,
necessary to authorize the action in question. See "Description of Capital
Stock -- Certain Corporate Governance Provisions".

Termination of Rating Agency Guidelines

     The terms of the Cumulative Preferred Stock provide that if the Board of
Directors of the Fund determines that it is not in the best interests of the
Fund to continue to comply with the Rating Agency Guidelines, the Fund will no
longer be required to comply with such guidelines, provided that (i) the Fund
has given the Paying Agent, Moody's and holders of the Cumulative Preferred
Stock at least 20 calendar days written notice of such termination of
compliance, (ii) the Fund is in compliance with the Rating Agency Guidelines
at the time the notice required in clause (i) above is given and at the time
of termination of compliance with the Rating Agency Guidelines, (iii) at the
time the notice required in clause (i) above is given and at the time of
termination of compliance with the Rating Agency Guidelines, the Cumulative
Preferred Stock is listed on the AMEX or on another exchange registered with
the Commission as a national securities exchange and (iv) at the time of
termination of compliance with the Rating Agency Guidelines, the Cumulative
Preferred Stock must have received a rating from at least one NRSRO that is at
least comparable to the then current rating from Moody's.

     If the Fund voluntarily terminates compliance with the Rating Agency
Guidelines, Moody's may change its rating on the Cumulative Preferred Stock or
withdraw its rating


                                      37
<PAGE>

altogether. However, the Fund will then be required to comply with the
guidelines established by the successor NRSRO. It is the Fund's present
intention to continue to comply with the Rating Agency Guidelines.

Limitation on Issuance of Additional Preferred Stock

     So long as any shares of Cumulative Preferred Stock are outstanding, the
Charter provides that the Fund may issue and sell up to _________ additional
shares of the Cumulative Preferred Stock and/or shares of one or more other
series of Preferred Stock, provided that (i) immediately after giving effect
to the issuance and sale of such additional Preferred Stock and to the Fund's
receipt and application of the proceeds thereof, the Fund will maintain the
Asset Coverage of the shares of Cumulative Preferred Stock and all other
Preferred Stock of the Fund then outstanding, and (ii) no such additional
Preferred Stock will have any preference or priority over any other Preferred
Stock of the Fund upon the distribution of the assets of the Fund or in
respect of the payment of dividends.

Board's Ability to Modify Articles Supplementary

     The terms of the Cumulative Preferred Stock provide that, to the extent
permitted by law, the Board of Directors may modify or interpret the terms of
the Cumulative Preferred Stock to resolve any inconsistency or ambiguity or
remedy any formal defect so long as such modification or interpretation does
not materially adversely affect any of the contract rights expressly set forth
in the Charter of holders of shares of the Cumulative Preferred Stock or any
other capital stock of the Fund adversely affect the then current rating on
the Cumulative Preferred Stock by Moody's or any successor NRSRO.

Repurchase of Cumulative Preferred Stock

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

Book-Entry

     Shares of Cumulative Preferred Stock will initially be held in the name
of Cede & Co. ("Cede"), as nominee for The Depository Trust Company ("DTC").
The Fund will treat Cede as the holder of record of the Cumulative Preferred
Stock for all purposes. In accordance with the procedures of DTC, however,
purchasers of Cumulative Preferred Stock will be deemed the beneficial owners
of shares purchased for purposes of dividends, voting and liquidation rights.
Purchasers of Cumulative Preferred Stock may obtain registered certificates by
contacting Equiserve Trust Company, N.A., as transfer agent for the Cumulative
Preferred Stock.




                                      38
<PAGE>

                         DESCRIPTION OF CAPITAL STOCK

Common Stock

     The Fund is authorized to issue ___________ shares of Common Stock, par
value $.001 per share. Each share of Common Stock has equal voting, dividend,
distribution and liquidation rights. The shares of Common Stock outstanding
are fully paid and non-assessable. The shares of Common Stock are not
redeemable and have no preemptive, exchange, conversion or cumulative voting
rights. Under Maryland law and the rules of the Nasdaq National Market System,
the Fund generally is required to hold annual meetings of its stockholders.

Preferred Stock

     The Fund's Board of Directors has authority to classify and reclassify
any authorized but unissued shares of stock into other classes or series of
stock, including Preferred Stock, and to cause the Fund to issue such shares.
The terms of such Preferred Stock would be fixed by the Board of Directors and
would materially limit and/or qualify the rights of the holders of the Fund's
Common Stock. The Board of Directors has classified and designated _________
shares of Common Stock as the Cumulative Preferred Stock, _________ of which
are being offered hereby. See "Description of Cumulative Preferred Stock". The
Board of Directors also has classified and designated 5,000,000 shares of
Common Stock as 7.45% Preferred, 800,000 of which are issued and outstanding.
The terms of the 7.45% Preferred are substantially similar to the terms of the
Cumulative Preferred Stock. The Fund will use the net proceeds from the
issuance and sale of the Cumulative Preferred Stock to redeem the 7.45%
Preferred.




                                      39
<PAGE>
                           ________________________

     The following table shows as of June 30, 2003 the number of shares of:
(i) capital stock authorized, (ii) capital stock held by the Fund for its own
account and (iii) capital stock outstanding for each class of authorized
securities of the Fund.

<TABLE>
<CAPTION>

                                                                                                  Amount Outstanding
                                                                                                    (Exclusive of
                                                                           Amount Held by Fund   Amount Held by Fund
Title of Class                                        Amount Authorized    for its Own Account   for its Own Account)
                                                      -----------------    -------------------   --------------------
<S>                                                   <C>                  <C>                   <C>
Common Stock.....................................         _________                 0                 _________
Preferred Stock..................................         _________                 0                   800,000
     7.45% Preferred                                      5,000,000                 0                   800,000
</TABLE>

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 a number of years for stockholders 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 Bylaws 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 Bylaws 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
Bylaws. The Bylaws contain similar advance notice provisions with respect to
special meetings of stockholders.

     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.

     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.




                                      40
<PAGE>

                                   TAXATION

     The Fund intends to continue to qualify for the special tax treatment
afforded RICs under the Internal Revenue Code of 1986, as amended (the
"Code"). As long as it so qualifies, in any taxable year in which it
distributes at least 90% of its investment company taxable income ("ICTI") (as
that term is defined in the Code without regard to the deduction for dividends
paid) for such taxable year, the Fund will not be subject to Federal income
tax on the part of its ICTI and net capital gains (i.e., the excess of the
Fund's net realized long-term capital gains over its net realized short-term
capital losses), if any, that it distributes to its stockholders in each
taxable year. The Fund intends to distribute substantially all of such income.

     Under the 2003 Tax Act, Fund distributions comprised of dividends from
domestic corporations and certain foreign corporations (generally,
corporations incorporated in a possession of the United States, some
corporations eligible for treaty benefits under a treaty with the United
States and corporations whose stock is readily tradable on an established
securities market in the United States) are eligible for taxation at a maximum
tax rate of 15% also applicable to capital gains in the hands of individual
shareholders. Capital gain dividends likewise, are taxed at the reduced
maximum rate of 15% for non-corporate taxpayers. These tax rates are scheduled
to apply through 2008. 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 long-term capital gains, qualified dividend income and
Other Ordinary Income.

     If the Fund does not meet the asset coverage requirements of the 1940 Act
or the Charter, the Fund will be required to suspend distributions to holders
of its Common Stock until the asset coverage is restored. See "Description of
Cumulative Preferred Stock -- Dividends". Such a suspension of distributions
might prevent the Fund from distributing 90% of its ICTI, as is required in
order to avoid Fund-level taxation of such income. Upon any failure to meet
the asset coverage requirements of the 1940 Act or the Articles Supplementary,
the Fund may, and in certain circumstances will be required to, partially
redeem shares of its Cumulative Preferred Stock in order to maintain or
restore the requisite asset coverage and avoid the adverse consequences to the
Fund and its stockholders of failing to qualify as a RIC. If asset coverage
were restored, the Fund would again be able to pay dividends and might be able
to avoid Fund-level taxation of its income.

     The Internal Revenue Service (the "IRS") currently requires that a RIC
that has two or more classes of stock allocate to each class proportionate
amounts of each type of its income (e.g., capital gains, qualified dividend
income and Other Ordinary Income). Accordingly, the Fund intends to designate
dividends paid to holders of Cumulative Preferred Stock as comprised of
capital gains, qualified dividend income and/or Other Ordinary Income, as
applicable, in proportion to the Cumulative Preferred Stock's share of total
dividends paid during the year.

     If the Fund pays a dividend in January which was declared in the previous
October, November or December to stockholders of record on a specified date in
one of such months, then such dividend will be treated for tax purposes as
being paid by the Fund and received by its stockholders on December 31 of the
year in which such dividend was declared.



                                      41
<PAGE>

     Stockholders may be entitled to offset their capital gain dividends with
capital losses. There are a number of statutory provisions affecting when
capital losses may be offset against capital gains, and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their tax advisers.

     In the opinion of Sidley Austin Brown & Wood LLP, the shares of
Cumulative Preferred Stock will be treated as stock of the Fund for Federal
income tax purposes and distributions with respect to such shares (other than
distributions in redemption of the Cumulative Preferred Stock under section
302(b) of the Code) will constitute dividends to the extent of the Fund's
current and accumulated earnings and profits, as calculated for Federal income
tax purposes. Nevertheless, the IRS might take a contrary position, asserting,
for example, that the shares of Cumulative Preferred Stock constitute debt of
the Fund. The Fund believes this position, if asserted, would be unlikely to
prevail. If this position were upheld, however, the discussion of the
treatment of distributions herein, and in the Statement of Additional
Information, would not apply. Instead, distributions by the Fund to holders of
shares of Cumulative Preferred Stock would constitute taxable interest income,
whether or not they exceeded the earnings and profits of the Fund. In such
event, the designations of particular types of income, such as capital gains
and qualified dividend income, would not be effective.

     Ordinary income dividends (but not capital gain dividends) paid to
stockholders who are non-resident aliens or foreign entities generally will be
subject to a 30% United States withholding tax unless a lower treaty rate
applies.

     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.
Stockholders may be able to claim a credit or take a deduction for foreign
taxes paid by the Fund if certain requirements are met.

     By law, unless you qualify for an exemption from backup withholding (for
instance, if you are a corporation), your dividends and redemption proceeds
will be subject to a backup withholding tax (currently 28%) if you have not
provided a tax identification number or social security number or if the
number you have provided is incorrect.

     This section summarizes some of the consequences under Federal tax law of
an investment in Cumulative Preferred Stock of the Fund. It is not a
substitute for personal tax advice. Consult your personal tax adviser about
the potential tax consequences of purchasing and holding Cumulative Preferred
Stock in the Fund under all applicable tax laws. For additional tax
discussion, see "Taxation" in the Statement of Additional Information.


        CUSTODIAN, DIVIDEND-PAYING AGENT, 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, dividend-paying agent and
registrar for the Fund's shares and as agent to provide notice of redemption
and certain voting rights for the Cumulative Preferred Stock. Stockholder
inquiries should be directed to P.O. Box 8200, Boston, Massachusetts
02266-8200 (Tel. No. (800) 426-5523).




                                      42
<PAGE>

                                 UNDERWRITING

     Citigroup Global Markets Inc. and UBS Securities LLC are acting as
Underwriters in this offering. Subject to the terms and conditions stated in
the Fund's underwriting agreement dated ______________, 2003 (the
"Underwriting Agreement"), each Underwriter named below has severally agreed
to purchase, and the Fund has agreed to sell to such Underwriter, the number
of shares of Cumulative Preferred Stock set forth opposite the name of such
Underwriter.

                                                        Number of Shares of
Underwriter                                          Cumulative Preferred Stock
- -----------                                          --------------------------

Citigroup Global Markets Inc.
UBS Securities LLC
         Total


     The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Cumulative Preferred Stock included in this
offering are subject to approval of legal matters by counsel and to other
conditions. The Underwriters are obligated to purchase all the Cumulative
Preferred Stock if they purchase any such shares.

     The Underwriters propose to offer some of the Cumulative Preferred Stock
directly to the public at the public offering price set forth on the cover
page of this Prospectus and some of the Cumulative Preferred Stock to dealers
at the public offering price less a concession not to exceed $_________ per
share of Cumulative Preferred Stock. The sales load or underwriting discount
the Fund will pay of $_________ per share of Cumulative Preferred Stock is
equal to _____% of the initial offering price. The Underwriters may allow, and
such dealers may reallow, a concession not to exceed $_________ per share on
sales to certain other dealers. After the initial public offering, the
Underwriters may change the public offering price and other selling terms.
Investors must pay for any Cumulative Preferred Stock purchased on or before
__________________, 2003.

     In the Underwriting Agreement, the Fund and Royce have each agreed to
indemnify the several Underwriters or contribute to losses arising out of
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act").

     The Fund anticipates that from time to time the representatives of the
Underwriters and certain other Underwriters may act as brokers or dealers in
connection with the execution of the Fund's portfolio transactions after they
have ceased to be Underwriters and, subject to certain restrictions, may act
as brokers while they are Underwriters. Citigroup Global Markets Inc. and UBS
Securities LLC acted as financial advisers to Royce in connection with its
acquisition by Legg Mason on October 1, 2001. In addition, certain of the
Underwriters have in the past and may in the future act as financial advisers
to Royce or have other investment banking relationships with Royce.



                                      43
<PAGE>

     Prior to the offering, there has been no public market for the Cumulative
Preferred Stock. Application will be made to list the Cumulative Preferred
Stock on the AMEX. However, during an initial period which is not expected to
exceed 30 days after the date of this Prospectus, the Cumulative Preferred
Stock will not be listed on any securities exchange. During such period, the
Underwriters intend to make a market in the Cumulative Preferred Stock;
however, they have no obligation to do so. Consequently, an investment in the
Cumulative Preferred Stock may be illiquid during such period.

     In connection with the offering, the Underwriters may purchase and sell
shares of Cumulative Preferred Stock in the open market. These transactions
may include short sales and stabilizing transactions. Short sales involve
syndicate sales of shares in excess of the number of shares to be purchased by
the Underwriters in the offering, which creates a syndicate short position.
Stabilizing transactions consist of bids for or purchases of shares in the
open market while the offering is in progress.

     The Underwriters may also impose a penalty bid. Penalty bids permit the
Underwriters to reclaim a selling concession from a syndicate member when the
Underwriters repurchase shares originally sold by that syndicate member in
order to cover syndicate short positions or make stabilizing purchases.

     Any of these activities may have the effect of preventing or retarding a
decline in the market price of the stock. They may also cause the price of the
Cumulative Preferred Stock to be higher than the price that would otherwise
exist in the open market in the absence of these transactions. The
Underwriters may conduct these transactions on the AMEX or in the
over-the-counter market, or otherwise. If the Underwriters commence any of
these transactions, they may discontinue them at any time.

     The principal business address of Citigroup Global Markets Inc. is 388
Greenwich Street, New York, NY 10013. The principal business address of UBS
Securities LLC is 299 Park Avenue, New York, NY 10171.


                                 LEGAL MATTERS

     Certain matters concerning the legality under Maryland law of the
Cumulative Preferred Stock will be passed on by Venable, Baetjer and Howard,
LLP, Baltimore, Maryland. Certain legal matters will be passed on by Sidley
Austin Brown & Wood LLP, New York, New York, special counsel to the Fund, and
by Simpson Thacher & Bartlett LLP, counsel to the Underwriters. Sidley Austin
Brown & Wood LLP and Simpson Thacher & Bartlett LLP will each rely as to
matters of Maryland law on the opinion of Venable, Baetjer and Howard, LLP.


                                    EXPERTS

     ____, ______ & _____, 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 ____, ______ & _____ for the periods
indicated in its reports with respect thereto, and are included in reliance


                                      44
<PAGE>

upon such reports and upon the authority of such firm as experts in accounting
and auditing. ____, ______ & _____ has an office at __________________________
___________________, and also performs tax and other professional services for
the Fund.


                            ADDITIONAL INFORMATION

     The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act") and the 1940
Act and, in accordance therewith, files reports and other information with the
Commission. Reports, proxy statements and other information filed by the Fund
with the Commission pursuant to the informational requirements of such Acts
can be inspected and copied at the public reference facilities maintained by
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site at http://www.sec.gov. containing reports, proxy and
information statements and other information regarding registrants, including
the Fund, that file electronically with the Commission.

     This Prospectus constitutes part of a Registration Statement filed by the
Fund with the Commission under the Securities Act and the 1940 Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and
related exhibits for further information with respect to the Fund and the
Cumulative Preferred Stock offered hereby. Any statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
complete Registration Statement may be obtained from the Commission upon
payment of the fee prescribed by its rules and regulations or free of charge
through the Commission's web site (http://www.sec.gov).


               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Certain statements in this Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, levels of activity, performance or
achievements of the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors and Special Considerations" in the Statement of Additional
Information and elsewhere in this Prospectus. As a result of the foregoing and
other factors, no assurance can be given as to the future results, levels of
activity or achievements, and neither the Fund nor any other person assumes
responsibility for the accuracy and completeness of such statements.


           TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

     A Statement of Additional Information dated ________, __, 2003 has been
filed with the Commission and is incorporated by reference in this Prospectus.
A copy of the Statement of Additional Information may be obtained without
charge by writing to the Fund at its address at


                                      45
<PAGE>

1414 Avenue of the Americas, New York, New York 10019, or by calling the Fund
toll-free at (800) 221-4268. The Table of Contents of the Statement of
Additional Information is as follows:

                                                                          Page
                                                                          ----

Risk Factors and Special Considerations....................................._
Investment Restrictions....................................................._
Taxation...................................................................._
Principal Stockholders......................................................_
Directors and Officers......................................................_
Code of Ethics and Related Matters.........................................._
Investment Advisory and Other Services......................................_
Brokerage Allocation and Other Practices...................................._
Proxy Voting Policies and Procedures........................................_
Net Asset Value............................................................._
Financial Statements........................................................_

     No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund, Royce or the Underwriters. Neither the
delivery of this Prospectus nor any sale made hereunder will, under any
circumstances, create any implication that there has been no change in the
affairs of the Fund since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy such
securities in any circumstance in which such an offer or solicitation is
unlawful.




                                      46
<PAGE>

                                   GLOSSARY

     "Articles Supplementary" means the Fund's Articles Supplementary creating
and fixing the rights of the Cumulative Preferred Stock.

     "Asset Coverage" means asset coverage, as defined in Section 18(h) of the
1940 Act, of at least 200%, or such higher percentage as may be required under
the 1940 Act, with respect to all outstanding securities of the Fund which are
stock, including all outstanding shares of Cumulative Preferred Stock.

     "Basic Maintenance Amount" means, as of any Valuation Date, the dollar
amount equal to (i) the sum of (A) the product of the number of shares of
Cumulative Preferred Stock outstanding on such Valuation Date multiplied by
the Liquidation Preference; (B) to the extent not included in (A), the
aggregate amount of cash dividends (whether or not earned or declared) that
will have accumulated for each outstanding share of Cumulative Preferred Stock
from the most recent Dividend Payment Date to which dividends have been paid
or duly provided for (or, in the event the Basic Maintenance Amount is
calculated on a date prior to the initial Dividend Payment Date with respect
to the Cumulative Preferred Stock, then from the Date of Original Issue)
through the Valuation Date plus all dividends to accumulate on the Cumulative
Preferred Stock then outstanding during the 70 days following such Valuation
Date; (C) the Fund's other liabilities due and payable as of such Valuation
Date (except that dividends and other distributions payable by the Fund by the
issuance of Common Stock shall not be included as a liability) and such
liabilities projected to become due and payable by the Fund during the 90 days
following such Valuation Date (excluding liabilities for investments to be
purchased and for dividends and other distributions not declared as of such
Valuation Date); (D) any current liabilities of the Fund as of such Valuation
Date to the extent not reflected in any of (i)(A) through (i)(C) (including,
without limitation, and immediately upon determination, any amounts due and
payable by the Fund pursuant to reverse repurchase agreements and any payables
for assets purchased as of such Valuation Date) less (ii) (A) the Discounted
Value of any of the Fund's assets and/or (B) the face value of any of the
Fund's assets if, in the case of both (ii)(A) and (ii)(B), such assets are
either cash or securities which mature prior to or on the date of redemption
or repurchase of Cumulative Preferred Stock or payment of another liability
and are either U.S. Government Obligations or securities which have a rating
assigned by Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at
least AAA, SP-1+ or A-1+, in both cases irrevocably held by the Fund's
custodian bank in a segregated account or deposited by the Fund with the
Paying Agent for the payment of the amounts needed to redeem or repurchase
Cumulative Preferred Stock subject to redemption or repurchase or, without
duplication, any of (i)(B) through (i)(D) and provided that in the event the
Fund has repurchased Cumulative Preferred Stock at a price of less than the
Liquidation Preference thereof and irrevocably segregated or deposited assets
as described above with its custodian bank or the Paying Agent for the payment
of the repurchase price the Fund may deduct 100% of the Liquidation Preference
of such Cumulative Preferred Stock to be repurchased from (i) above.

     "Business Day" means a day on which the New York Stock Exchange is open
for trading and that is neither a Saturday, Sunday nor any other day on which
banks in the City of New York are authorized by law to close.



                                      47
<PAGE>

     "Charter" means the Articles of Incorporation, as amended and
supplemented (including the Articles Supplementary), of the Fund on file in
the State Department of Assessments and Taxation of Maryland.

     "Common Stock" means the Common Stock, par value $.001 per share, of the
Fund.

     "Cumulative Preferred Stock" means the ____% Cumulative Preferred Stock,
par value $.001 per share, of the Fund.

     "Date of Original Issue" means the date on which shares of Cumulative
Preferred Stock are originally issued.

     "Deposit Securities" means cash, Short-Term Money Instruments and U.S.
Government Obligations. Except for determining whether the Fund has a
Portfolio Calculation equal to or greater than the Basic Maintenance Amount,
each Deposit Security will be deemed to have a value equal to its principal or
face amount payable at maturity plus any interest payable thereon after
delivery of such Deposit Security but only if payable on or prior to the
applicable payment date in advance of which the relevant deposit is made.

     "Discounted Value" means, with respect to a Moody's Eligible Asset, the
quotient of (A) in the case of non-convertible fixed income securities, the
lower of the principal amount and the market value thereof, or (B) in the case
of any other Moody's Eligible Assets, the market value thereof, divided by the
applicable Moody's Discount Factor.

     "Dividend Payment Date" means each March __, June __, September __ and
December __.

     "Fitch" means Fitch Ratings or its successor.

     "Fund" means Royce Focus Trust, Inc., a Maryland corporation.

     "Lien" means any material lien, mortgage, pledge, security interest or
security agreement of any kind.

     "Liquidation Preference" means $25.00 per share of Cumulative Preferred
Stock plus an amount equal to all unpaid dividends accumulated to and
including the date fixed for such distribution or payment (whether or not
earned or declared by the Fund, but excluding interest thereon).

     "Moody's" means Moody's Investors Service, Inc., or its successor.

     "Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined as
follows:

          (i)   Preferred securities (non-convertible):

<TABLE>
<CAPTION>

                                                                       Cumulative               Non-Cumulative
                                                                       ----------               --------------
<S>                                                                    <C>                      <C>
Preferred securities issued by issuers in                                 155%                       165%


                                      48
<PAGE>

     the utilities industry...............................
Preferred securities issued by issuers in
     the industrial and financial
     industries and by U.S.
     Government Agencies..................................                197%                       207%
Auction rate preferred  securities issued
     by closed-end registered
     investment companies.................................                350%                       360%
</TABLE>

          (ii) Corporate debt securities (non-convertible): The percentage
          determined by reference to the rating on such asset with reference
          to the remaining term to maturity of such asset, in accordance with
          the table set forth below.

<TABLE>
<CAPTION>

                                                                                                            Below B
               Terms To Maturity of                                   Rating Category                         and
             Corporate Debt Security                  -------------------------------------------------   Unrated/(1)/
             -----------------------                                                                      ------------
                                                      Aaa      Aa        A       Baa       Ba       B
                                                      ---      --        -       ---       --       -
<S>                                                   <C>      <C>      <C>      <C>      <C>      <C>    <C>
1 year or less.................................       109%     112%     115%      118%    137%     150%      250%
2 years or less (but longer than 1 year).......       115      118      122       125     146      160       250%
3 years or less (but longer than 2 years)......       120      123      127       131     153      168       250%
4 years or less (but longer than 3 years)......       126      129      133       138     161      176       250%
5 years or less (but longer than 4 years)......       132      135      139       144     168      185       250%
7 years or less (but longer than 5 years)......       139      143      147       152     179      197       250%
10 years or less (but longer than 7 years).....       145      150      155       160     189      208       250%
15 years or less (but longer than 10 years)....       150      155      160       165     196      216       250%
20 years or less (but longer than 15 years)....       150      155      160       165     196      228       250%
30 years or less (but longer than 20 years)....       150      155      160       165     196      229       250%
Greater than 30 years..........................       165      173      181       189     205      240       250%
</TABLE>

______________
(1) Unless conclusions regarding liquidity risk as well as estimates of both
the probability and severity of default for the Fund's assets can be derived
from other sources as well as combined with a number of sources as presented
by the Fund to Moody's, securities rated below B3 by Moody's and unrated
securities, which are securities rated by neither Moody's, S&P nor Fitch, are
limited to 10% of Moody's Eligible Assets. If a corporate debt security is
unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth
under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch
are generally accepted by Moody's at face value. However, adjustments to face
value may be made to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent.


The Moody's Discount Factors presented in the immediately preceding table will
also apply to corporate debt securities that do not pay interest in U.S.
dollars or euros, provided that the Moody's Discount Factor determined from
the table shall be multiplied by a factor of 120% for purposes of calculating
the Discounted Value of such securities.

          (iii) U.S. Government Obligations and U.S. Treasury Strips:

<TABLE>
<CAPTION>

                                                              U.S. Government Obligations      U.S. Treasury Strips
               Remaining Term To Maturity                           Discount Factor               Discount Factor
- ------------------------------------------------------       -----------------------------    -----------------------
<S>                                                          <C>                              <C>
1 year or less........................................                     107%                         107%
2 years or less (but longer than 1 year)..............                     113                          115
3 years or less (but longer than 2 years).............                     118                          121
4 years or less (but longer than 3 years).............                     123                          128


                                      49
<PAGE>

5 years or less (but longer than 4 years).............                     128                          135
7 years or less (but longer than 5 years).............                     135                          147
10 years or less (but longer than 7 years)............                     141                          163
15 years or less (but longer than 10 years)...........                     146                          191
20 years or less (but longer than 15 years)...........                     154                          218
30 years or less (but longer than 20 years)...........                     154                          244

</TABLE>

          (iv) Short term instruments and cash: The Moody's Discount Factor
          applied to short term portfolio securities, including without
          limitation short term corporate debt securities, Short Term Money
          Market Instruments and short term municipal debt obligations, will
          be (A) 100%, so long as such portfolio securities mature or have a
          demand feature at par exercisable within the Moody's Exposure
          Period; (B) 115%, so long as such portfolio securities mature or
          have a demand feature at par not exercisable within the Moody's
          Exposure Period; (C) 125%, if such securities are not rated by
          Moody's, so long as such portfolio securities are rated at least
          A-1+/AA or SP-1+/AA by S&P and mature or have a demand feature at
          par exercisable within the Moody's Exposure Period; and (D) 148%, if
          such securities are not rated by Moody's, so long as such portfolio
          securities are rated at least A-1+/AA or SP-1+/AA by S&P and mature
          or have a demand feature at par exercisable greater than the Moody's
          Exposure Period. A Moody's Discount Factor of 100% will be applied
          to cash. A Moody's Discount Factor of 100% will also apply to money
          market funds rated by a NRSRO that comply with Rule 2a-7 under the
          1940 Act.

          (v) Rule 144A Securities: The Moody's Discount Factor applied to
          Rule 144A Securities will be 130% of the Moody's Discount Factor
          which would apply if the securities registered under the Securities
          Act.

          (vi) Convertible securities (including convertible preferred
          securities):

<TABLE>
<CAPTION>
                                                                   Rating Category
                                   -------------------------------------------------------------------------------
                                                                                                      Below B and
Industry Category                  Aaa        Aa          A        Baa         Ba          B          Unrated/(1)/
                                   ---        --          -        ---         --          -          ------------
<S>                                <C>        <C>        <C>       <C>       <C>         <C>          <C>
Utility                            162%       167%       172%      188%      195%        199%            300%
Industrial                         256%       261%       266%      282%      290%        293%            300%
Financial                          233%       238%       243%      259%      265%        270%            300%
Transportation                     250%       265%       275%      285%      290%        295%            300%
</TABLE>

(1) Unless conclusions regarding liquidity risk as well as estimates of both
the probability and severity of default for the Fund's assets can be derived
from other sources as well as combined with a number of sources as presented
by the Fund to Moody's, securities rated below B3 by Moody's and unrated
securities, which are securities rated by neither Moody's, S&P nor Fitch, are
limited to 10% of Moody's Eligible Assets. If a convertible security is
unrated by Moody's, S&P or Fitch, the Fund will use the percentage set forth
under "Below B and Unrated" in this table. Ratings assigned by S&P or Fitch
are generally accepted by Moody's at face value. However, adjustments to face
value may be made to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent.

          (vii) U.S. Common Stock and Common Stock of foreign issuers for
          which ADRs are traded.



                                      50
<PAGE>

Utility...............................................................  170%
Industrial............................................................  264%
Financial.............................................................  241%
Other.................................................................  300%


          (viii) The Moody's Discount Factor applied to Common Stock of
          foreign issuers (in existence for at least five years) for which no
          ADRs are traded will be 400%.

The Moody's Discount Factor for any Moody's Eligible Asset other than the
securities set forth above will be the percentage provided in writing by
Moody's.

For purposes of this definition, ratings assigned by S&P or Fitch are
generally accepted by Moody's at face value. However, adjustments to face
value may be made to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent.


     "Moody's Eligible Assets" means:

          (i) Cash (including interest and dividends due on assets rated (A)
          Baa3 or higher by Moody's if the payment date is within five
          Business Days of the Valuation Date, (B) A2 or higher if the payment
          date is within thirty days of the Valuation Date, and (C) A1 or
          higher if the payment date is within the Moody's Exposure Period)
          and receivables for assets sold if the receivable is due within five
          Business Days of the Valuation Date, and if the trades which
          generated such receivables are (A) settled through clearing house
          firms with respect to which the Fund has received prior written
          authorization from Moody's or (B)(1) with counterparties having a
          Moody's long term debt rating of at least Baa3 or the equivalent
          from S&P or Fitch or (2) with counterparties having a Moody's Short
          Term Money Market Instrument rating of at least P-1 or the
          equivalent from S&P or Fitch.

          (ii) Short Term Money Market Instruments, so long as (A) such
          securities are rated at least P-1 or if not rated by Moody's, rated
          at least A-1+/AA or SP-1+/AA by S&P or the equivalent by Fitch, (B)
          in the case of demand deposits, time deposits and overnight funds,
          the supporting entity is rated at least A2 by Moody's or the
          equivalent by S&P or Fitch, or (C) in all other cases, the
          supporting entity (1) is rated A2 by Moody's or the equivalent by
          S&P or Fitch and the security matures within one month, (2) is rated
          A1 by Moody's or the equivalent by S&P or Fitch and the security
          matures within three months or (3) is rated at least Aa3 by Moody's
          or the equivalent by S&P or Fitch and the security matures within
          six months. In addition, money market funds that comply with Rule
          2a-7 under the 1940 Act are Moody's Eligible Assets;

          (iii) U.S. Government Obligations and U.S. Treasury Strips;

          (iv) Rule 144A Securities;



                                      51
<PAGE>

          (v) Corporate debt securities, except as noted below, if (A)(1) such
          securities are rated B3 or higher by Moody's or the equivalent by
          S&P or Fitch; (2) for securities, which provide for conversion or
          exchange at the option of the issuer into equity capital at some
          time over their lives, the issuer must be rated at least B3 by
          Moody's or the equivalent by S&P or Fitch; or (3) for debt
          securities rated Ba1 and below by Moody's or the equivalent by S&P
          or Fitch, no more than 10% of the original amount of such issue may
          constitute Moody's Eligible Assets; (B) such securities provide for
          the periodic payment of interest in cash in U.S. dollars or euros,
          except that such securities that do not pay interest in U.S. dollars
          or euros shall be considered Moody's Eligible Assets if they are
          rated by Moody's, S&P or Fitch; and (C) such securities have been
          registered under the Securities Act or are restricted as to resale
          under Federal securities laws but are eligible for resale pursuant
          to Rule 144A under the Securities Act, except that such securities
          that are not subject to U.S. Federal securities laws shall be
          considered Moody's Eligible Assets if they are publicly traded.

          In order to merit consideration as Moody's Eligible Asset, debt
          securities are issued by entities which have not filed for
          bankruptcy within the past three years, are current on all principal
          and interest in their fixed income obligations, are current on all
          preferred security dividends and possess a current, unqualified
          auditor's report without qualified, explanatory language.

          Corporate debt securities not rated at least B3 by Moody's or the
          equivalent by S&P or Fitch or not rated by Moody's, S&P or Fitch
          shall be considered to be Moody's Eligible Assets only to the extent
          the market value of such corporate debt securities does not exceed
          10% of the aggregate market value of all Moody's Eligible Assets.

          (vi) Preferred securities if (A) such preferred securities pay
          cumulative or non-cumulative dividends, (B) such securities provide
          for the periodic payment of dividends thereon in cash in U.S.
          dollars or euros, (C) the issuer or the parent company of the issuer
          of such a preferred security has common stock listed on either the
          New York Stock Exchange, the American Stock Exchange or Nasdaq or is
          a U.S. Government Agency, (D) the issuer or the parent company of
          the issuer of such a preferred security has a senior debt rating or
          a preferred security rating from Moody's of Baa3 or higher or the
          equivalent from S&P or Fitch and (E) such preferred security has
          paid consistent cash dividends in U.S. dollars or euros over the
          last three years or has a minimum rating of A1 from Moody's or the
          equivalent from S&P or Fitch (if the issuer of such preferred
          security or the parent company of the issuer has other preferred
          issues outstanding that have been paying dividends consistently for
          the last three years, then a preferred security without such a
          dividend history would also be eligible). In addition, the preferred
          securities must have the diversification requirements set forth in
          the table below and the preferred securities issue must be greater
          than $50 million.



                                      52
<PAGE>

Diversification Table:
- ---------------------

The table below establishes maximum limits for inclusion as Moody's Eligible
Assets (other than common stock as set forth below) prior to applying Moody's
Discount Factors to Moody's Eligible Assets.

<TABLE>
<CAPTION>
                                 Minimum               Maximum              Maximum          Maximum Single
                               Issue Size              Single           Single Industry         Industry
Ratings(1)                  ($ in Million)(2)       Issuer (3)(4)     Non-Utility (4)(5)     Utility(4)(5)
- ----------                  -----------------       -------------     ------------------     -------------
<S>                         <C>                     <C>               <C>                    <C>
Aaa..................             $100                  100%                 100%                 100%
Aa...................              100                   20                   60                   30
A....................              100                   10                   40                   25
Baa..................              100                    6                   20                   20
Ba...................               50(6)                 4                   12                   12
B1-B2................               50(6)                 3                    8                   8
B3 or below..........               50(6)                 2                    5                   5
</TABLE>

______________
(1)  Refers to the preferred security and senior debt rating of the portfolio
     holding.
(2)  Except for preferred security, which has a minimum issue size of $50
     million.
(3)  Companies subject to common ownership of 25% or more are considered as
     one issuer.
(4)  Percentages represent a portion of the aggregate market value of the
     Fund's total assets.
(5)  Industries are determined according to Moody's Industry Classifications,
     as defined herein.
(6)  Portfolio holdings from issues ranging from $50 million to $100 million
     are limited to 20% of the Fund's total assets.

          (vii) Common stocks (A) (i) which are traded in the United States on
          a national securities exchange or in the over-the-counter market,
          (ii) which, if cash dividend paying, pay cash dividends in U.S.
          dollars, and (iii) which may be sold without restriction by the
          Fund; provided, however, that common stock which, while a Moody's
          Eligible Asset owned by the Fund, ceases paying any regular cash
          dividend will no longer be considered a Moody's Eligible Asset until
          71 days after the date of the announcement of such cessation, unless
          the issuer of the common stock has senior debt securities rated at
          least A3 by Moody's or the equivalent by S&P or Fitch, (B) which are
          securities denominated in any currency other than the U.S. dollar or
          securities of issuers formed under the laws of jurisdictions other
          than the United States, its states, commonwealths, territories and
          possessions, including the District of Columbia, for which there are
          dollar-denominated American Depository Receipts ("ADRs") which are
          traded in the United States on a national securities exchange or in
          the over-the-counter market and are issued by banks formed under the
          laws of the United States, its states, commonwealths, territories
          and possessions, including the District of Columbia, and (C) which
          are securities of issuers formed under the laws of jurisdictions
          other than the United States, its states, commonwealths, territories
          and possessions, including the District of Columbia (and in
          existence for at least five years), for which no ADRs are traded;
          provided, however, that the aggregate market value of the Fund's
          holdings of securities denominated in currencies other than the U.S.
          dollar and ADRs in excess of (i) 6% of the aggregate market value of
          the outstanding shares of common stock and ADRs of the issuer
          thereof or (ii) 10% of the market value of Moody's Eligible Assets
          with respect to issuers formed under the laws of any single such
          non-U.S. jurisdiction , other than Australia, Belgium, Canada,
          Denmark, Finland, France, Germany, Ireland, Italy,



                                      53
<PAGE>

          Japan, the Netherlands, New Zealand, Norway, Spain, Sweden,
          Switzerland and the United Kingdom, shall not be a Moody's Eligible
          Asset;

Common Stock Diversification Table:
- ----------------------------------

                          Maximum Single   Maximum Single    Maximum Single
      Industry Category   Issuer(%)/(1)/  Industry(%)/(1)/    State(%)/(1)/
      -----------------   --------------  ----------------   --------------
      Utility                   4                50               7(2)
      Industrial                4                45                 7
      Financial                 5                40                 6
      Other                     6                20                N/A
      _____________
      (1)  Percentages represent both a portion of the aggregate market value
           and the number of outstanding shares of the common stock portfolio.
      (2)  Utility companies operating in more than one state should be
           diversified according to the state of incorporation.

          (viii) Financial contracts, as such term is defined in Section
          3(c)(2)(B)(ii) of the 1940 Act, not otherwise provided for in this
          definition but only upon receipt by the Fund of a letter from
          Moody's specifying any conditions on including such financial
          contract in Moody's Eligible Assets and assuring the Fund that
          including such financial contract in the manner so specified would
          not affect the credit rating assigned by Moody's to the AMPS.

          When the Fund sells a portfolio security and agrees to repurchase it
          at a future date, the Discounted Value of such security will
          constitute a Moody's Eligible Asset and the amount the Fund is
          required to pay upon repurchase of such security will count as a
          liability for purposes of calculating the Basic Maintenance Amount.
          When the Fund purchases a security and agrees to sell it at a future
          date to another party, cash receivable by the Fund thereby will
          constitute a Moody's Eligible Asset if the long term debt of such
          other party is rated at least A2 by Moody's or the equivalent by S&P
          or Fitch and such agreement has a term of 30 days or less; otherwise
          the Discounted Value of such security will constitute a Moody's
          Eligible Asset. For the purpose of calculation of Moody's Eligible
          Assets, portfolio securities which have been called for redemption
          by the issuer thereof shall be valued at the lower of market value
          or the call price of such portfolio securities.

          Notwithstanding the foregoing, an asset will not be considered a
          Moody's Eligible Asset to the extent that it has been irrevocably
          deposited for the payment of (i)(A) through (i)(D) under the
          definition of Basic Maintenance Amount or to the extent it is
          subject to any Liens, including assets segregated under margin
          account requirements in connection with the engagement in hedging
          transactions, except for (A) Liens which are being contested in good
          faith by appropriate proceedings and which Moody's has indicated to
          the Fund will not affect the status of such assets as a Moody's
          Eligible Asset, (B) Liens for taxes that are not then due and
          payable or that can be paid thereafter without penalty, (C) Liens to
          secure payment for services rendered or cash advanced to the Fund by
          Royce, the Fund's



                                      54
<PAGE>

          custodian, transfer agent or registrar or the Auction Agent and (D)
          Liens arising by virtue of any repurchase agreement.

For purposes of this definition, ratings assigned by S&P or Fitch are
generally accepted by Moody's at face value. However, adjustments to face
value may be made to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent.

     "Moody's Exposure Period" means the period commencing on a given
Valuation Date and ending 49 days thereafter.

     "Moody's Industry Classifications" means, for the purposes of determining
Moody's Eligible Assets, each of the following industry classifications (or
such other classifications as Moody's may from time to time approve for
application to the Cumulative Preferred Stock):

     Aerospace and Defense: Major Contractor, Subsystems, Research, Aircraft
     Manufacturing, Arms, Ammunition

     Automobile: Automotive Equipment, Auto-Manufacturing, Auto Parts
     Manufacturing, Personal Use Trailers, Motor Homes, Dealers

     Banking: Bank Holding, Savings and Loans, Consumer Credit, Small Loan,
     Agency, Factoring, Receivables

     Beverage, Food and Tobacco: Beer and Ale, Distillers, Wines and Liquors,
     Distributors, Soft Drink Syrup, Bottlers, Bakery, Mill Sugar, Canned
     Foods, Corn Refiners, Dairy Products, Meat Products, Poultry Products,
     Snacks, Packaged Foods, Distributors, Candy, Gum, Seafood, Frozen Food,
     Cigarettes, Cigars, Leaf/Snuff, Vegetable Oil

     Buildings and Real Estate: Brick, Cement, Climate Controls, Contracting,
     Engineering, Construction, Hardware, Forest Products (building-related
     only), Plumbing, Roofing, Wallboard, Real Estate, Real Estate
     Development, REITs, Land Development

     Chemicals, Plastics and Rubber: Chemicals (non-agriculture), Industrial
     Gases, Sulfur, Plastics, Plastic Products, Abrasives, Coatings, Paints,
     Varnish, Fabricating

     Containers, Packaging and Glass: Glass, Fiberglass, Containers made of:
     Glass, Metal, Paper, Plastic, Wood, or Fiberglass

     Personal and Non Durable Consumer Products (Manufacturing Only): Soaps,
     Perfumes, Cosmetics, Toiletries, Cleaning Supplies, School Supplies

     Diversified/Conglomerate Manufacturing

     Diversified/Conglomerate Service

     Diversified Natural Resources, Precious Metals and Minerals: Fabricating,
     Distribution



                                      55
<PAGE>

     Ecological: Pollution Control, Waste Removal, Waste Treatment, Waste
     Disposal

     Electronics: Computer Hardware, Electric Equipment, Components,
     Controllers, Motors, Household Appliances, Information Service
     Communication Systems, Radios, Televisions, Tape Machines, Speakers,
     Printers, Drivers, Technology

     Finance: Investment Brokerage, Leasing, Syndication, Securities

     Farming and Agriculture: Livestock, Grains, Produce; Agricultural
     Chemicals, Agricultural Equipment, Fertilizers

     Grocery: Grocery Stores, Convenience Food Stores

     Healthcare, Education and Childcare: Ethical Drugs, Proprietary Drugs,
     Research, Health Care Centers, Nursing Homes, HMOs, Hospitals, Hospital
     Supplies, Medical Equipment

     Home and Office Furnishings, Housewares, and Durable Consumer Products:
     Carpets, Floor Coverings, Furniture, Cooking, Ranges

     Hotels, Motels, Inns and Gaming

     Insurance: Life, Property and Casualty, Broker, Agent, Surety

     Leisure, Amusement, Motion Pictures, Entertainment: Boating, Bowling,
     Billiards, Musical Instruments, Fishing, Photo Equipment, Records, Tapes,
     Sports, Outdoor Equipment (Camping), Tourism, Resorts, Games, Toy
     Manufacturing, Motion Picture Production Theaters, Motion Picture
     Distribution

     Machinery (Non-Agriculture, Non-Construction, Non-Electronic):
     Industrial, Machine Tools, Steam Generators

     Mining, Steel, Iron and Non Precious Metals: Coal, Copper, Lead, Uranium,
     Zinc, Aluminum, Stainless Steel, Integrated Steel, Ore Production,
     Refractories, Steel Mill Machinery, Mini-Mills, Fabricating, Distribution
     and Sales of the foregoing

     Oil and Gas: Crude Producer, Retailer, Well Supply, Service and Drilling

     Printing, Publishing and Broadcasting: Graphic Arts, Paper, Paper
     Products, Business Forms, Magazines, Books, Periodicals, Newspapers,
     Textbooks, Radio, Television, Cable Broadcasting Equipment

     Cargo Transport: Rail, Shipping, Railroads, Rail-Car Builders, Ship
     Builders, Containers, Container Builders, Parts, Overnight Mail,
     Trucking, Truck Manufacturing, Trailer Manufacturing, Air Cargo,
     Transport

     Retail Stores: Apparel, Toy, Variety, Drugs, Department, Mail Order
     Catalog, Showroom



                                      56
<PAGE>

     Telecommunications: Local, Long Distance, Independent, Telephone,
     Telegraph, Satellite, Equipment, Research, Cellular

     Textiles and Leather: Producer, Synthetic Fiber, Apparel Manufacturer,
     Leather Shoes

     Personal Transportation: Air, Bus, Rail, Car Rental

     Utilities: Electric, Water, Hydro Power, Gas

     Diversified Sovereigns: Semi-sovereigns, Canadian Provinces,
     Supra-national agencies

The Fund will use its discretion in determining which industry classification
is applicable to a particular investment in consultation with the Fund's
independent accountants and Moody's, to the extent the Fund considers
necessary.

     "Nasdaq" means the Nasdaq Stock Market, Inc.

     "1940 Act" means the Investment Company Act of 1940, as amended.

     "Notice of Redemption" means written notice by the Fund to holders of
Cumulative Preferred Stock in compliance with the provisions of the Articles
Supplementary of the Fund's intention to redeem shares of Cumulative Preferred
Stock.

     "NRSRO" means any nationally reorganized statistical rating organization,
as that term is used in Rule 15a3-1 under the Securities Exchange Act or any
successor provisions.

     "Other Ordinary Income" means ordinary income other than qualified
dividend income but including short-term capital gains, interest income and
non-qualified dividend income.

     "Paying Agent" means Equiserve Trust Company, N.A. and its successors or
any other paying agent appointed by the Fund.

     "Portfolio Calculation" means the aggregate Discounted Value of all
Moody's Eligible Assets.

     "Preferred Stock" means the issued and outstanding shares of preferred
stock, par value $.001 per share, of the Fund, and includes the Cumulative
Preferred Stock.

     "Quarterly Valuation Date" means the last Valuation Date of March, June,
September and December, commencing _________ __, 2003.

     "Redemption Price" means $25.00 per share plus accumulated and unpaid
dividends through the date of redemption (whether or not earned or declared).

     "Rule 144A Securities" means securities that are restricted as to resale
under U.S. Federal securities laws but are eligible for resale pursuant to
Rule 144A under the Securities Act or successor provisions.



                                      57
<PAGE>

     "7.45% Preferred" means, so long as any shares of such series are issued
and outstanding, the 7.45% Cumulative Preferred Stock, par value $.001 per
share, of the Fund.

     "Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Fund, the remaining term to maturity thereof is not in excess of 180 days:

          (i) Commercial paper rated P-1 by Moody's, F1 by Fitch or A-1 by S&P
     if such commercial paper matures in 30 days or less, or P-1 by Moody's
     and either F1 by Fitch or A-1+ by S&P if such commercial paper matures in
     over 30 days;

          (ii) Demand or time deposits in, and banker's acceptances and
     certificates of deposit of (A) a depository institution or trust company
     incorporated under the laws of the United States of America or any state
     thereof or the District of Columbia or (B) a United States branch office
     or agency of a foreign depository institution (provided that such branch
     office or agency is subject to banking regulation under the laws of the
     United States, any state thereof or the District of Columbia);

          (iii) Overnight funds;

          (iv) U.S. Government Obligations; and

          (v) Eurodollar demand or time deposits in, or certificates of
     deposit of, the head office or the London branch office of a depository
     institution or trust company if the certificates of deposit, if any, and
     the long-term unsecured debt obligations (other than such obligations the
     ratings of which are based on the credit of a person or entity other than
     such depository institution or trust company) of such depository
     institution or trust company that have (1) credit ratings on such
     Valuation Date of at least P-1 from Moody's and either F1+ from Fitch or
     A-1+ from S&P, in the case of commercial paper or certificates of
     deposit, and (2) credit ratings on each Valuation Date of at least Aa3
     from Moody's and either AA- from Fitch or AA- from S&P, in the case of
     long-term unsecured debt obligations; provided, however, that in the case
     of any such investment that matures in no more than one Business Day from
     the date of purchase or other acquisition by the Fund, all of the
     foregoing requirements shall be applicable except that the required
     long-term unsecured debt credit rating of such depository institution or
     trust company from Moody's, Fitch and S&P shall be at least A2, A and A,
     respectively; and provided further, however, that the foregoing credit
     rating requirements shall be deemed to be met with respect to a
     depository institution or trust company if (1) such depository
     institution or trust company is the principal depository institution in a
     holding company system, (2) the certificates of deposit, if any, of such
     depository institution or trust company are not rated on any Valuation
     Date below P-1 by Moody's, F1+ by Fitch or A-1+ by S&P and there is no
     long-term rating, and (3) the holding company shall meet all of the
     foregoing credit rating requirements (including the preceding proviso in
     the case of investments that mature in no more than one Business Day from
     the date of purchase or other acquisition by the Fund); and provided
     further, that the interest receivable by the Fund shall not be subject to
     any withholding or similar taxes.



                                      58
<PAGE>

     "S&P" means Standard & Poor's or its successor.

     "2003 Tax Act" means the Jobs and Growth Tax Relief Reconciliation Act of
2003, Public Law 108-27.

     "U.S. Government Agency" means any agency, sponsored enterprise or
instrumentality of the United States of America.

     "U.S. Government Obligations" means direct obligations of the United
States or U.S. Government Agencies that are entitled to the full faith and
credit of the United States and that, other than United States Treasury Bills
and U.S. Treasury Strips, provide for the periodic payment of interest and the
full payment of principal at maturity.

     "U.S. Treasury Strips" means securities based on direct obligations of
the United States Treasury created through the Separate Trading of Registered
Interest and Principal of Securities program.

     "Valuation Date" means every Friday or, if such day is not a Business
Day, the immediately preceding Business Day.





                                      59
<PAGE>



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                                      60
<PAGE>



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                                      61
<PAGE>


===============================================================================

                             $___________________

                            ROYCE FOCUS TRUST, INC.

                               _________ SHARES

                       ____% CUMULATIVE PREFERRED STOCK


                              ___________________



                                  PROSPECTUS



                                ______ __, 2003



                              ___________________



     Citigroup UBS                                       Investment Bank


                              ___________________



================================================================================


<PAGE>



THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE
AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
STATEMENT OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.


                PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
                SUBJECT TO COMPLETION, DATED ___________, 2003

                      STATEMENT OF ADDITIONAL INFORMATION

                               _________ SHARES
                            ROYCE FOCUS TRUST, INC.

                       ____% CUMULATIVE PREFERRED STOCK
                    LIQUIDATION PREFERENCE $25.00 PER SHARE

     The ____% Cumulative Preferred Stock, liquidation preference $25.00 per
share (the "Cumulative Preferred Stock"), to be issued by Royce Focus Trust,
Inc. (the "Fund") will be senior securities of the Fund. The Fund will use a
substantial portion of the net proceeds from the offering of the Cumulative
Preferred Stock to redeem the issued and outstanding shares of 7.45%
Cumulative Preferred Stock, par value $.001 per share, of the Fund. Royce &
Associates, LLC ("Royce"), the Fund's investment adviser, expects to use any
proceeds remaining after the redemption of the 7.45% Preferred to purchase
additional portfolio securities in accordance with the Fund's investment goal
and policies.

     The Fund is a closed-end diversified management investment company. The
Fund's primary investment goal is long-term capital growth, which it seeks by
normally investing at least 75% of its assets in equity securities. The
Fund's address is 1414 Avenue of the Americas, New York, New York 10019, and
its telephone number is (212) 355-7311.

     This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the Fund's Prospectus (dated __________ __, 2003).
Please retain this document for future reference. To obtain an additional copy
of the Prospectus, the Fund's Annual Report to Stockholders for the year ended
December 31, 2002, or the Fund's Semi-Annual Report to Stockholders for the
six months ended June 30, 2003 please call Investor Information at
1-800-221-4268. Defined terms used in this Statement of Additional Information
have the meanings given to them in the Prospectus.

                               Table of Contents
                                                                          Page
                                                                          ----
Risk Factors and Special Considerations....................................._
Investment Restrictions....................................................._
Taxation...................................................................._
Principal Stockholders......................................................_
Directors and Officers......................................................_
Code of Ethics and Related Matters.........................................._
Investment Advisory and Other Services......................................_
Brokerage Allocation and Other Practices...................................._
Proxy Voting Policies and Procedures........................................_
Net Asset Value............................................................._
Financial Statements........................................................_


Date: __________ __, 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 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/High Risk and Investment Grade Debt Securities

     Up to 25% of the Fund's assets may be invested in non-convertible debt
securities of various domestic issuers. Within this category, up to 5% of the
Fund's total assets may be invested in below investment-grade debt securities,
also known as high-yield/high-risk securities. 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 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 invests a portion of its assets in securities of foreign
issuers. Foreign investments involve certain risks which typically are not
present in securities of domestic issuers. There may be less information
available about a foreign company than a domestic company; foreign companies
may not be subject to accounting, auditing and reporting standards and
requirements comparable to those applicable to domestic companies; and foreign
markets, brokers and issuers are generally subject to less extensive
government regulation than their domestic counterparts. Foreign securities may
be less liquid and may be subject to greater price volatility than domestic
securities. Foreign brokerage commissions and custodial fees are generally
higher than those in the United States. Foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, thereby making it difficult to conduct such
transactions. Delays or problems with settlements might affect the liquidity
of the Fund's portfolio. Foreign investments also may be subject to local
economic and political risks, political, economic and social instability,
military action, social or political unrest, adverse diplomatic developments,
or possible nationalization of issuers or expropriation of their assets, any
of which might adversely affect the Fund's ability to realize on its
investment in such securities. No assurance can be given that Royce will be
able to anticipate these potential events or counter their effects.
Furthermore, some foreign securities are subject to brokerage taxes levied by
foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale.

     The Fund does not expect to purchase or sell foreign currencies to hedge
against declines in the U.S. dollar or to lock in the value of the foreign
securities it purchases, and its foreign investments may be adversely affected
by changes in foreign currency rates. Consequently, the risks associated with
such investments may be greater than if the Fund did engage in foreign
currency transactions for hedging purposes. Foreign investments may also be
adversely affected by exchange control regulations, if any, in such foreign
markets, and the Fund's ability to make certain distributions necessary to
maintain eligibility as a regulated investment company and avoid the
imposition of income and excise taxes may to that extent be limited.

     Income earned or received by the Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Any such taxes paid by the Fund will reduce its cash available for
distribution to stockholders. The Fund is required to calculate its
distributable income and capital gains for U.S. Federal income tax purposes by
reference to the U.S. dollar. Fluctuations in applicable foreign currency
exchange rates may cause the Fund's distributable income and capital gains for
U.S. Federal income tax purposes to differ from the value of its investments
calculated by reference to foreign currencies. If the Fund invests in stock of
a passive foreign investment company, the Fund may make certain elections that
will affect the calculation of its net investment income and capital gains.
See "Taxation" below and in the Prospectus.

                                      2
<PAGE>

Depositary Receipts

     The Fund may invest in the securities of foreign issuers in the form of
sponsored or unsponsored ADRs, European Depositary Receipts ("EDRs") and
Global Depositary Receipts ("GDRs") (collectively, "Depositary Receipts") or
other securities convertible into securities of foreign issuers. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. ADRs are receipts
typically issued by an American bank or trust company that evidence ownership
of underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe that evidence a similar ownership arrangement. GDRs are
receipts issued throughout the world that evidence a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the U.S.
securities markets, and EDRs, in bearer form, are designed for use in European
securities markets. GDRs are tradeable both in the U.S. and in Europe and are
designed for use throughout the world. Depositary Receipts are alternatives to
the purchase of the underlying foreign securities in their national markets
and currencies. The Fund may invest in unsponsored Depositary Receipts. The
issuers of unsponsored Depositary Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a
correlation between such information and the market value of the Depositary
Receipts. Depositary Receipts also involve the risks associated with other
investments in foreign securities, as discussed above.

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


                                      3
<PAGE>

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 to the Fund. 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 Russell 2000.

     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.

Investment in Other Investment Companies

     The Fund also may indirectly invest in the securities of domestic and
foreign companies by investing in the securities of other investment companies
that invest primarily in such companies. The other investment companies in
which the Fund may invest may be domestic companies registered under the 1940
Act or foreign companies that are not so registered or otherwise regulated.
Such investment companies usually have their own management fees and expenses,
and Royce will also earn its own fee on Fund assets invested in such other
companies, which would result in a duplication of fees to the extent of any
such investment. However, Royce will waive its management fee on any Fund
assets invested in open-end investment companies (other than exchange-traded
funds), and no sales charge will be incurred on such an investment. See
"Investment Advisory and Other Services -- Advisory Fee" below and in the
Prospectus.

     In accordance with the 1940 Act, the Fund may invest up to 10% of its
total assets in securities of other investment companies. In addition, under
the 1940 Act the Fund may not own more than 3% of the total outstanding voting
stock of any investment company and not more than 5% of the value of the
Fund's total assets may be invested in securities of any one investment
company.

                            Investment Restrictions

     The policies set forth below are fundamental policies of the Fund and may
not be changed without the affirmative vote of the holders of a majority of
the Fund's outstanding voting securities, as indicated in the Prospectus under
"Investment Goal, Policies and Risks -- Changes in Investment Goal and
Policies". The Fund may not:

1.   As to 75% of the Fund's total assets, invest more than 5% of its total
     assets in the securities of any one issuer. (This limitation does not
     apply to cash and cash items or to obligations issued or guaranteed by
     the U.S. Government, its agencies or instrumentalities.)



                                      4
<PAGE>

2.   Invest in any investment company if a purchase of its shares would result
     in the Fund and its affiliates owning more than 3% of the total
     outstanding stock of such company.

3.   Purchase more than 10% of the voting securities or more than 10% of any
     class of securities of any issuer. For purposes of this restriction, all
     outstanding fixed income securities of an issuer are considered as one
     class.

4.   Purchase or sell commodities or commodity future contracts. (This
     restriction does not limit the Fund's use of financial futures and
     options thereon, or the investment of not more than 25% of the Fund's
     assets in gold and silver bullion or certificates for such precious
     metals. Illiquid investments in either gold, silver or certificates for
     gold or silver are limited to 10% of the Fund's assets.)

5.   Make loans of money or securities, except (i) by the purchase of fixed
     income obligations in which the Fund may invest consistent with its
     investment objective and policies; (ii) by entering into securities
     lending transactions described in "Investment Goal, Policies and Risk
     Factors" in the Prospectus; and (iii) by entering into reverse
     repurchase agreements, as described in "Investment Goal, Policies and
     Risk Factors" in the Prospectus.

6.   Invest in the securities of any company if, to the knowledge of the Fund,
     any officer or director of the Fund or the investment adviser owns more
     than .5% of the outstanding securities of such company and such officers
     and directors (who own more than .5%) in the aggregate own more than 5%
     of the outstanding securities of such company.

7.   Borrow money, except to the extent that it may (i) borrow from banks for
     temporary or emergency purposes in an amount not exceeding 5% of the
     Fund's assets or (ii) borrow in an amount up to 33 1/3% of the value of
     the Fund's total assets (including the amount borrowed) valued at market
     less liabilities (not including the amount borrowed) at the time the
     borrowing was made; provided that the Fund may engage in reverse
     repurchase agreements, as set forth in "Investment Goal, Policies and Risk
     Factors" in the Prospectus.

8.   Pledge, hypothecate, mortgage or otherwise encumber its assets, except in
     an amount up to 33 1/3% of the value of its net assets, but only to
     secure borrowings authorized by Restriction 7 above.

9.   Engage in the underwriting of securities, except insofar as the Fund may
     be deemed an underwriter under the Securities Act of 1933 in disposing of
     a portfolio security.

10.  Purchase or sell real estate or interests therein, although it may
     purchase securities of issuers which engage in real estate operations and
     securities which are secured by real estate or interests therein.

11.  Invest for the purpose of exercising control or management of another
     company.

12.  Purchase oil, gas or other mineral leases, rights or royalty contracts or
     exploration or development programs, except that the Fund may invest in
     the securities of companies which invest in or sponsor such programs.



                                      5
<PAGE>

13.  Concentrate its investments in any industry.

14.  Make purchases of securities on "margin" from an affiliated person,
     provided that the Fund may engage in short sales and may satisfy margin
     requirements with respect to futures transactions.

     Notwithstanding Restriction 4 above, the Fund has no current intention of
investing in financial futures and options thereon, gold and silver bullion or
certificates for such precious metals.

     The policies set forth below are operating policies of the Fund and may
be changed by the Board of Directors without stockholder approval or prior
notice to stockholders. The Fund may not:

     a. Make investments which would cause more than 50% of the Fund's assets
     to be invested in equity securities traded exclusively in markets outside
     the United States.

     b. Invest in emerging market countries.

          Limitations a. and b. above do not prevent the Fund from purchasing
     sponsored or unsponsored depository receipts trading within the U.S.
     and/or developed markets in Europe which represent an interest in foreign
     equity securities trading in other markets, including securities of
     issuers located or trading in emerging market countries.

     c. Make investments which would cause more that 25% of the Fund's assets
     to be invested in non-equity securities traded exclusively in markets
     outside the U.S.

     d. Make investments which would cause more than 5% of the Fund's assets
     to be invested in below investment grade non-convertible debt securities.

     e. Deal in foreign currency futures, either for speculative or hedging
     purposes.

     f. Engage in "swaps," or invest more than 10% of its assets in illiquid
     securities.

     g. Make short sales of securities, other than short sales against-the-box
     in which, at the time of the short sale, the Fund holds or has an
     unrestricted right to receive the security to be sold short.

     h. Invest in derivative securities of a speculative nature. (This
     limitation is not intended to prevent the Fund from using investments in
     repurchase agreements, reverse repurchase agreements, warrants, rights,
     options and convertible securities.)

     i. Borrow from banks for leveraging purposes. (The Fund may, however,
     issue other senior securities under Section 18 of the 1940 Act.)



                                      6
<PAGE>

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


                                   TAXATION

     The Fund has elected to be treated as a RIC, and has qualified and
intends to continue to qualify for the special tax treatment afforded RICs
under the Code. As long as it so qualifies, in any taxable year in which it
distributes at least 90% of its investment company taxable income ("ICTI") (as
that term is defined in the Code without regard to the deduction for dividends
paid) for such taxable year, the Fund will not be subject to Federal income
tax on the part of its ICTI and net capital gains (i.e., the excess of the
Fund's net realized long-term capital gains over its net realized short-term
capital losses), if any, that it distributes to its stockholders in each
taxable year. The Fund intends to distribute substantially all of such income.

     The Code requires RIC to pay a non-deductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus 100% of undistributed
amounts from previous years. For these purposes, the Fund will be deemed to
have distributed any income or gains on which it paid corporate income tax.
While the Fund intends to distribute its ordinary income and capital gains in
the manner necessary to minimize imposition of the 4% excise tax, there can be
no assurance that sufficient amounts of the Fund's ordinary income and capital
gains will be distributed to avoid entirely the imposition of the tax. In such
event, the Fund will be liable for the tax only on the amount by which it does
not meet the foregoing distribution requirements.

     In the opinion of Sidley Austin Brown & Wood LLP, the shares of
Cumulative Preferred Stock will be treated as stock of the Fund for Federal
income tax purposes and distributions with respect to such shares (other than
distributions in redemption of the Cumulative Preferred Stock under section
302(b) of the Code) will constitute dividends to the extent of the Fund's
current and accumulated earnings and profits, as calculated for Federal income
tax purposes. Nevertheless, the IRS might take a contrary position, asserting,
for example, that the shares of Cumulative Preferred Stock constitute debt of
the Fund. The Fund believes this position, if asserted, would be unlikely to
prevail. If this position were upheld, however, the discussion of the
treatment of distributions below would not apply. Instead, distributions by
the Fund to holders of shares of Cumulative Preferred Stock would constitute
taxable interest income, whether or not they exceeded the earnings and profits
of the Fund. In such event, the designations of particular types of income,
such as capital gains and qualified dividend income, as discussed below, would
not be effective.

     Dividends paid by the Fund from its ICTI (such dividends are referred to
in this section as "ordinary income dividends") are taxable to stockholders as
ordinary income (some of which may represent qualified dividend income,
taxable at a reduced rate, as discussed below) to the extent of the Fund's
earnings and profits. Earnings and profits are treated as first being used to
pay distributions on the Cumulative Preferred Stock and any other Preferred
Stock, and only the earnings and profits remaining after the distribution
preference of the Fund's Preferred Stock has


                                      7
<PAGE>

been satisfied are treated as being used to pay distributions on the Fund's
Common Stock. Distributions made from net capital gains (including gains or
losses from certain transactions in warrants, rights and options) and properly
designated by the Fund (such distributions are referred to in this section as
"capital gain dividends") are taxable to stockholders as long-term capital
gains, regardless of the length of time the stockholder has owned Fund shares.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset).

     The Fund may elect to retain its net capital gains or a portion thereof
for investment and be taxed at corporate rates on the amount retained. In such
case, it may designate the retained amount as undistributed capital gains in a
notice to its stockholders, who will be treated as if each received a
distribution of his pro rata share of such gains, with the result that each
stockholder will (i) be required to report his pro rata share of such gains on
his tax return as long-term capital gain, (ii) receive a refundable tax credit
for his pro rata share of tax paid by the Fund on the gains and (iii) increase
the tax basis for his shares by an amount equal to the deemed distributions
less the tax credit.

     Gain or loss, if any, recognized on the sale or other disposition of
shares of the Fund will be taxed as a capital gain or loss if the shares are
capital assets in the stockholder's hands. Such gain or loss will be long-term
or short-term, depending upon the stockholder's holding period for the shares.
Generally, a stockholder's gain or loss will be a long-term gain or loss if
the shares have been held for more than one year. Any loss realized upon the
sale or exchange of Fund shares will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the original shares. In such case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized 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 (or amounts credited to the
stockholder as undistributed capital gains) with respect to such shares.

     Under the 2003 Tax Act, Fund distributions comprised of dividends from
domestic corporations and certain foreign corporations (generally,
corporations incorporated in a possession of the United States, some
corporations eligible for treaty benefits under a treaty with the United
States and corporations whose stock is readily tradable on an established
securities market in the United States) are eligible for taxation at a maximum
tax rate of 15% also applicable to capital gains in the hands of individual
stockholders, provided holding period and other requirements are satisfied.
Capital gain dividends likewise, are taxed at the reduced maximum rate of 15%
for non-corporate taxpayers. The 15% income tax rate applicable to capital
gains and qualified dividend income is scheduled to expire after December 31,
2008. After this date, absent extension or modification of the relevant
legislative provisions, long-term capital gain dividends paid by the Fund
generally will be taxable at the previously applicable maximum 20% rate and
distributions attributable to qualified dividend income will be taxed to the
stockholder at his or her marginal Federal income tax rate (which generally
will be higher than 15%).



                                      8
<PAGE>

     A portion of the Fund's ordinary income dividends may be eligible for the
dividends received deduction ("DRD") allowed to corporations under the Code,
if certain requirements are met. For these purposes, the Fund will allocate
any dividends eligible and any other Preferred Stock for the DRD between the
holders of Common Stock, Cumulative Preferred Stock and any other Preferred
Stock in proportion to the total dividends paid to each class during the
taxable year, or otherwise as required by applicable law. A holder of shares
of Cumulative Preferred stock (a) that is taxed as a corporation for Federal
income tax purposes, (b) meets applicable holding period and taxable income
requirements of section 246 of the Code, (c) is not subject to the
"debt-financed portfolio stock" rules of section 246A of the Code with respect
to an investment in the Fund and (d) is otherwise entitled to the DRD can
claim a deduction equal to 70% of the dividends received on the Cumulative
Preferred Stock which are designated by the Fund as qualifying for the DRD.

     The IRS has taken the position in Revenue Ruling 89-81 that if a RIC has
more than one class of shares, it may designate distributions made to each
class in any year as consisting of no more than such class's proportionate
share of particular types of income, such as long-term capital gains and
qualified dividend income. A class's proportionate share of a particular type
of income is determined according to the percentage of total dividends paid by
the RIC during such year that was paid to such class. Consequently, the Fund
will designate distributions made to the Common Stock and Cumulative Preferred
Stock and any other Preferred Stock as consisting of particular types of
income in accordance with the classes' proportionate shares of such income.
The amount of long-term capital gains, qualified dividend income, and Other
Ordinary Income allocable among the Cumulative Preferred Stock, other
Preferred Stock, and the Common Stock will depend upon the amount of such
long-term capital gains, qualified dividend income, and Other Ordinary Income
realized by the Fund and the total dividends paid by the Fund on shares of
Common Stock, Cumulative Preferred Stock and other Preferred Stock during a
taxable year.

     In the opinion of Sidley Austin Brown & Wood LLP, under current law, the
manner in which the Fund intends to allocate long-term capital gains,
qualified dividend income and Other Ordinary Income among shares of Common
Stock, Cumulative Preferred Stock and other Preferred Stock will be respected
for Federal income tax purposes. However, there is currently no direct
guidance from the IRS or other sources specifically addressing whether the
Fund's method of allocation will be respected for Federal income tax purposes,
and it is possible that the IRS could disagree with counsel's opinion and
attempt to reallocate the Fund's long-term capital gains, qualified dividend
income or Other Ordinary Income. Sidley Austin Brown & Wood LLP has advised
the Fund that, in its opinion, if the IRS were to challenge in court the
Fund's allocations, the IRS would be unlikely to prevail. The opinion of
Sidley Austin Brown & Wood LLP, however, represents only its best legal
judgment and is not binding on the IRS or courts.

     If the Fund does not meet the asset coverage requirements of the 1940 Act
or the Articles Supplementary, the Fund will be required to suspend
distributions to the holders of the Common Stock until the asset coverage is
restored. See "Description of Cumulative Preferred Stock -- Dividends" in the
Prospectus. Such a suspension of distributions might prevent the Fund from
distributing 90% of its ICTI, as is required in order to avoid Fund-level
taxation of such income, or might prevent it from distributing enough ordinary
income and capital gains to avoid completely imposition of the excise tax.
Upon any failure to meet the asset coverage


                                      9
<PAGE>

requirements of the 1940 Act or the Articles Supplementary, the Fund may, and
in certain circumstances will be required to, partially redeem the shares of
Cumulative Preferred Stock in order to maintain or restore the requisite asset
coverage and avoid the adverse consequences to the Fund and its stockholders
of failing to qualify as a RIC. If asset coverage were restored, the Fund
would again be able to pay dividends and might be able to avoid Fund-level
taxation of its income.

     Qualification as a RIC requires, among other things, that at least 90% of
the Fund's gross income in each taxable year consist of certain types of
income, including dividends, interest, gains from the disposition of stocks
and securities and other investment-type income. In addition, the Fund's
investments must meet certain diversification standards. If the Fund were
unable to satisfy the 90% distribution requirement or otherwise were to fail
to qualify to be taxed as a RIC in any year, it would be subject to tax in
such year on all of its taxable income, whether or not the Fund made any
distributions. To qualify again to be taxed as a RIC in a subsequent year, the
Fund would be required to distribute to Cumulative Preferred Stockholders and
Common Stockholders as an ordinary income dividend, its earnings and profits
attributable to non-RIC years reduced by an interest charge on 50% of such
earnings and profits payable by the Fund to the IRS. In addition, if the Fund
failed to qualify as a RIC for a period greater than one taxable year, the
Fund would be required to recognize and pay tax on any net built-in gains (the
excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if the Fund had been liquidated) or,
alternatively, to elect to be subject to taxation on such built-in-gains
recognized for a period of 10 years, in order to qualify as a RIC in a
subsequent year.

     The Fund may invest in debt obligations purchased at a discount with the
result that the Fund may be required to accrue income (and to distribute such
income in accordance with the distribution requirements of the Code) for
Federal income tax purposes before amounts due under the obligations are paid.
The Fund may also invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"). A portion of the interest payments on
such high yield securities may be treated as dividends for Federal income tax
purposes.

     Certain transactions of the Fund are subject to complex federal income
tax provisions that may, among other things, a) affect the character of gains
and losses realized, b) disallow, suspend or otherwise limit the allowance of
certain losses or deductions, and c) accelerate the recognition of income.
Operation of these rules could, therefore, affect the character, amount and
timing of distributions to stockholders. The Fund will monitor its
transactions and may make certain tax elections in order to mitigate the
effect of these provisions.

     Foreign currency gains or losses from certain debt instruments or arising
from delays between accrual and receipt of investment income will generally be
treated as ordinary income or loss, and will therefore generally increase or
decrease the amount of the Fund's net investment income available for
distribution as ordinary income dividends. If substantial in relation to net
investment income, such foreign currency losses could affect the ability of
the Fund to distribute ordinary income dividends in a taxable year, and could
require all or a portion of distributions made before the losses were
realized, but in the same taxable year, to be recharacterized as a return of
capital.



                                      10
<PAGE>

     If the Fund invests in stock of a passive foreign investment company
("PFIC"), it may be subject to Federal income tax at ordinary rates and an
additional charge in the nature of interest, on a portion of its distributions
from the PFIC and on gain from the disposition of the shares of the PFIC, even
if such distributions and gain are paid by the Fund as a dividend to its
stockholders. In some cases, the Fund may be able to elect to include annually
in income its pro rata share of the ordinary earnings and capital gains
(whether or not distributed) of the PFIC. Alternatively, the Fund could elect
to mark to market at the end of each taxable year its shares in PFICs; in this
case, the Fund would recognize as ordinary income any increase in the value of
such shares, and as ordinary loss any decrease in such value to the extent it
did not exceed prior increases included in income. Under either election, the
Fund might be required to recognize in a year income in excess of its
distributions from PFICs and its proceeds from dispositions of PFIC stock
during that year. Dividends paid by PFICs will not qualify as qualified
dividend income eligible for taxation at reduced rates under the 2003 Tax Act.

     Under certain provisions of the Code, some stockholders may be subject to
a withholding tax (28% for 2003) on ordinary income dividends, capital gain
dividends and redemption payments ("backup withholding"). A stockholder,
however, may generally avoid becoming subject to this requirement by filing an
appropriate form with the payor (i.e., the financial institution or brokerage
firm where the stockholder maintains his or her account), certifying under
penalties of perjury that such stockholder's taxpayer identification number is
correct and that such stockholder (i) has never been notified by the IRS that
he or she is subject to backup withholding, (ii) has been notified by the IRS
that he or she is no longer subject to backup withholding, or (iii) is exempt
from backup withholding. Corporate stockholders and certain other stockholders
are exempt from backup withholding. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules from payments
made to a stockholder may be refunded or credited against such stockholder's
Federal income tax liability, provided the required information is furnished
to the IRS.

     Ordinary income dividends (but not capital gain dividends) paid to
stockholders who are non-resident aliens or foreign entities generally 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. However, if ordinary income dividends or capital gain dividends received
by a non-resident stockholder are effectively connected with the conduct by
such stockholder of a trade or business in the United States, the dividends
will be subject to United States federal income tax at regular income tax
rates. Non-resident stockholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding and income
taxes.

     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.
Stockholders may be able to claim United States foreign tax credits with
respect to such taxes, subject to certain conditions and limitations contained
in the Code. For example, certain retirement accounts cannot claim foreign tax
credits on investments in foreign securities held in the Fund. In addition, a
foreign tax credit may be claimed with respect to withholding tax on a
dividend paid by the Fund only if the shareholder meets certain holding period
requirements. The Fund also must meet these holding period requirements, and
if the Fund fails to do so, it will not be able to "pass through" to
shareholders the ability to claim a credit or a deduction for the related
foreign taxes paid by the Fund. If the Fund satisfies the holding period
requirements and more than 50% in value of its total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible, and intends, to file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to include
their proportionate shares of such withholding taxes in their United States
income tax returns as gross income, treat such proportionate shares as taxes
paid by them, and deduct such proportionate shares in computing their taxable
incomes or, alternatively, use them as foreign tax credits against their
United States income taxes. No deductions for foreign taxes, moreover, may be
claimed by noncorporate shareholders who do not itemize deductions. A
shareholder that is a nonresident alien individual or a foreign corporation
may be subject to United States withholding tax on the income resulting from
the Fund's election described in this paragraph but may not be able to claim a
credit or deduction against such United States tax for the foreign taxes
treated as having been paid by such shareholder. The Fund will report annually
to its shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit.

     Under recently promulgated Treasury regulations, if a stockholder
recognizes a loss on the disposition of shares of Cumulative Preferred Stock
of $2 million or more for an individual stockholder or $10 million or more for
a corporate stockholder in any single taxable year (or a greater loss over a
combination of years), the stockholder must file with the IRS a disclosure


                                      11
<PAGE>

statement on Form 8886. The fact that a loss is reportable under these
regulations does not affect the legal determination of whether the taxpayer's
treatment of the loss is proper. Stockholders should consult their tax
advisers to determine the applicability of these regulations in light of their
individual circumstances.

     The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect and
discusses .some of the consequences under Federal tax law of an investment in
Cumulative Preferred Stock of the Fund. 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. The discussion above is not a substitute for personal tax
advice. Distributions may also be subject to additional state, local and
foreign taxes, depending on each stockholder's particular situation.
Stockholders are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Cumulative
Preferred Stock.




                                      12
<PAGE>

                            PRINCIPAL STOCKHOLDERS

     As of August 8, 2003, there were 9,241,025 shares of Common Stock and
800,000 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>
Charles M. Royce                              Common Stock             775,116 shares--Beneficial
1414 Avenue of the Americas                                            (sole voting and investment       8.38%
New York, NY 10019                                                     power)

W. Whitney George                             Common Stock             567,812 shares--Beneficial
1414 Avenue of the Americas                                            (sole voting and investment       6.14%
New York, NY 10019                                                     power)

_________________                             Common Stock             _____ shares--Beneficial
_________________                                                      (sole voting and investment           %
_________________                                                      power)

_________________                             Common Stock             _____ shares--Beneficial
_________________                                                      (sole voting and investment           %
_________________                                                      power)

Cede & Co.*                                   Common Stock            _____ shares--Record                   %
Depository Trust Company
P.O. Box #20 Bowling Green Station         7.45% Cumulative
New York, NY 10028                          Preferred Stock           _____ shares--Record                   %
</TABLE>

______________
*    Shares held by brokerage firms, banks and other financial intermediaries
     on behalf of beneficial owners are registered in the name of Cede & Co.



                                      13
<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 Preferred Stock, voting as a separate
class. The remaining six Directors are divided into three classes and are
elected by the holders of Common Stock and Preferred Stock, 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                                            NUMBER OF        OTHER PUBLIC
                                            OFFICE AND                                         ROYCE FUNDS'         COMPANY
   NAME, AGE AND         POSITION(S)         LENGTH OF        PRINCIPAL OCCUPATIONS DURING      PORTFOLIOS       DIRECTORSHIPS
      ADDRESS*          WITH THE FUND       TIME SERVED             PAST FIVE YEARS              OVERSEEN       HELD BY DIRECTOR
- -------------------  ------------------ ------------------ ---------------------------------- ---------------- ------------------
<S>                  <C>                <C>                <C>                                <C>              <C>
 Charles M. Royce**   Class I Director   Term as Director   President, Chief Investment             18                None
        (63)          and President      expires 2003;      Officer and Member of Board of
                                         Director  and      Managers of Royce; and
                                         Officer since      President of The Royce Funds.
                                         1986

 Mark R. Fetting**    Class II Director  Term as Director   Executive Vice President of             18         Director/Trustee
        (48)                             expires 2004;      Legg Mason; Member of Board of                     of registered
                                         Director  since    Managers of Royce; and Division                    investment
                                         2001               President and Senior Officer of                    companies
                                                            Prudential Financial Group,                        constituting the
                                                            Inc. and related companies,                        22 Legg Mason
                                                            including Fund Boards and                          Funds
                                                            consulting services to
                                                            subsidiary companies (from 1991
                                                            to 2000). Mr. 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.



                                      14
<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>
                                                                                                               OTHER PUBLIC
                                             TERM OF                                     NUMBER OF                COMPANY
                                           OFFICE AND                                   ROYCE FUNDS'           DIRECTORSHIPS
   NAME, AGE AND         POSITION(S)        LENGTH OF       PRINCIPAL OCCUPATIONS        PORTFOLIOS               HELD BY
      ADDRESS*          WITH THE FUND      TIME SERVED      DURING PAST FIVE YEARS        OVERSEEN               DIRECTOR
- -------------------  -----------------  ---------------- ----------------------------  --------------  -----------------------------
<S>                  <C>                <C>              <C>                           <C>             <C>
  Donald R. Dwight    Class III          Term as          President of Dwight                18                    None
        (72)          Director           Director         Partners, Inc., corporate
                                         expires 2005;    communications
                                         Director since   consultants; and Chairman
                                         1998             (from 1982 until March
                                                          1998) of Newspapers
                                                          New England, Inc.
                                                          Mr. Dwight's prior
                                                          experience includes
                                                          having served as
                                                          Lieutenant Governor
                                                          of the Commonwealth
                                                          of Massachusetts,
                                                          President and
                                                          Publisher of
                                                          Minneapolis Star and
                                                          Tribune Company and
                                                          as Trustee of the
                                                          registered
                                                          investment companies
                                                          constituting the 94
                                                          Eaton Vance Funds.

 Richard M. Galkin    Class II           Term as          Private investor.  Mr.             18                    None
        (65)          Director           Director         Galkin's prior business
                                         expires 2004;    of Richard M. Galkin
                                         Director         Associates, Inc.,
                                         since 1986       telecommunications
                                                          consultants, President of
                                                          Manhattan Cable
                                                          Television (a subsidiary
                                                          of 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            18                    None
        (63)          Director           Director         for Health and Social
                                         expires 2005;    Policy (since September
                                         Director since   1996); Attorney and
                                         1986             President of Health
                                                          Policy Associates, Inc.,
                                                          consultants. Mr. Isaacs'
                                                          prior experience includes
                                                          having served as Director
                                                          of Columbia University
                                                          Development Law and
                                                          Policy Program and
                                                          Professor at Columbia
                                                          University.

  William L. Koke     Director elected   Term as          Financial planner with             18                    None
        (68)          by Preferred       Director         Shoreline Financial
                      Stockholders       expires          Consultants. Mr. Koke's
                                         annually;        prior business experience
                                         Director since   includes having served as
                                         2001             Director of Financial
                                                          Relations of SONAT, Inc.,
                                                          Treasurer of Ward Foods,
                                                          Inc. and President of
                                                          CFC, Inc.



                                      15
<PAGE>

                                                                                                               OTHER PUBLIC
                                             TERM OF                                     NUMBER OF                COMPANY
                                           OFFICE AND                                   ROYCE FUNDS'           DIRECTORSHIPS
   NAME, AGE AND         POSITION(S)        LENGTH OF       PRINCIPAL OCCUPATIONS        PORTFOLIOS               HELD BY
      ADDRESS*          WITH THE FUND      TIME SERVED      DURING PAST FIVE YEARS        OVERSEEN               DIRECTOR
- -------------------  -----------------  ---------------- ----------------------------  --------------  -----------------------------
  David L. Meister    Director elected   Term as          Tennis Channel (since              18                    None
        (63)          by Preferred       Director         June 2000); and Chief
                      Stockholders       expires          Executive Officer of
                                         annually;        Seniorlife.com (from
                                         Director since   December 1999 to May
                                         1986             2000). Mr. Meister's
                                                          prior business
                                                          experience includes
                                                          having served as a
                                                          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                 18         Director/Trustee of the
        (57)          Director           Director         University, President of                      registered investment
                                         expires 2003;    Hill House, Inc. and                          companies constituting
                                         Director since   Managing Director/Equity                      the 22 Legg Mason Funds;
                                         2001             Capital Markets Group of                      Director of Renaissance
                                                          Merrill Lynch & Co. (from                     Capital Greenwich Fund.
                                                          1971 to 1999).

</TABLE>
______________
     *    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

Officers

     Certain biographical and other information concerning the other 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, 2002, 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 (52)          Vice President,        Officer since 2001     Member of Board of Managers, Chief
                                Director of                                   Operating Officer (since October
                                Administration and                            2001), Chief Financial Officer (since
                                Treasurer                                     March 2002) and Managing Director of
                                                                              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 1995     Managing Director and Vice President
                                                                              of Royce; Vice President of The Royce
                                    Funds.

W. Whitney George (45)          Vice President         Officer since 1995     Managing Director and Vice President
                                                                              of Royce; and Vice President of The
                                                                              Royce Funds.

Daniel A. O'Byrne (41)          Vice President and     Officer since 1994     Principal and Vice President of Royce;
                                Assistant Secretary                           and Vice President of The Royce Funds.



                                      16
<PAGE>

                                                          TERM OF OFFICE
                                     POSITION(S)           AND LENGTH OF           PRINCIPAL OCCUPATIONS DURING
    NAME, AGE AND ADDRESS*          WITH THE FUND           TIME SERVED                   PAST FIVE YEARS
- ----------------------------  ---------------------  ----------------------  ----------------------------------------
John E. Denneen (36)            Secretary and          Officer from 1996 to   General Counsel of Royce (Deputy
                                General Counsel        2001 and since April   General  Counsel prior to 2003);
                                                       2002                   Principal, Chief Legal and Compliance
                                                                              Officer and Secretary of Royce (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.





                                                           17
<PAGE>

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       Aggregate Dollar Range of Equity
            Name                                  Equity 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......................                                                   Over $100,000
Non-Interested Directors
     Donald R. Dwight.....................                                                   Over $100,000
     Richard M. Galkin....................                                                   Over $100,000
     Stephen L. Isaacs....................                                                  $10,001-$50,000*
     William L. Koke......................                                                   Over $100,000
     David L. Meister.....................                                                   Over $100,000
     G. Peter O'Brien.....................                                                   Over $100,000

- ---------------
*    As of the date of this Statement of Additional Information, the aggregate dollar amount of equity securities in
The Royce Funds held by Mr. Isaacs was over $100,000.
</TABLE>


     Mr. Royce has sole voting power and sole investment power as to the
shares beneficially owned by him. [As of the date of this Statement of
Additional Information, all Directors and officers of the Fund as a group (13
persons) beneficially owned ________ shares of the Fund's Common Stock,
constituting _____% of the outstanding shares, and _____ shares of its
Preferred Stock, constituting _____% of the outstanding shares.] As of the
date of this Statement of Additional Information, none of the non-interested
Directors of the Fund nor any of their immediate family members owned
beneficially or of record any securities issued by Legg Mason or any of its
affiliates (other than registered investment companies).

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, the appointment, compensation, and oversight of the work of the
Fund's independent accountants including the resolution of disagreements
regarding financial reporting between Fund management and 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 non-interested Directors. The non-interested
Directors generally will not consider nominees recommended by stockholders of
the Fund.


                                      18
<PAGE>


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,                  $5,250                 None                   None                  $65,250
Director(1)
                                   $5,250
Richard M. Galkin,
Director(2)                        $5,250                 None                   None                  $65,250

Stephen L. Isaacs,                 $5,250                 None                   None                  $65,250
Director

William L. Koke,                   $5,250                 None                   None                  $65,250
Director

David L. Meister,                  $5,250                 None                   None                  $65,250
Director

G. Peter O'Brien,                  $5,250                 None                   None                  $65,250
Director

</TABLE>

______________

(1)   Includes $787.50 from the Fund ($9,563 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 $5,250 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 Board of Directors determined at meetings held on June 4 and 5, 2003,
to approve the continuance of the current Investment Advisory Agreement
relating to the Fund. In making their determination, the Directors considered
a wide range of information of the type they regularly consider when
determining whether to continue a fund's advisory arrangements as in effect
from year to year. 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, including
risk-adjusted performance information prepared by Morningstar Inc., (e) the
relative profitability of the arrangements to Royce, (f) information about the
services to be performed and the personnel performing such services under the
current Investment Advisory Agreement, (g) the general reputation and
financial resources of Royce and Legg Mason, (h) compensation payable by the
Fund to affiliates of Royce for other services and (i) Royce's practices
regarding the selection and compensation of brokers that execute portfolio


                                      19
<PAGE>

transactions for the Fund and the brokers' provision of brokerage and research
services to Royce. The Board of Directors was advised by separate legal
counsel in connection with its review of the investment advisory arrangements
of the Fund.

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".

     The Code of Ethics can be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090.
The Code of Ethics is available on the EDGAR Database on the Commission's
Internet site at http://www.sec.gov. Copies of the Code of Ethics may be
obtained, after paying a duplicating fee, by electronic request at the
following E-mail address: publicinfo@sec.gov, or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.

     As of June 30, 2003, Royce-related persons, interested trustees/
directors, officers and employees of The Royce Funds and members of their
immediate families beneficially owned


                                      20
<PAGE>

shares of The Royce Funds having a total value of over $48.2 million, and such
persons beneficially owned equity interests in Royce-related private
investment companies totaling approximately $9.9 million.


                    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 $715,813, $681,153 and $542,043 (net
of $117,259, $132.604 and $200,001 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,
2004 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 Commission and others and in the auditing of accounts and in other
ministerial matters of


                                      21
<PAGE>


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 $_______, $_______
and $_______ in fees to the Fund's custodian and transfer agent.


                   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
and under its Investment Advisory Agreement with the Fund, to pay a broker a
commission in excess of that which another broker might have charged for
effecting the same transaction, in recognition of the value of brokerage and
research services provided by the broker.

     Brokerage and research services furnished by brokers through whom the
Fund effects securities transactions may be used by Royce in servicing all of
its accounts, and 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


                                      22
<PAGE>


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 $_________, $_______ and
$_______, 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.


                     PROXY VOTING POLICIES AND PROCEDURES

     In June 2003, in response to rules adopted by the Commission, Royce
adopted written proxy voting policies and procedures (the "Proxy Voting
Procedures") for itself, the Fund, and all The Royce Funds and clients
accounts for which Royce is responsible for voting proxies. The Board of
Directors of the Fund has delegated all proxy voting decisions to Royce. In
voting proxies, Royce is guided by general fiduciary principles. Royce's goal
is to act prudently, solely in the best interest of the beneficial owners of
the accounts it manages. Royce attempts to consider all factors of its vote
that could affect the value of the investment and will vote proxies in the
manner it believes will be consistent with efforts to enhance and/or protect
stockholder value.

     Royce personnel are responsible for monitoring receipt of all proxies and
ensuring that proxies are received for all securities for which Royce has
proxy voting responsibility. Royce divides proxies into "regularly recurring"
and "non-regularly recurring" matters. Examples of regularly recurring matters
include non-contested elections of directors and non-contested approvals of
independent auditors. Regularly recurring matters are usually voted as
recommended by the issuer's board of directors or management. Non-regularly
recurring


                                      23
<PAGE>


matters are brought to the attention of portfolio manger(s) for the applicable
account(s) and, after giving consideration to advisories provided by an
independent third party research firm, the portfolio manager(s) directs that
such matters be voted in a way that he believes should better protect or
enhance the value of the investment. If the portfolio manager determines that
information relating to a proxy requires additional analysis, is missing, or
is incomplete, the portfolio manager will give the proxy to an analyst or
another portfolio manager for review and analysis. Under certain
circumstances, Royce may vote against a proposal from the issuer's board of
directors or management. Royce's portfolio managers decide these issues on a
case-by-case-basis. A Royce portfolio manager may, on occasion, decide to
abstain from voting a proxy or a specific proxy item when such person
concludes that the potential benefit of voting is outweighed by the cost or
when it is not in the client's best interest to vote.

     In furtherance of Royce's goal to vote proxies in the best interests of
its clients, Royce follows specific procedures outlined in the Proxy Voting
Procedures to identify, assess and address material conflicts that may arise
between Royce's interests and those of its clients before voting proxies on
behalf of such clients. In the event such a material conflict of interest is
identified, the proxy will be voted by Royce in accordance with the
recommendation given by an independent third party research firm.


                                NET ASSET VALUE

     The net asset value ("NAV") of the Fund's shares of Common Stock is
calculated as of 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) 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 NAV 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.

     For the years ended December 31, 2002, 2001 and 2000, the Fund's
portfolio turnover rates were 61%, 54% and 69%, respectively.


                             FINANCIAL STATEMENTS

     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 ____, ______ & _____ thereon, and the unaudited financial
statements included in the Semi-Annual Report to the Fund's Stockholders for
the six months ended June 30, 2003, are incorporated herein by reference.


                                      24


<PAGE>
                                    Part C

                               Other Information

Item 24. Financial Statements and Exhibits

1.     a.     The following audited financial statements of Royce Focus Trust,
              Inc. (the "Fund") are included in the Fund's Annual Report to
              Stockholders for the fiscal year ended December 31, 2002, filed
              with the Securities and Exchange Commission ("SEC") under
              Section 30 (b) (1) of the Investment Company Act of 1940, as
              amended ("1940 Act"), and are incorporated in Part B hereof by
              reference:

              Schedule of Investments, December 31, 2002; Statement of Assets
              and Liabilities, December 31, 2002; Statement of Operations for
              the fiscal year ended December 31, 2002; Statement of Changes in
              Net Assets for the years ended December 31, 2002 and 2001; Notes
              to Financial Statements at December 31, 2002; Financial
              Highlights for the five fiscal years ended December 31, 2002;
              and Report of Independent Accountants.

       b.     The following unaudited financial statements of the Fund are
              included in the Fund's Semi-Annual Report to Stockholders for
              the six months ended June 30, 2003, filed with the SEC under
              Section 30(b)(1) of the 1940 Act, and are incorporated in Part B
              hereof by reference:

              To be provided by amendment.

2.        Exhibits

          (a)(1)  Articles of Amendment and Restatement to the Articles of
                  Incorporation dated October 30, 1996. (1)
          (2)     Articles of Correction dated November 5, 1996. (1)
          (3)     Form of Articles Supplementary creating the 7.45% Cumulative
                  Preferred Stock ("7.45% Preferred"). (2)
          (4)     Form of Articles Supplementary dated January 31, 2003.(3)
          (5)     Form of Articles Supplementary creating the ___% Cumulative
                  Preferred Stock (the "Cumulative Preferred Stock").*
          (b)     Amended and Restated By-laws. (3)
          (c)     Not applicable.
          (d)(1)  Form of share certificate for Common Stock.
          (2)     Form of share certificate for 7.45% Preferred. (4)
          (3)     Form of share certificate for the Cumulative Preferred
                  Stock.*
          (e)     Amended and Restated Distribution Reinvestment and Cash
                  Purchase Plan. (4)
          (f)     Not applicable.
          (g)     Investment Advisory Agreement dated October 1, 2001 between
                  the Fund and Royce & Associates ("R & A").(5)
          (h)     Form of Underwriting Agreement.*
          (i)     Not applicable.
          (j)(1)  Custodian Contract with State Street Bank and Trust Company
                  ("State Street"). (4)
          (2)     Amendment to Custodian Contract dated _______, 2000.*
          (3)     Amendment to Custodian Contract dated April 16, 2003.*
          (k)(1)  Registrar, Transfer Agency and Service Agreement with State
                  Street (Common Stock).(4)
          (2)     Registrar, Transfer Agency and Service Agreement with State
                  Street (7.45% Preferred).

                                      3
<PAGE>

          (3)     Amendment to Registrar, Transfer Agency and Paying Agency
                  Agreement (Cumulative Preferred Stock)*
          (l)     Opinion and Consent of Venable, Baetjer & Howard LLP.*
          (m)     Not applicable.
          (n)     Consent of ____, ______ & _____, independent auditors for
                  the Fund.*
          (o)     Not applicable.
          (p)     Not applicable.
          (q)     Not applicable.
          (r)     Code of Ethics.*

______________
(1)  Incorporated by reference to Amendment No. 8 to the Fund's Registration
     Statement on Form N-2, filed with the SEC on November 21, 1996 (File No.
     811-5397).
(2)  Incorporated by reference to Pre-Effective Amendment No. 1 to the Fund's
     Registration Statement on Form N-2, filed with the SEC on November 14,
     1997 (File No. 333-34325).
(3)  Incorporated by reference to the Fund's Report on Form NSAR-B, filed with
     the SEC on February 27, 2003.
(4)  Incorporated by reference to the Fund's Registration Statement on Form
     N-2, filed with the SEC on August 25, 1997 (File No. 333-34325).
(5)  Incorporated by reference to the Fund's Report on Form NSAR-B, filed with
     the SEC on February 28, 2002.
*    To be filed by amendment.

Item 25. Marketing Arrangements

         Please see Exhibit (h) to this Registration Statement.


                                      4
<PAGE>

Item 26. Other Expenses of Issuance and Distribution

     The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

                                                                   Estimated
     Category                                                      Expenses

     Registration fees.........................................         *
     New York Stock Exchange listing fees......................         *
     Printing expenses (other than stock certificates).........         *
     Rating agency fees........................................         *
     Accounting fees and expenses..............................         *
     Legal fees and expenses...................................         *
     Miscellaneous.............................................         *
                                                                        *
                                                                    ----------
     Total.....................................................         *
                                                                    ==========

     *To be provided by amendment.

Item 27. Person Controlled by or Under Common Control with Fund

     None.

Item 28. Number of Holders of Securities

     The following information is given as of _______ __, 2003:


Title of Class                                         Number of Record Holders
- -------------------------------------------------------------------------------
Common Stock, $.001 par value..................................         *
7.45% Cumulative Preferred Stock, $.001 par value..............         *

*To be provided by amendment.

Item 29. Indemnification

     Reference is made to Section 2-418 of the Maryland General Corporation
Law, Article VI and VII of the Fund's Articles of Incorporation, as amended,
Article V of the Fund's Amended and Restated By-laws, and the Investment
Advisory Agreement, each of which provide for indemnification.

     The Investment Advisory Agreement between the Fund and R & A obligates
the Fund to indemnify R & A and hold it harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys' fees)
incurred by R & A in or by reason of any action, suit, investigation or other
proceeding arising out of or otherwise based upon any action actually or
allegedly taken or omitted to be taken by R & A in connection with the
performance of any of its duties or obligations under the Agreement or
otherwise as an investment adviser of the Fund. R & A is not entitled to
indemnification in respect of any liability to the Fund or its security
holders to which it would otherwise be subject by reason of its willful
misfeasance, bad faith or gross negligence.

     Under the Underwriting Agreement relating to the Cumulative Preferred
Stock offered hereby, the Registrant agrees to indemnify the Underwriters and
each person, if any, who controls the Underwriters within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), against certain types of
civil liabilities arising in connection the Registration Statement or
Prospectus and Statement of Additional Information.

                                      5

<PAGE>

     Insofar as indemnification for liability arising under the 1933 Act, may
be permitted to directors, officers and controlling persons of the Fund
pursuant to the foregoing provisions or otherwise, the Fund has been advised
that, in the opinion of the SEC, such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Fund of expenses incurred or paid by a director, officer or
controlling person of the Fund in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent or
such claim is to be paid under insurance policies, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

     The Fund, its officers and directors, R & A and certain others are
presently insured under a Directors and Officers/Errors and Omissions
Liability Insurance Policy issued by ICI Mutual Insurance Company, which
generally covers claims by the Fund's stockholders and third persons based on
or alleging negligent acts, misstatements or omissions by the insureds and the
costs and expenses of defending those claims, up to a limit of $15,000,000,
with a deductible amount of $250,000.

Item 30. Business and other Connections of Investment Adviser

     Reference is made to Schedules D and F to Royce's amended Form ADV (File
No. 801-8268), which are incorporated herein by reference.

Item 31. Location of Accounts and Records

     Records are located at:

     1.   Royce Focus Trust, Inc.
          10th Floor
          1414 Avenue of the Americas
          New York, New York 10019

(Corporate records and records relating to the function of Royce as investment
adviser)

     2.   State Street Bank and Trust Company
          Two Heritage Drive
          North Quincy, Massachusetts 02171
          Attention: Royce Focus Trust, Inc.

(Records relating to its functions as Custodian for the Fund)

     3.   Equiserve Trust Company, N.A.
          225 Franklin Street
          Boston, Massachusetts 02110
          Attention: Royce Focus Trust, Inc.

(Records relating to its functions as Registrar and Transfer Agent and
Dividend Paying Agent for the Fund)

Item 32. Management Services

     Not applicable.

Item 33. Undertakings

(1) Not applicable.

                                      6

<PAGE>

(2) Not applicable.

(3) Not applicable.

(4) Not applicable.

(5) The Fund undertakes that, for the purpose of determining any liability
under the Securities Act, the information omitted from the form of prospectus
filed as part of the Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Fund pursuant to Rule 497(h)
will be deemed to be a part of the Registration Statement as of the time it
was declared effective. The Fund undertakes that, for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus will be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.

(6) The Fund undertakes to send by first class mail or other means designed to
ensure equally prompt delivery, within two business days of receipt of a
written or oral request, any Statement of Additional Information.

                                      7

<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 13th day of August, 2003.

                                 ROYCE FOCUS TRUST, INC.
                                 (Registrant)

                                 By: /s/ Charles M. Royce
                                     --------------------
                                     Charles M. Royce, President

     Each person whose signature appears below hereby authorizes Charles M.
Royce, John D. Diederich, and John E. Denneen, or any of them, as
attorney-in-fact, to sign on his behalf, individually and in each capacity
stated below, any amendments to this Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signature                                   Title                                      Date
<S>                                         <C>                                        <C>
/s/ Charles M. Royce                        President (Principal Executive Officer)    August 13, 2003
- ----------------------------------------    and Director
Charles M. Royce

/s/ John D. Diederich                       Vice President and Treasurer (Principal    August 13, 2003
- ----------------------------------------    Financial and Accounting Officer)
John D. Diederich

/s/ Donald R. Dwight                        Director                                   August 13, 2003
- ----------------------------------------
Donald R. Dwight

/s/ Mark R. Fetting                         Director                                   August 13, 2003
- ----------------------------------------
Mark R. Fetting

/s/ Richard M. Galkin                       Director                                   August 13, 2003
- ----------------------------------------
Richard M. Galkin

/s/ Stephen L. Isaacs                       Director                                   August 13, 2003
- ----------------------------------------
Stephen L. Isaacs

/s/ William L. Koke                         Director                                   August 13, 2003
- ----------------------------------------
William L. Koke

/s/ David L. Meister                        Director                                   August 13, 2003
- ----------------------------------------
David L. Meister

/s/ G. Peter O'Brien                        Director                                   August 13, 2003
- ----------------------------------------
G. Peter O'Brien
</TABLE>

                                      8


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