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<SEC-DOCUMENT>0000949377-03-000781.txt : 20031009
<SEC-HEADER>0000949377-03-000781.hdr.sgml : 20031009
<ACCEPTANCE-DATETIME>20031008200722
ACCESSION NUMBER:		0000949377-03-000781
CONFORMED SUBMISSION TYPE:	N-2/A
PUBLIC DOCUMENT COUNT:		10
FILED AS OF DATE:		20031009

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/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-107928
		FILM NUMBER:		03934058

	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/A
		SEC ACT:		1940 Act
		SEC FILE NUMBER:	811-05379
		FILM NUMBER:		03934059

	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/A
<SEQUENCE>1
<FILENAME>rft63006_n2a.txt
<DESCRIPTION>ROYCE FOCUS TRUST STOCK OFFERING
<TEXT>


    As filed with the Securities and Exchange Commission on October 9, 2003

                                              Securities Act File No. 333-107928
                                       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. 1                 [X]
                          Post-Effective Amendment No.                  [ ]
                                     and/or
                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940
                                Amendment No. 12                        [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)

                             ----------------------
<TABLE>
<CAPTION>

                                                    Copies to:

<S>  <C>                                       <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            Amount
                                                               Amount            Maximum         Aggregate             of
                                                               Being         Offering Price       Offering        Registration
           Title of Securities Being Registered            Registered (1)     Per Unit (1)        Price(1)            Fee(2)
- ----------------------------------------------------- ------------------- ---------------- -------------------- -------------------
<S>                                                     <C>                      <C>             <C>                   <C>
__% Cumulative Preferred Stock ($.001 par value)....    1,000,000 shares         $25.00          $25,000,000           $2,023

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


(2) $81 was previously paid in connection with the Registrant's initial
registration statement filed with the Securities and Exchange Commission (the
"Commission") on August 13, 2003. $1,942 was transmitted to the Commission's
designated lockbox at Mellon Bank in Pittsburgh, PA. in connection with this
filing.

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

     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 OCTOBER 9, 2003

PROSPECTUS

                                1,000,000 SHARES

                             ROYCE FOCUS TRUST, INC.

                          % CUMULATIVE PREFERRED STOCK


                     LIQUIDATION PREFERENCE $25.00 PER SHARE

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


         The  % Cumulative Preferred Stock initial liquidation preference $25.00
per share (the "Cumulative Preferred Stock") is being offered by Royce Focus
Trust, Inc. (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 initial liquidation preference of $25.00 per share, are
cumulative from the Date of Original Issue thereof and are payable quarterly on
March 23, June 23, September 23 and December 23, commencing on December 23,
2003.


                                                   (Continued on following page)

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


         INVESTING IN THE CUMULATIVE PREFERRED STOCK INVOLVES RISKS. SEE
"PROSPECTUS SUMMARY -- SPECIAL CONSIDERATIONS AND RISK FACTORS" BEGINNING ON
PAGE 9 AND "INVESTMENT GOAL, POLICIES AND RISKS" BEGINNING ON PAGE 22.


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

         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.

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


                                                      Per Share         Total
                                                      ---------         -----

     Public Offering Price (1)                          $25.00       $25,000,000
     Underwriting Discount (2)                          $            $
     Proceeds to the Fund (before expenses)(3)          $            $
     -------------------
      (1) Plus accumulated dividends, if any, from October , 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 $196,525.

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


         The shares of Cumulative Preferred Stock offered hereby are offered by
the Underwriters listed in this Prospectus, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Cumulative Preferred Stock will be made in
book-entry form only through the facilities of The Depository Trust Company
("DTC") in New York, New York on or about October  , 2003, which is the
   business day following the date of this Prospectus, against payment therefore
in immediately available funds.

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

                           Joint Book-Running Managers

CITIGROUP                                                    UBS INVESTMENT BANK

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

                             LEGG MASON WOOD WALKER

                                  Incorporated


October     , 2003




<PAGE>

(Continued from cover page)


         Application will be made to list the Cumulative Preferred Stock on the
New York Stock Exchange (the "NYSE"). If approved, trading of the Cumulative
Preferred Stock on the NYSE 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 94%, 78% and 75% 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) through the
date of redemption (the "Redemption Price") if the Fund fails to maintain a
quarterly asset coverage of at least 200% or fails to maintain the discounted
asset coverage required by Moody's. Commencing October  , 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 October ,
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 October   , 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 48 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.





<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..........................................................15
TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS...................................18
THE FUND......................................................................20
USE OF PROCEEDS...............................................................20
CAPITALIZATION................................................................21
PORTFOLIO COMPOSITION.........................................................22
INVESTMENT GOAL, POLICIES AND RISKS...........................................22
RATINGS AGENCY GUIDELINES.....................................................29
INVESTMENT ADVISORY AND OTHER SERVICES........................................30
DESCRIPTION OF CUMULATIVE PREFERRED STOCK.....................................32
DESCRIPTION OF CAPITAL STOCK..................................................40
TAXATION......................................................................42
CUSTODIAN, DIVIDEND-PAYING AGENT, TRANSFER AGENT AND REGISTRAR................44
UNDERWRITING..................................................................44
LEGAL MATTERS.................................................................46
EXPERTS.......................................................................46
ADDITIONAL INFORMATION........................................................47
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................47
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION......................48
GLOSSARY......................................................................49



<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 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.
                        See "Investment Goal, Policies and Risks".


THE OFFERING........... The Fund is offering 1,000,000 shares of     %
                        Cumulative Preferred Stock, par value $.001 per share,
                        initial 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 aggregate initial 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 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".


- --------------------------------------------------------------------------------
                                       4
<PAGE>

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


DIVIDENDS.............. Dividends on the Cumulative Preferred Stock, at the
                        annual rate of % of the initial 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 23, June 23, September 23, and December 23,
                        commencing on December 23, 2003, to the holders of
                        record on the preceding March 6, June 6, September 6 and
                        December 6, 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 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
- --------------------------------------------------------------------------------
                                       5
<PAGE>

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

                        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 94%, 78% and 75%
                        long-term capital gains and qualified dividend income
                        and approximately 6%, 22% and 25% 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
                        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 interest of the
                        Fund to continue to comply with the Rating Agency
                        Guidelines. If the Fund voluntarily terminates
                        compliance with the

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

                                       6
<PAGE>

- --------------------------------------------------------------------------------
                        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 371%. 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
                        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

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

                                       7
<PAGE>

- --------------------------------------------------------------------------------
                        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 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".


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

                                       8
<PAGE>
- --------------------------------------------------------------------------------

OPTIONAL REDEMPTION.... Commencing October  , 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 October , 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). The
                        initial liquidation preference is $25.00 per share. 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 New York Stock Exchange (the "NYSE"). 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 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

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

                                       9
<PAGE>

- --------------------------------------------------------------------------------
                        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
                        or a successor NRSRO, if any, 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 or a successor NRSRO, if
                        any, 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 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

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

                                       10
<PAGE>

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

                        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.

                        Investing in a Limited Number of Companies. Because the
                        Fund invests in a limited number of companies,
                        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
                        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 -- Borrowing Money and Issuing Senior
                        Securities". The Fund may issue additional Preferred
                        Stock under the circumstances set forth under


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

                                       11
<PAGE>

- --------------------------------------------------------------------------------
                        "Description of Cumulative Preferred Stock-- Limitations
                        on Issuance of Additional Preferred Stock".


                        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
                        additional, borrowed funds are subject to interest costs
                        that my offset or exceed the return earned on the
                        borrowed funds.

                        Restrictions on Dividends and Other Distributions. 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. If the Fund does not meet the asset
                        coverage requirements set forth in the 1940 Act or the
                        Articles Supplementary, the Fund will be required to
                        suspend distributions to holders of its Common Stock
                        until such asset coverage is restored. See "Description
                        of Cumulative Preferred Stock -- Dividends". Such a
                        limitation on distributions could jeopardize the Fund's
                        ability to meet the above-referenced distribution
                        requirements. Although the Fund presently intends, to
                        the extent possible, to purchase or redeem Cumulative
                        Preferred Stock and/or any other Preferred Stock to
                        maintain its qualification as a regulated investment
                        company, no assurance can be given that such actions can
                        be effected in time to meet the above-referenced
                        distribution requirements.

                        Redemption. As set forth above, the Cumulative Preferred
                        Stock is subject to both mandatory and optional
                        redemption under specified circumstances at a redemption
                        price equal to $25.00 per share plus accumulated and
                        unpaid dividends (whether or not earned or declared)
                        through the redemption date. Upon redemption,
                        stockholders may not be able to reinvest the proceeds
                        received from the redemption in an investment providing
                        the same or a better rate than that of the Cumulative
                        Preferred Stock.


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

                                       12
<PAGE>

- --------------------------------------------------------------------------------
                        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......... As set forth above, 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 September 30, 2003, Royce managed
                        approximately $12.6 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. See
                        "Investment Advisory and Other Services -- Portfolio
                        Management" herein and "Directors and Officers" in the
                        Statement of Additional Information.



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

                                       13
<PAGE>

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

                        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 (including
                        assets obtained from the sale of Preferred Stock) 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".








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

                                       14
<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 Statement of Additional Information, which
is available upon request. The information for each of the five years in the
period ended December 31, 2002 has been audited by Tait, Weller & Baker, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available upon request.


                                       15
<PAGE>

<TABLE>
<CAPTION>
                                     Six months
                                        ended                             Years ended December 31,
                                    June 30, 2003  --------------------------------------------------------------------------------
                                     (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.........................     $6.27         $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)...      0.02         (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...............      1.23         (0.74)   0.79    1.26    0.58   (0.35)   1.12     0.35    0.36   (0.62)  0.46
                                   ------------------------------------------------------------------------------------------------
    Total investment operations...      1.25         (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)     -       -       -      -
   Quarterly distributions*.......     (0.08)          -       -       -       -       -       -        -       -       -      -
                                   ------------------------------------------------------------------------------------------------
    Total distributions to
    Preferred Stockholders........     (0.08)        (0.16)  (0.17)  (0.17)  (0.18)  (0.18)  (0.01)     -       -       -      -
                                   ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS APPLICABLE TO COMMON
STOCKHOLDERS RESULTING FROM
INVESTMENT OPERATIONS.............      1.17         (0.91)   0.67    1.21    0.48   (0.41)   1.19     0.41    0.49   (0.43)  0.50
                                   ------------------------------------------------------------------------------------------------
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 distributions 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
   Stockholders...................       -           (0.01)  (0.02)  (0.04)  (0.02)    -     (0.04)     -       -       -      -
   Effect of Preferred Stock
   Offering.......................       -             -       -       -       -       -     (0.10)     -       -       -      -
   Other Sources .................       -             -       -       -       -       -      -        0.02    0.07     -      -
                                   ------------------------------------------------------------------------------------------------
    Total capital stock
    transactions..................       -           (0.01)  (0.02)  (0.04)  (0.02)    -     (0.14)    0.02    0.07     -      -
                                   ================================================================================================
NET ASSET VALUE, END OF PERIOD      $7.44            $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         $6.77            $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......................  21.8%***       (15.1)%   19.7%   27.9%  (0.3)%  (3.7)%   21.3%     9.6%   22.3% (17.4)%   9.3%
Net Asset Value...................  18.7%***       (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)..............   1.48%**         1.88%   1.47%   1.44%   1.51%   1.62%   0.94%    1.91%   2.14%   2.27%   2.43%
   Management fee expense.........   1.00%**         1.13%   1.11%   1.00%   1.00%   1.14%   0.39%    0.83%   1.00%   1.00%   1.00%
   Other operating expenses.......   0.48%**         0.75%   0.36%   0.44%   0.51%   0.48%   0.55%    1.08%   1.14%   1.27%   1.43%
Net investment income (loss)......   0.57%**       (0.16)%   0.70%   1.93%   1.47%   1.95%   1.35%    1.80%   2.80%   3.81%   0.74%
SUPPLEMENTAL DATA:
Net Assets Applicable to
Common Stockholders; End of
Period (in thousands).............   $68,730       $57,956 $66,654 $60,933 $51,003 $47,457 $50,893  $44,154 $41,385 $41,106 $45,839
Liquidation Value of
Preferred Stock; End of
Period (in thousands).............   $20,000       $20,000 $20,000 $20,000 $20,000 $20,000 $20,000      -       -       -      -
Portfolio Turnover Rate...........       34%           61%     54%     69%     60%     90%     74%     159%     76%    483%   445%
Average Commission Rate
Paid (d)..........................   $0.0463       $0.0482 $0.0517 $0.0597  $0.060 $0.0620 $0.0610  $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..........   $110.91        $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(e).    $25.62        $25.64  $25.09  $22.23  $24.00  $25.16  $25.25      -       -       -      -

</TABLE>

                                       16

<PAGE>

+      Royce has served as the 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. For years
       prior to 1997, the Net Asset Value Total Return is not available.
(b)    Expense ratios based on total average net assets including liquidation
       value of Preferred Stock were 1.10%, 1.43%, 1.11%, 1.05%, 1.06%, 1.16%,
       0.90%, 1.91%, 2.14%, 2.27%, and 2.43% for the six months ended June 30,
       2003 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 1.82%, 2.06%, 1.69%, 1.81%, 1.93%, 1.88%, 1.60% and 2.08% for the
       six months ended June 30, 2003 and for the years ended December 31, 2002,
       2001, 2000, 1999, 1998, 1997 and 1996, respectively.
(d)    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.
(e)    The average of month-end market values during the period.


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


                                       17
<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 94%, 78% and 75% long-term capital gains and qualified dividend
income and approximately 6%, 22% and 25% 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.

                                       18
<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.

<TABLE>
<CAPTION>

  PERCENTAGE OF CUMULATIVE PREFERRED STOCK                          A CUMULATIVE PREFERRED STOCK
        ANNUAL DIVIDEND COMPOSED OF                                   ANNUAL DIVIDEND RATE OF
- ------------------------------------------------------ ------------------------------------------------------
<S>                                                        <C>                 <C>                  <C>

                                                           5.50%               5.75%                6.00%

<CAPTION>

LONG-TERM CAPITAL GAINS AND
QUALIFIED DIVIDEND INCOME**   OTHER ORDINARY INCOME      IS EQUIVALENT TO AN OTHER ORDINARY INCOME YIELD OF
- ---------------------------- ------------------------- ------------------------------------------------------
<S>     <C>                           <C>                  <C>                 <C>                  <C>
        90%                           10%                  7.02%               7.34%                7.66%
        75%                           25%                  6.77%               7.08%                7.38%
        50%                           50%                  6.35%               6.63%                6.92%


         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
                                                             --------------------------------------------------------
                                                                    5.50%             5.75%              6.00%

         2003 FEDERAL MARGINAL INCOME TAX BRACKET*              IS EQUIVALENT TO AN OTHER ORDINARY INCOME YIELD OF
- ------------------------------------------------------------ --------------------------------------------------------
35.0%...................................................           7.02%              7.34%               7.66%
33.0%...................................................           6.83%              7.14%               7.45%
28.0%...................................................           6.39%              6.68%               6.98%
25.0%**.................................................           6.16%              6.44%               6.72%

</TABLE>

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

*        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.

                                       19

<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 9,241,025 shares of Common Stock issued and
outstanding, with an aggregate net asset value of $67,746,470, and 1,000,000
shares of Cumulative Preferred Stock issued and outstanding, with an aggregate
initial liquidation preference of $25,000,000. 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 $24,015,975, 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 initial 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.


                                       20

<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>

     Preferred stock, $.001 par value per share:
         7.45% Cumulative Preferred Stock, authorized 5,000,000 shares,
              issued and outstanding 800,000 shares......................           $  20,000,000    $    -
                % Cumulative Preferred Stock, as adjusted, authorized
              1,000,000 shares, issued and outstanding 1,000,000 shares..                  -            25,000,000
                                                                                   ---------------- ----------------
                                                                                    $  20,000,000    $  25,000,000
                                                                                   ================ ================
     Common stock, $.001 par value per share:
         Initially authorized 100,000,000 shares, issued and
              outstanding 9,241,025 shares...............................           $      9,241     $       9,241
         Additional paid-in capital......................................             45,713,027        44,729,002(1)
         Undistributed net investment income.............................                165,852           165,852
         Accumulated net realized gain on investments....................              5,356,492         5,356,492
         Net unrealized appreciation on investments......................             18,263,995        18,263,995
         Quarterly and accrued distributions.............................               (778,112)         (778,112)
                                                                                   ---------------- ----------------
         Net assets applicable to outstanding common stock...............           $ 68,730,495    $   67,746,470
                                                                                   ================ ================
</TABLE>
- -------------
(1)   After deducting underwriting discounts and estimated costs of this
      offering of $984,025.


                                       21

<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 stocks.........................................  $66,458,817      75.3%
Corporate bonds.......................................    2,940,000       3.3%
Government bonds......................................    5,025,385       5.7%
U.S. Treasury obligations.............................    5,344,725       6.1%
Repurchase agreement..................................    8,442,000       9.6%
                                                       ------------- -----------
       Total investments..............................  $88,210,927     100.0%
                                                       ============= ===========

SECTOR WEIGHTINGS IN COMMON STOCK PORTFOLIO
Technology............................................  $12,186,378      13.8%
Natural Resources.....................................   10,806,126      12.3%
Health................................................    9,245,672      10.5%
Financial Intermediaries..............................    8,243,290       9.3%
Industrial Products...................................    8,056,806       9.1%
Industrial Services...................................    6,323,000       7.2%
Consumer Products.....................................    5,492,950       6.2%
Consumer Services.....................................    4,577,676       5.2%
Financial Services....................................    1,526,919       1.7%
                                                       ------------- -----------
       Total common stocks............................ $ 66,458,817      75.3%
                                                       ============= ===========

OTHER INFORMATION REGARDING COMMON STOCK INVESTMENTS
Number of issuers....................................                       50
Median market capitalization.........................             $812 million



                       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.

         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.

                                       22
<PAGE>

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.


         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, or whose securities are traded in, the United
States or the other developed countries of North America, Europe, Asia,
Australia and New Zealand 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.

                                       23
<PAGE>

         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.


         Fixed Income Securities. Up to 25% of the Fund's 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, including up to 5% of its assets in below investment-grade debt
securities, also known as high-yield/high-risk securities. There are no limits
on the maturity or duration of the fixed income securities in which the Fund may
invest.

         Two of the main risks of investing in fixed income securities are
credit risk and interest rate risk. Below investment-grade 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 assets
in warrants, rights or options. A warrant, right or call option entitles the
holder to purchase a given security

                                       24
<PAGE>

within a specified period for a specified price and does not represent an
ownership interest in the underlying security. A put option gives the holder the
right to sell a particular security at a specified price during the term of the
option. These securities have no voting rights, pay no dividends and have no
liquidation rights. In addition, market prices of warrants, rights or call
options do not necessarily move parallel to the market prices of the underlying
securities; market prices of put options tend to move inversely to the market
prices of the underlying securities.

         Securities Lending. The Fund may lend up to 25% of its assets to
brokers, dealers and other financial institutions. However, under the 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.


         Reverse Repurchase Agreements. The Fund is also authorized to enter
into reverse repurchase agreements. However, the Rating Agency Guidelines
prohibit such transactions. Such agreements involve the sale of securities held
by the Fund pursuant to an agreement to repurchase the securities at an
agreed-upon price, date and interest payment. When effecting reverse repurchase
transactions, liquid securities of a dollar amount equal in value to the
securities subject to the agreement are required to be maintained in a
segregated account with the Fund's custodian bank, and the reverse repurchase
agreement is required to be marked to market each day.


                                       25
<PAGE>

         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 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

                                       26
<PAGE>

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 - RISK OF INVESTING IN A LIMITED NUMBER OF COMPANIES

         Because the Fund invests in a limited number of companies, 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.


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 or a successor NRSRO, if any, 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 or a successor NRSRO, if any, 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.


RISK FACTORS - RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS

         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. If the Fund does not meet the asset coverage requirements set
forth in the 1940 Act or the Articles Supplementary, the Fund will be required
to suspend distributions to holders of its Common Stock until such asset
coverage is restored. See "Description of Cumulative Preferred Stock --
Dividends". Such a limitation on

                                       27
<PAGE>

distributions could jeopardize the Fund's ability to meet the above-referenced
distribution requirements. Although the Fund presently intends, to the extent
possible, to purchase or redeem Cumulative Preferred Stock and/or any other
Preferred Stock to maintain its qualification as a regulated investment company,
no assurance can be given that such actions can be effected in time to meet the
above-referenced distribution requirements. See "Taxation" in this Prospectus
and the Statement of Additional Information.

RISK FACTORS - REDEMPTION

         The Cumulative Preferred Stock is subject to both mandatory and
optional redemption under specified circumstances at a redemption price equal to
$25.00 per share plus accumulated and unpaid dividends (whether or not earned or
declared) through the redemption date. Upon redemption, stockholders may not be
able to reinvest the proceeds received from the redemption in an investment
providing the same or a better rate than that of the Cumulative Preferred Stock.
For a description of the circumstances in which shares of Cumulative Preferred
Stock may be redeemed, see "Description of Cumulative Preferred Stock --
Redemption" in this Prospectus.

BORROWING MONEY AND ISSUING 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 borrow money from banks and certain other
lenders and to issue and sell senior securities (as defined by the 1940 Act)
representing other forms of 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.

         The Cumulative Preferred Stock offered hereby is a senior security, as
defined by the 1940 Act, of the Fund, which means, among other things, it is
senior in priority to the Fund's Common Stock; however, it will rank junior to
any future indebtedness 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
9,241,025 shares of Common Stock issued and outstanding, with an aggregate net
asset value of $67,746,470, and 1,000,000 shares of Cumulative Preferred Stock,
par value $.001 per share, with an aggregate initial liquidation preference of
$25,000,000, issued and outstanding, and no outstanding indebtedness.

                                       28
<PAGE>

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 approximately $46 million or
additional shares of Preferred Stock having an aggregate involuntary liquidation
preference of up to approximately $43 million 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, an NRSRO, 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 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

                                       29
<PAGE>

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 September 30, 2003, Royce managed
approximately $12.6 billion in assets for the Fund and other client accounts.
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.

                                       30
<PAGE>

         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.

         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

                                       31
<PAGE>

of the net assets of the Fund (including assets obtained from the sale of
Preferred Stock) for each month during the term of the agreement. 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 for these purposes, 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.

GENERAL


         The Cumulative Preferred Stock offered hereby is a senior security, as
defined by the 1940 Act, of the Fund, which means, among other things, it is
senior in priority to the Fund's Common Stock; however, it will rank junior to
any future indebtedness of the Fund. Under the terms of the Cumulative Preferred
Stock, the Fund is initially authorized to issue up to 1,000,000 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 appraisal, preemptive, exchange or conversion

                                       32
<PAGE>

rights. Any shares of Cumulative Preferred Stock repurchased or redeemed by the
Fund will be returned to the status of authorized but unissued Common Stock. 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 (computed on the basis of a 360-day year
consisting of twelve 30-day months) of the initial liquidation preference of
$25.00 per share, payable quarterly on March 23, June 23, September 23 and
December 23 (each, a "Dividend Payment Date"), commencing on December 23, 2003
(or, if any such day is not a Business Day, then on the next succeeding Business
Day), to the persons in whose names the shares of Cumulative Preferred Stock are
registered at the close of business on the preceding March 6, June 6, September
6 and December 6 (or, if any such day is not a Business Day, then on the next
succeeding Business Day), 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 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

                                       33
<PAGE>

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:

<TABLE>
<CAPTION>
<S>                                                                    <C>       <C>                 <C>  <C>

                   Value of Fund assets less
        liabilities not constituting senior securities                           $92,746,470
- ----------------------------------------------------------------       =        ------------------   =    371%
       Senior securities representing indebtedness plus                          $25,000,000
              aggregate liquidation preference of
                the Cumulative Preferred Stock

</TABLE>

         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 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.

                                       34
<PAGE>


         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"). Within ten Business Days after delivery of such
report relating to the Quarterly Valuation Date of the Fund's fiscal year, 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. 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 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

                                       35
<PAGE>

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 October  , 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 October
   , 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 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 to be redeemed 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) that dividends on the shares to be
redeemed will cease to accumulate on such redemption date and (vi) the provision
of the Charter under which the redemption is being made. No defect in the Notice
of Redemption or in the

                                       36
<PAGE>

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 or payment in
connection with any such liquidation, dissolution or winding up. If, upon any
liquidation, dissolution or winding up of the affairs of the Fund, whether
voluntary or involuntary, the assets of the Fund available for distribution
among the holders of all outstanding shares of Cumulative Preferred Stock and
any other outstanding class or series of Preferred Stock of the Fund ranking on
a parity with the Cumulative Preferred Stock as to payment upon liquidation,
will be insufficient to permit the payment in full to such holders of Cumulative
Preferred Stock of the Liquidation Preference and the amounts due upon
liquidation with respect to such other Preferred Stock, then such available
assets will be distributed among the holders of Cumulative Preferred Stock and
such other Preferred Stock ratably in proportion to the respective preferential
amounts to which they are entitled. Unless and until the Liquidation Preference
has been paid in full to the holders of Cumulative Preferred Stock, no dividends
or distributions will be made to holders of the Common Stock or any other stock
of the Fund ranking junior to the Cumulative Preferred Stock as to liquidation.

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

VOTING RIGHTS

         Except as otherwise stated in this Prospectus and as otherwise required
by applicable law, holders of shares of Cumulative Preferred Stock and any other
Preferred Stock will be entitled to one vote per share on each matter submitted
to a vote of stockholders and will vote together with holders of shares of
Common Stock as a single class. Also, except as otherwise required by the 1940
Act, (i) holders of outstanding shares of the Cumulative Preferred Stock will be
entitled as a series, to the exclusion of 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

                                       37
<PAGE>

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.

         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

                                       38
<PAGE>

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 NYSE 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 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 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

                                       39
<PAGE>

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 or 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. The
Cumulative Preferred Stock will be held in book-entry only form. Shares of
Cumulative Preferred Stock will not be delivered in certificated form to
individual purchasers thereof. The laws of some jurisdictions require that
certain purchasers of Cumulative Preferred Stock take physical delivery of such
securities in certificated form. Such limits and laws may impair the ability to
transfer beneficial interests in shares of Cumulative Preferred Stock. See
"Book-Entry System" in the Statement of Additional Information for more
information about DTC and its procedures.


                          DESCRIPTION OF CAPITAL STOCK

COMMON STOCK


         The Fund is initially authorized to issue 100,000,000 shares of Common
Stock, par value $.001 per share, certain shares of which have been classified
and designated in series of Preferred Stock, as discussed below. Each share of
Common Stock has equal voting, dividend,

                                       40
<PAGE>

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. In this regard, the Board of Directors has classified and
designated 1,000,000 shares of Common Stock as the Cumulative Preferred Stock,
all of which are being offered hereby. See "Description of Cumulative Preferred
Stock". The Board of Directors previously 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 a substantial portion
of the net proceeds from the issuance and sale of the Cumulative Preferred Stock
to redeem the 7.45% Preferred.

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

         The following table shows as of July 31, 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.....................................           95,000,000              0                    9,241,025
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 serving
a staggered term of three years and until a successor is elected and qualifies.
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 and until a successor is elected and qualifies.


         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

                                       41

<PAGE>

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.

                                    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 Articles Supplementary, 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

                                       42
<PAGE>

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.

         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.

                                       43
<PAGE>

         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., PO Box 43011, Providence, RI 02940-3011, 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).


                                  UNDERWRITING


         Citigroup Global Markets Inc. and UBS Securities LLC are acting as
representatives of the several Underwriters in this offering. Subject to the
terms and conditions stated in the Fund's underwriting agreement dated
October  , 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.


<TABLE>
<CAPTION>

                                                                                      NUMBER OF SHARES OF
UNDERWRITER                                                                        CUMULATIVE PREFERRED STOCK
- -----------                                                                        ---------------------------

<S>                                                                                       <C>
Citigroup Global Markets Inc...........................................
UBS Securities LLC.....................................................
Legg Mason Wood Walker, Incorporated...................................
                                                                                          ===========
         Total                                                                              800,000
                                                                                          ===========


</TABLE>


         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.


                                       44
<PAGE>


         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 October   , 2003.

         It is expected that delivery of the Cumulative Preferred Stock will be
made against payment therefore on or about October   , 2003 which is the
business day after the date hereof. Under Rule 15c6-1 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade the Cumulative Preferred Stock on the date hereof or the next   succeeding
business days will be required, by virtue of the fact that the Cumulative
Preferred Stock initially will not settle in T+3, to specify an alternative
settlement cycle at the time of any such trade to prevent a failed settlement
and should consult their own advisor.


         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. Royce and Legg Mason Wood Walker,
Incorporated, one of the Underwriters in this offering, are affiliates because
they are under the common control of Legg Mason. 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.

         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 NYSE. 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

                                       45
<PAGE>

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 NYSE 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 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 LLP.

                                     EXPERTS


         Tait, Weller & Baker, independent auditors, are the independent
auditors of the Fund. The audited financial statements of the Fund and certain
of the information appearing under the caption "Financial Highlights" included
in this Prospectus and under the caption "Financial Statements" included in the
Statement of Additional Information have been audited by Tait, Weller & Baker
for the periods indicated in its report with respect thereto which is included
in the Statement of Additional Information. Such financial statements and
information are included in this Prospectus and in the Statement of Additional
Information in reliance upon such reports and upon the authority of such firm as
experts in accounting and auditing. Tait, Weller & Baker has an office at 1818
Market Street, Suite 2400, Philadelphia, Pennsylvania 19103, and also performs
tax and other professional services for the Fund.



                             ADDITIONAL INFORMATION


         The Fund is subject to the informational requirements of the Exchange
Act and the 1940 Act and, in accordance therewith, files reports and other
information with the Commission.

                                       46
<PAGE>

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.

                                       47
<PAGE>


            TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

         A Statement of Additional Information dated October     , 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 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....................................... 2
Investment Restrictions....................................................... 6
Taxation...................................................................... 8
Principal Stockholders........................................................15
Directors and Officers........................................................16
Code of Ethics and Related Matters............................................22
Investment Advisory and Other Services........................................23
Brokerage Allocation and Other Practices......................................24
Proxy Voting Policies and Procedures..........................................25
Net Asset Value...............................................................26
Book-Entry System.............................................................26
Financial Statements..........................................................27


         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.

                                       48
<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 senior securities (as
defined by the 1940 Act) 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.

                                       49
<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 23, June 23, September 23 and
December 23.


         "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): The percentage
                  determined by reference to the rating on such asset with
                  reference to whether such asset pays cumulative or
                  non-cumulative dividends, in accordance with the table set
                  forth below.


                                       50
<PAGE>


Rating Category (1)                      Cumulative               Non-Cumulative
- -------------------                      ----------               --------------
Aaa                                         150%                        165%
Aa                                          155                         171
A                                           160                         176
Baa                                         165                         182
Ba                                          196                         216
B                                           216                         238
Below B and Unrated                         250                         275
- ------------
(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 non-convertible preferred security is unrated
by Moody's, S&P or Fitch, the Fund will use the percentage set forth opposite
"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 by Moody's to particular categories of credits for which the S&P
and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
Split rated securities assigned by S&P and Fitch will be accepted by Moody's at
the lower of the two ratings.

The Moody's Discount Factor applied to non-convertible preferred securities that
are Rule 144A Securities will equal the sum of the Moody's Discount Factor which
would apply if such securities were registered under the Securities Act plus
20%.


                  (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>
                                                                      Rating Category                       Below B
               Terms To Maturity of                  --------------------------------------------------
             Corporate Debt Security                                                                          and
             -----------------------
                                                      Aaa      Aa        A       Baa      Ba        B     Unrated(1)
                                                      ---      --        -       ---      --        -     ----------
<C>                                                   <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 by
Moody's to particular categories of credits for which the S&P and/or Fitch
rating does not seem to approximate a Moody's rating equivalent. Split rated
securities assigned by S&P and Fitch will be accepted by Moody's at the lower of
the two ratings.


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

                                       51
<PAGE>


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
- --------------------------------------------------------  ---------------------------------  ------------------------
<C>                                                                        <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
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: Except as set forth in clause (i)
                 above with respect to non-convertible preferred 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 were registered under the Securities Act.


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

                                       52
<PAGE>

<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 by Moody's
to particular categories of credits for which the S&P and/or Fitch rating does
not seem to approximate a Moody's rating equivalent. Split rated securities
assigned by S&P and Fitch will be accepted by Moody's at the lower of the two
ratings.


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


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 by Moody's to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent. Split
rated securities assigned by S&P and Fitch will be accepted by Moody's at the
lower of the two ratings.


         "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

                                       53
<PAGE>

                 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;

                 (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

                                       54
<PAGE>

                 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.

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

                                     55
<PAGE>

                 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 (i) sponsored ADR
                 programs or (ii) Level II or Level III ADRs, 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.


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

<TABLE>
<CAPTION>
                                         Maximum Single      Maximum Single       Maximum Single
                 Industry Category       Issuer (%)(1)       Industry (%)(1)       State (%)(1)
                 -----------------       -------------       ---------------       ------------
<S>                                            <C>                 <C>                  <C>
                 Utility                       4                   50                   7(2)
                 Industrial                    4                   45                    7
                 Financial                     5                   40                    6
                 Other                         6                   20                   N/A
</TABLE>

                 -----------------------
                 (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

                                       56
<PAGE>

                 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 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 by Moody's to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent. Split
rated securities assigned by S&P and Fitch will be accepted by Moody's at the
lower of the two ratings.

         "Moody's Exposure Period" means the sum of (i) that number of calendar
days from the last Valuation Date on which the Portfolio Calculation was at
least equal to the Basic Maintenance Amount to the Valuation Date on which the
Portfolio Calculation was not at least equal to the Basic Maintenance Amount,
(ii) that number of calendar days following a Valuation Date that the Fund has
under the terms of the Cumulative Preferred Stock to cure any failure to
maintain a Portfolio Calculation at least equal to the Basic Maintenance Amount,
and (iii) the maximum number of calendar days the Fund has to effect a
redemption under the terms of the Cumulative Preferred Stock.


         "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

                                       57
<PAGE>

         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

         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

                                       58
<PAGE>

         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

         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 recognized 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.

                                       59
<PAGE>

         "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 December 26, 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.

         "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

                                       60
<PAGE>

         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.

         "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.

                                       61
<PAGE>



                      [THIS PAGE INTENTIONALLY LEFT BLANK]


<PAGE>





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

                                   $25,000,000

                             ROYCE FOCUS TRUST, INC.

                                1,000,000 SHARES

                          % CUMULATIVE PREFERRED STOCK

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

                                   PROSPECTUS

                                 OCTOBER , 2003

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

                                    CITIGROUP

                               UBS INVESTMENT BANK

                             LEGG MASON WOOD WALKER
                                  Incorporated

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

================================================================================
<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.


                  SUBJECT TO COMPLETION, DATED OCTOBER 9, 2003


                       STATEMENT OF ADDITIONAL INFORMATION


                                1,000,000 SHARES

                             ROYCE FOCUS TRUST, INC.


                          % CUMULATIVE PREFERRED STOCK

                     LIQUIDATION PREFERENCE $25.00 PER SHARE


         The % Cumulative Preferred Stock, initial 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 October , 2003).
Please retain this document for future reference. To obtain an additional copy
of the Prospectus, 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.....................................   2
Investment Restrictions.....................................................   6
Taxation....................................................................   8
Principal Stockholders......................................................  15
Directors and Officers......................................................  16
Code of Ethics and Related Matters..........................................  22
Investment Advisory and Other Services......................................  23
Brokerage Allocation and Other Practices....................................  24
Proxy Voting Policies and Procedures........................................  25
Net Asset Value.............................................................  26
Book-Entry System...........................................................  26
Financial Statements........................................................  27



Date: October     , 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 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.

                                       2
<PAGE>

         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.

                                       3
<PAGE>

         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.

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

                                       4
<PAGE>

which is unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement requires or obligates the seller to pay the agreed upon
price, which obligation is in effect secured by the value (at least equal to the
amount of the agreed upon resale price and marked to market daily) of the
underlying security.

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

WARRANTS, RIGHTS AND OPTIONS

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

         The sale of warrants, rights or options held for more than one year
generally results in a long-term capital gain or loss to the Fund, and the sale
of warrants, rights or options held for one year or less generally results in a
short term capital gain or loss 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.

                                       5
<PAGE>

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" 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.)

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 Risks" in the
     Prospectus; and (iii) by entering into reverse repurchase agreements (but
     may

                                       6
<PAGE>

     not do so under the Rating Agency Guidelines), as described in "Investment
     Goal, Policies and Risks" 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 is authorized to enter into reverse
     repurchase agreements (but may not do so under the Rating Agency
     Guidelines), as set forth in "Investment Goal, Policies and Risks" 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.

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.


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


         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.


                                       7
<PAGE>

         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.)

         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
                                       8
<PAGE>

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 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

                                       9
<PAGE>

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%).

         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.


                                       10
<PAGE>

         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 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
                                       11
<PAGE>

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.

         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.

                                       12
<PAGE>

         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 a deduction or United States foreign
tax credit 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 stockholder meets
certain holding period requirements with respect to its Fund stock. The Fund
also must meet these holding period requirements with respect to its foreign
securities in order to be able to "pass through" to stockholders 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, qualifies for the special
treatment afforded RICs under the Code 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 IRS pursuant to which stockholders of the Fund (i) will be required to
include their proportionate shares of such foreign taxes in their United States
income tax returns as gross income, (ii) will treat such proportionate shares as
taxes paid by them, and (iii) will 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, however, may
be claimed by noncorporate stockholders who do not itemize deductions. A
stockholder 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 stockholder. The

                                       13
<PAGE>

Fund will report annually to its stockholders the amount per share of such
foreign taxes and other information needed to claim the deduction or 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
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.

                                       14
<PAGE>

                             PRINCIPAL STOCKHOLDERS


         As of September 22, 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
date above:


<TABLE>
<CAPTION>
                                                                            AMOUNT AND NATURE             PERCENT OF
     NAME AND ADDRESS OF OWNER            CLASS/SERIES OF STOCK                OF OWNERSHIP              CLASS/SERIES
- --------------------------------------  ----------------------------  -----------------------------  ----------------

<S>                                            <C>                     <C>                                  <C>
Chilton Investment Company                     Common Stock            916,608 shares--Beneficial           9.92%
1266 East Main Street                                                  (sole voting and investment
7th Floor                                                              power)
Stamford, CT 06902

Richard J. Shaker                              Common Stock            904,669 shares--Beneficial           9.79%
1094 Magothy Circle                                                    (sole voting and investment
Annapolis, MD 21401                                                    power)

Charles M. Royce                               Common Stock            775,116 shares--Beneficial
1414 Avenue of the Americas                                            (sole voting and investment
New York, NY 10019                                                     power)                               8.38%

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

Arthur D. Lipton                               Common Stock            503,676 shares--Beneficial           5.45%
c/o Western Investment LLC                                             (sole voting and investment
2954 East Bengal Boulevard                                             power)
Salt Lake City, UT 84121

Cede & Co.*                                    Common Stock            8,601,230 shares--Record*           93.07%
Depository Trust Company
P.O. Box #20
Bowling Green Station
New York, NY 10028                           7.45% Cumulative          788,899 shares--Record*             98.61%
                                             Preferred Stock

</TABLE>

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

                                       15
<PAGE>

                             DIRECTORS AND OFFICERS


         The Board of Directors of the Fund is comprised of the eight
individuals named below. Two of the Directors, Stephen L. Isaacs 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 2006; 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 William L. Koke, 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 and qualifies 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 qualifies.


<TABLE>
<CAPTION>
                                             TERM OF                                     NUMBER OF             OTHER PUBLIC
                                           OFFICE AND                                   ROYCE FUNDS'              COMPANY
    NAME, AGE AND        POSITION(S)        LENGTH OF       PRINCIPAL OCCUPATIONS        PORTFOLIOS            DIRECTORSHIPS
      ADDRESS*          WITH THE FUND      TIME SERVED      DURING PAST FIVE YEARS        OVERSEEN           HELD BY DIRECTOR
- --------------------- ---------------- ---------------- ----------------------------- ---------------- -----------------------------

<S>                    <C>               <C>              <C>                                <C>                  <C>
 Charles M. Royce**    Class I           Term as          President, Chief                   18                   None
        (63)           Director and      Director         Investment Officer and
                       President         expires 2006;    Member of Board of
                                         Director  and    Managers of Royce; and
                                         Officer since    President of The Royce
                                         1986             Funds.


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

                                       16
<PAGE>

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

<TABLE>
<CAPTION>
                                             TERM OF                                     NUMBER OF                  OTHER PUBLIC
                                           OFFICE AND                                   ROYCE FUNDS'                   COMPANY
    NAME, AGE AND        POSITION(S)        LENGTH OF       PRINCIPAL OCCUPATIONS        PORTFOLIOS                 DIRECTORSHIPS
      ADDRESS*          WITH THE FUND      TIME SERVED      DURING PAST FIVE YEARS        OVERSEEN                HELD BY 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     Director           Term as          President of The Center            18                         None
        (63)           elected by         Director         for Health and Social
                       Preferred          expires          Policy (since September
                       Stockholders       annually;        1996); Attorney and
                                          Director since   President of Health
                                          1986             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      Class III          Term as          Financial planner with             18                         None
        (68)           Director           Director         Shoreline Financial
                                          expires 2005;    Consultants. Mr. Koke's
                                          Director since   prior business experience
                                          2001             includes having served as
                                                           Director of Financial
                                                           Relations of SONAT, Inc.,
                                                           Treasurer of Ward Foods,
                                                           Inc. and President of
                                                           CFC, Inc.

</TABLE>

                                     17

<PAGE>

<TABLE>
<CAPTION>
                                             TERM OF                                     NUMBER OF                  OTHER PUBLIC
                                           OFFICE AND                                   ROYCE FUNDS'                   COMPANY
    NAME, AGE AND        POSITION(S)        LENGTH OF       PRINCIPAL OCCUPATIONS        PORTFOLIOS                 DIRECTORSHIPS
      ADDRESS*          WITH THE FUND      TIME SERVED      DURING PAST FIVE YEARS        OVERSEEN                HELD BY DIRECTOR
- --------------------- ---------------- ---------------- ----------------------------- ---------------- -----------------------------

<S>                    <C>                <C>              <C>                                <C>                        <C>
  David L. Meister     Director elected   Term as          Chairman and Chief                 18                         None
        (63)           by Preferred       Director         Executive Officer of The
                       Stockholders       expires          Tennis Channel (since
                                          annually;        June 2000); and Chief
                                          Director since   Executive Officer of
                                          1986             Seniorlife.com (from
                                                           December 1999 to May
                                                           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 2006;    Hill House, Inc. and                          companies constituting the
                                          Director since   Managing Director/Equity                      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, 2003, and thereafter until his
        respective successor is duly elected and qualified.


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

                                     18
<PAGE>

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


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

- ---------------
*    As of the date of this Statement of Additional Information, the aggregate
     dollar range equity securities in the Fund held by Mr. Fetting
     was $10,001-$50,000.
**   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.

         Mr. Royce has sole voting power and sole investment power as to the
shares beneficially owned by him. As of September 22, 2003, all Directors and
officers of the Fund as a group (13 persons) beneficially owned 1,370,344 shares
of the Fund's Common Stock, constituting 14.83% of the outstanding shares, and
2,000 shares of its Preferred Stock, constituting less than .3% 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,

                                       19
<PAGE>

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.


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)

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

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

                                       20
<PAGE>

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 transactions for the Fund and the brokers' provision of brokerage and
research services to Royce.


         In particular, the Board of Directors compared the investment advisory
fee rate, the annual net expense ratio, and the risk-adjusted investment
performance of the Fund to a peer group selected by Morningstar that consisted
of 11 other funds with substantially similar investment objectives and policies
plus funds in Morningstar's small-cap value category. As set forth in the
Prospectus under the heading "Investment Advisory and Other Services - Advisory
Fee," 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 (including assets obtained
from the sale of Preferred Stock) for each month during the term of the
agreement.

         With respect to investment advisory fee rates, the Board of Directors
noted that the Fund's fee was lower than the peer group average and less than
seven other funds in the peer group. The Board of Directors also considered the
fact that Royce volunteered to waive the portion of its investment advisory fee
attributable to 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 failed to exceed the dividend rate on those
assets to be a positive factor. With respect to annual net expense ratios, even
with increased stockholder meeting costs arising from a proxy contest, the Board
of Directors observed that the Fund's annual net expense ratio on total net
assets (which includes assets attributable to the liquidation preference of the
7.45% Preferred) placed the Fund within the third quartile for funds in the peer
group and in the second quartile for funds in Morningstar's small-cap value
category. Adjusting for the increased stockholder meeting costs described above,
the Fund would have placed in the first quartile for funds in Morningstar's
small-cap value category.

         Because the Fund uses a risk-averse approach to investing, the Board of
Directors believed that risk-adjusted performance continued to be an appropriate
measure of the Fund's investment performance. For the most recent five-year
period, the Fund's risk-adjusted investment performance exceeded the averages
for the peer group and Morningstar's small-cap value category, placing the Fund
within the second quartile for funds in the peer group and Morningstar's
small-cap value category.

         After its review of the above-described matters, the Board of Directors
approved the continuation of the Investment Advisory Agreement between the Fund
and Royce. The Board of Directors was advised by separate legal counsel in
connection with its review of the investment advisory arrangements of the Fund.


                                       21
<PAGE>

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 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.

                                       22
<PAGE>

                     INVESTMENT ADVISORY AND OTHER SERVICES

ADVISORY FEE

         For the years ended December 31, 2002, 2001 and 2000, Royce received
investment advisory fees from the Fund of $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 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 $73,880,
$73,253 and $75,123 in fees to the Fund's custodian and transfer agent.


                                       23
<PAGE>

                    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 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.

                                       24
<PAGE>

         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 $263,061, $135,156 and
$167,182, 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 matters are brought to the attention of portfolio manager(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

                                       25
<PAGE>

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.


                                BOOK-ENTRY SYSTEM

         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. The
Cumulative Preferred Stock will be held in book-entry only form. Shares of
Cumulative Preferred Stock will not be delivered in certificated form to
individual purchasers thereof. The laws of some jurisdictions require that
certain purchasers of Cumulative Preferred Stock take physical delivery of such
securities in certificated form. Such limits and laws may impair the ability to
transfer beneficial interests in shares of Cumulative Preferred Stock.

                                       26
<PAGE>

         DTC has provided us with the following information: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the United States Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing corporation"
registered under Section 17A of the Securities Exchange Act of 1934, as amended.
DTC holds securities that its participants ("Direct Participants") deposit with
DTC. DTC also facilitates the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participants' accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.

         Other organizations, such as securities brokers and dealers, banks and
trust companies that work through a Direct Participant, also use DTC's
book-entry system. The rules that apply to DTC and its participants are on file
with the Securities and Exchange Commission.

         A number of Direct Participants, together with the New York Stock
Exchange, Inc., The American Stock Exchange LLC and the National Association of
Securities Dealers, Inc., own DTC.

         DTC's ability to perform properly its services is also dependent upon
other parties, including, but not limited to, issuers and their agents, as well
as DTC's participants, third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others.

         The information in this section concerning DTC and DTC's system has
been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.


                              FINANCIAL STATEMENTS


         The audited financial statements for the fiscal year ended December 31,
2002, together with the report of Tait, Weller & Baker thereon, and the
unaudited financial for the six months ended June 30, 2003, are included below
in this Statement of Additional Information.


                                       27



<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

SCHEDULE OF INVESTMENTS                                        DECEMBER 31, 2002
- --------------------------------------------------------------------------------
COMMON STOCKS - 77.3%
                                                       SHARES             VALUE
                                                       ------             -----

CONSUMER PRODUCTS - 6.5%
Apparel and Shoes - 1.5%
    Nautica Enterprises (a)                           104,000     $   1,155,440
                                                                  --------------

Home Furnishing/Appliances - 1.1%
    Natuzzi ADR (b)                                    83,800           851,408
                                                                  --------------

Sports and Recreation - 3.0%
   +CALLAWAY GOLF (c)                                 100,000         1,325,000
    Monaco Coach (a)                                   61,350         1,015,342
                                                                  --------------
                                                                      2,340,342
                                                                  --------------
Other Consumer Products - 0.9%
    Oakley (a)                                         69,100           709,657
                                                                  --------------
TOTAL (Cost $4,838,569)                                               5,056,847
                                                                  ==============

CONSUMER SERVICES - 4.6%
Direct Marketing - 1.9%
   +NU SKIN ENTERPRISES CL. A                         127,000         1,520,190
                                                                  --------------

Retail Stores - 2.7%
    Big Lots (a)                                       89,400         1,182,762
    Charming Shoppes (a)                              216,000           902,880
                                                                  --------------
                                                                      2,085,642
                                                                  --------------
TOTAL (Cost $2,918,318)                                               3,605,832
                                                                  ==============

FINANCIAL INTERMEDIARIES - 6.8%
Insurance - 6.2%
    PROASSURANCE (a)                                  124,255         2,609,355
    WHITE MOUNTAINS INSURANCE GROUP (c)                 4,000         1,292,000
    Zenith National Insurance                          39,800           936,096
                                                                  --------------
                                                                      4,837,451
                                                                  --------------
Securities Brokers - 0.6%
    E*TRADE Group (a,c)                               100,000           486,000
                                                                  --------------
TOTAL (Cost $3,274,573)                                               5,323,451
                                                                  ==============

FINANCIAL SERVICES - 2.3%
Insurance Brokers - 1.4%
    Gallagher (Arthur J.) & Company                    36,000         1,057,680
                                                                  --------------

Investment Management - 0.9%
   +U.S. Global Investors Cl. A (a)                   295,605           723,937
                                                                  --------------
TOTAL (Cost $913,723)                                                 1,781,617
                                                                  ==============

HEALTH - 13.2%
Drugs and Biotech - 8.2%
   +Antigenics (a,c)                                   90,000           921,600
   +Emisphere Technologies (a)                        200,000           696,000
   +ENDO PHARMACEUTICALS HOLDINGS (a)                 200,000         1,539,800
   +Gene Logic (a)                                     89,000           559,810
    Lexicon Genetics (a)                              150,000           709,500
   +Perrigo (a)                                        87,300         1,060,695
   +VIVUS (a,c)                                       250,000           932,500
                                                                  --------------
                                                                      6,419,905
                                                                  --------------
Health Services - 0.8%
    Covance (a,c)                                      25,000           614,750
                                                                  --------------

Personal Care - 2.0%
    OCULAR SCIENCES (a)                               100,000         1,552,000
                                                                  --------------

Surgical Products and Devices - 2.2%
    Arrow International                                30,200         1,228,234
   +VISX (a)                                           50,000           479,000
                                                                  --------------
                                                                      1,707,234
                                                                  --------------
TOTAL (Cost $10,273,863)                                             10,293,889
                                                                  ==============

INDUSTRIAL PRODUCTS - 12.5%
Building Systems and Components - 3.0%
    SIMPSON MANUFACTURING (a)                          70,000         2,303,000
                                                                  --------------

Construction Materials - 3.1%
    FLORIDA ROCK INDUSTRIES                            63,350         2,410,467
                                                                  --------------

Machinery - 5.2%
    LINCOLN ELECTRIC HOLDINGS                         101,600         2,352,040
    WOODWARD GOVERNOR                                  40,000         1,740,000
                                                                  --------------
                                                                      4,092,040
                                                                  --------------

Other Industrial Products - 1.2%
    Wescast Industries Cl. A                           37,700           938,730
                                                                  --------------
TOTAL (Cost $6,861,083)                                               9,744,237
                                                                  ==============

INDUSTRIAL SERVICES - 5.9%
Commercial Services - 3.7%
    Carlisle Holdings (a)                             400,000         1,100,000
    CORNELL COMPANIES (a)                             150,000         1,350,000
    On Assignment (a)                                  50,000           426,000
                                                                  --------------
                                                                      2,876,000
                                                                  --------------

Engineering and Construction - 2.2%
   +DYCOM INDUSTRIES (a)                              132,500         1,755,625
                                                                  --------------
TOTAL (Cost $3,810,026)                                               4,631,625
                                                                  ==============

NATURAL RESOURCES - 13.1%
Energy Services - 1.7%
    INPUT/OUTPUT (a)                                  300,000         1,275,000
                                                                  --------------

Oil and Gas - 4.4%
    TOM BROWN (a)                                      68,800         1,726,880
    3TEC ENERGY (a)                                   120,000         1,702,800
                                                                  --------------
                                                                      3,429,680
                                                                  --------------

Precious Metals and Mining - 7.0%
    ANGLOGOLD ADR (b)                                  54,600         1,870,596
   +GLAMIS GOLD (a,c)                                 150,000         1,701,000
   +GOLDCORP                                          150,000         1,908,000
                                                                  --------------
                                                                      5,479,596
                                                                  --------------
TOTAL (Cost $7,540,265)                                              10,184,276
                                                                  ==============

TECHNOLOGY - 12.4%
Aerospace/Defense - 0.4%
    Curtiss-Wright                                      4,800           306,336
                                                                  --------------

Components and Systems - 2.4%
    Dionex (a)                                         20,000           594,200
    Kronos (a)                                         12,750           471,623
   +REMEC (a)                                         200,000           776,000
                                                                  --------------
                                                                      1,841,823
                                                                  --------------

Distribution - 1.4%
    Richardson Electronics (c)                        129,000         1,117,140
                                                                  --------------


                                       28
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

SCHEDULE OF INVESTMENTS                                        DECEMBER 31, 2002
- --------------------------------------------------------------------------------
                                                       SHARES             VALUE
                                                       ------             -----
TECHNOLOGY (CONTINUED)
IT Services - 2.7%
    PEROT SYSTEMS CL. A (a)                           133,600     $   1,432,192
    Syntel (a)                                         30,200           634,502
                                                                  --------------
                                                                      2,066,694
                                                                  --------------

Semiconductors and Equipment - 0.8%
    Exar (a)                                           50,000           620,000
                                                                  --------------

Software - 2.6%
    JDA Software Group (a,c)                           70,000           676,200
   +Lightspan (a)                                     669,500           703,644
   +Transaction Systems Architects Cl. A (a)          100,000           650,000
                                                                  --------------
                                                                      2,029,844
                                                                  --------------

Telecommunication - 2.0%
   +ANAREN (a,c)                                      140,000         1,232,000
   +Somera Communications (a,c)                       130,000           351,000
                                                                  --------------
                                                                      1,583,000
                                                                  --------------
TOTAL (Cost $9,079,144)                                               9,564,837
                                                                  ==============
TOTAL COMMON STOCKS
    (Cost $49,509,564)                                               60,186,611
                                                                  --------------

                                                    PRINCIPAL
                                                      AMOUNT
                                                    ---------
CORPORATE BONDS - 2.9%
+E*TRADE Group 6.00%
    Conv. Sub. Note due 2/1/07                     $3,000,000     $   2,250,000
                                                                  --------------
TOTAL CORPORATE BONDS
    (Cost $2,147,894)                                                 2,250,000
                                                                  ==============
U.S. TREASURY OBLIGATIONS - 7.0%
U.S. Treasury Notes
    7.25%, due 8/15/04                              5,000,000         5,469,335
                                                                  --------------
TOTAL U.S. TREASURY OBLIGATIONS
    (Cost $5,047,341)                                                 5,469,335
                                                                  ==============
REPURCHASE AGREEMENT - 12.8%
State Street Bank & Trust Company,
    0.50% dated 12/31/02, due 1/2/03,
    maturity value $9,943,276
    (collateralized by U.S. Treasury Notes,
    5.00% due 8/15/11, valued at $10,145,560)
    (Cost $9,943,000)                                                 9,943,000
                                                                  ==============

TOTAL INVESTMENTS - 100.0%
    (Cost $66,647,799)                                               77,848,946

CASH AND OTHER ASSETS
    LESS LIABILITIES                                                    107,020

PREFERRED STOCK                                                     (20,000,000)
                                                                  --------------

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS                      $  57,955,966
                                                                  ==============

- --------------------------------------------------------------------------------
(a)  Non-income producing.
(b)  American Depository Receipt.
(c)  A portion of these securities were on loan at December 31, 2002. Total
     market value of loaned securities at December 31, 2002 was $1,242,139.
(+)  New additions in 2002.
     BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF
     DECEMBER 31, 2002 MARKET VALUE.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $66,972,929. At December 31, 2002, net unrealized appreciation for
all securities was $10,876,017, consisting of aggregate gross unrealized
appreciation of $14,442,522 and aggregate gross unrealized depreciation of
$3,566,505. The primary differences in book and tax basis cost is the timing of
the recognition of losses on securities sold and amortization of discount for
book and tax purposes.


   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       29
<PAGE>


ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES                            DECEMBER 31, 2002
- --------------------------------------------------------------------------------
ASSETS:
Investments at value (identified cost $56,704,799)                  $67,905,946
Repurchase agreement (at cost and value)                              9,943,000
Cash                                                                        333
Collateral from brokers on securities loaned                          1,295,145
Receivable for dividends and interest                                   240,052
Prepaid expenses                                                          2,423
- --------------------------------------------------------------------------------
    Total Assets                                                     79,386,899
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for collateral on securities loaned                           1,295,145
Payable for investment advisory fee                                      49,620
Preferred dividends accrued but not yet declared                         33,112
Accrued expenses                                                         53,056
- --------------------------------------------------------------------------------
    Total Liabilities                                                 1,430,933
- --------------------------------------------------------------------------------
PREFERRED STOCK:
7.45% Cumulative Preferred Stock - $0.001 par value,
  $25 liquidation value per share; 800,000 shares outstanding        20,000,000
- --------------------------------------------------------------------------------
    Total Preferred Stock                                            20,000,000
- --------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS                        $57,955,966
================================================================================
ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Par value of Common Stock - $0.001 per share;
  9,241,025 shares outstanding (100,000,000 shares authorized)      $     9,241
Additional paid-in capital                                           45,713,027
Accumulated net realized gain on investments                          1,065,663
Net unrealized appreciation on investments                           11,201,147
Preferred dividends accrued but not yet declared                        (33,112)
- --------------------------------------------------------------------------------
Net Assets applicable to Common Stockholders
  (net asset value per share - $6.27)                               $57,955,966
================================================================================

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
                                                    Year ended       Year ended
                                                   December 31,     December 31,
                                                       2002             2001
                                                   ------------     ------------
INVESTMENT OPERATIONS:
    Net investment income (loss)                    $  (103,396)    $   431,263
    Net realized gain on investments                  1,317,847       2,603,772
    Net change in unrealized appreciation
      on investments                                 (8,047,125)      4,458,997
- --------------------------------------------------------------------------------
       Net increase (decrease) in net assets
         resulting from investment operations        (6,832,674)      7,494,032
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
    Net investment income                              (272,620)       (321,840)
    Net realized gain on investments                 (1,217,380)     (1,168,160)
- --------------------------------------------------------------------------------
      Total distributions to Preferred Stockholders  (1,490,000)     (1,490,000)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO
  COMMON STOCKHOLDERS RESULTING FROM INVESTMENT
  OPERATIONS                                         (8,322,674)      6,004,032
================================================================================
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
    Net investment income                              (150,865)       (272,127)
    Net realized gain on investments                   (673,654)       (987,720)
- --------------------------------------------------------------------------------
      Total distributions to Common Stockholders       (824,519)     (1,259,847)
- --------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
    Reinvestment of distributions to Common
      Stockholders                                      449,516         976,135
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE
  TO COMMON STOCKHOLDERS                             (8,697,677)      5,720,320
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
    Beginning of year                                66,653,643      60,933,323
- --------------------------------------------------------------------------------
    End of year (including undistributed net
      investment income of $423,485 in 2001)        $57,955,966     $66,653,643
================================================================================

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       30
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

STATEMENT OF OPERATIONS                             YEAR ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
    Interest                                                        $   684,730
    Dividends                                                           400,374
- --------------------------------------------------------------------------------
Total income                                                          1,085,104
- --------------------------------------------------------------------------------
Expenses:
    Investment advisory fees                                            833,072
    Stockholder meeting costs                                           212,505
    Custody and transfer agent fees                                      73,880
    Professional fees                                                    34,460
    Stockholder reports                                                  37,213
    Directors' fees                                                      34,053
    Administrative and office facilities expenses                        21,538
    Other expenses                                                       59,038
- --------------------------------------------------------------------------------
Total expenses                                                        1,305,759
Fees waived by investment adviser                                      (117,259)
- --------------------------------------------------------------------------------
Net expenses                                                          1,188,500
- --------------------------------------------------------------------------------
Net investment income (loss)                                           (103,396)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments                                      1,317,847
Net change in unrealized appreciation on investments                 (8,047,125)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments               (6,729,278)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS      (6,832,674)
================================================================================
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS                        (1,490,000)
================================================================================
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
  RESULTING FROM INVESTMENT OPERATIONS                              $(8,322,674)
================================================================================

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       31
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.

<TABLE>
<CAPTION>

                                                                                      Years ended December 31,
                                                                ------------------------------------------------------------------
                                                                        2002       2001        2000         1999        1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>         <C>        <C>          <C>         <C>
NET ASSET VALUE, BEGINNING OF PERIOD                                    $7.28       $6.77      $5.94        $5.63       $6.04
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
   Net investment income (loss)                                         (0.01)       0.05       0.12         0.08        0.12
   Net realized and unrealized gain (loss) on investments               (0.74)       0.79       1.26         0.58       (0.35)
- ----------------------------------------------------------------------------------------------------------------------------------
      Total investment operations                                       (0.75)       0.84       1.38         0.66       (0.23)
- ----------------------------------------------------------------------------------------------------------------------------------
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)
- ----------------------------------------------------------------------------------------------------------------------------------
      Total distributions to Preferred Stockholders                     (0.16)      (0.17)     (0.17)       (0.18)      (0.18)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
   STOCKHOLDERS RESULTING FROM INVESTMENT OPERATIONS                    (0.91)       0.67       1.21         0.48       (0.41)
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
   Net investment income                                                (0.02)      (0.03)     (0.06)       (0.01)          -
   Net realized gain on investments                                     (0.07)      (0.11)     (0.28)       (0.14)          -
- ----------------------------------------------------------------------------------------------------------------------------------
      Total distributions to Common Stockholders                        (0.09)      (0.14)     (0.34)       (0.15)          -
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
   Effect of reinvestment of distributions by Common Stockholders       (0.01)      (0.02)     (0.04)       (0.02)          -
- ----------------------------------------------------------------------------------------------------------------------------------
      Total capital stock transactions                                  (0.01)      (0.02)     (0.04)       (0.02)          -
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD                                          $6.27       $7.28      $6.77        $5.94       $5.63
==================================================================================================================================
MARKET VALUE, END OF PERIOD                                             $5.56       $6.65      $5.69        $4.72       $4.88
==================================================================================================================================
TOTAL RETURN (a):
Market Value                                                            (15.1)%      19.7%      27.9%        (0.3)%      (3.7)%
Net Asset Value                                                         (12.5)%      10.0%      20.9%         8.7%       (6.8)%
RATIOS BASED ON AVERAGE NET ASSETS APPLICABLE TO
   COMMON STOCKHOLDERS:
Total expenses (b,c)                                                     1.88%       1.47%      1.44%        1.51%       1.62%
   Management fee expense                                                1.13%       1.11%      1.00%        1.00%       1.14%
   Other operating expenses                                              0.75%       0.36%      0.44%        0.51%       0.48%
Net investment income (loss)                                            (0.16)%      0.70%      1.93%        1.47%       1.95%
SUPPLEMENTAL DATA:
Net Assets Applicable to Common Stockholders, End of Period
  (in thousands)                                                      $57,956     $66,654    $60,933      $51,003     $47,457
Liquidation Value of Preferred Stock, End of Period
  (in thousands)                                                      $20,000     $20,000    $20,000      $20,000     $20,000
Portfolio Turnover Rate                                                    61%         54%        69%          60%         90%
PREFERRED STOCK:
Total shares outstanding                                              800,000     800,000    800,000      800,000     800,000
Asset coverage per share                                               $97.44     $108.32    $101.17       $88.75      $84.32
Liquidation preference per share                                       $25.00      $25.00     $25.00       $25.00      $25.00
Average market value per share (d)                                     $25.64      $25.09     $22.23       $24.00      $25.16
==================================================================================================================================
</TABLE>
(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 including liquidation value
    of Preferred Stock were 1.43%, 1.11%, 1.05%, 1.06% and 1.16% for the periods
    ended December 31, 2002, 2001, 2000, 1999 and 1998, 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% and 1.88% for the periods ended December 31, 2002, 2001,
    2000, 1999 and 1998, respectively.

(d) The average of month-end market values during the period.


                                       32
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
       Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end
   investment company. The Fund commenced operations on March 2, 1988 and Royce
   & Associates,LLC ("Royce") assumed investment management responsibility for
   the Fund on November 1, 1996.

       The preparation of financial statements in conformity with accounting
   principles generally accepted in the United States of America requires
   management to make estimates and assumptions that affect the reported amounts
   of assets and liabilities and the disclosure of contingent assets and
   liabilities at the date of the financial statements, and the reported amounts
   of income and expenses during the reporting period. Actual results could
   differ from those estimates.

   VALUATION OF INVESTMENTS:
       Securities listed on an exchange or on the Nasdaq National Market
   System (NMS) are valued on the basis of the last reported sale prior to
   the time the valuation is made or, if no sale is reported for such day,
   at their bid price for exchange-listed securities and at the average of
   their bid and asked prices for Nasdaq NMS securities. Quotations are
   taken from the market where the security is primarily traded. Other
   over-the-counter securities for which market quotations are readily
   available are valued at their bid price. Securities for which market
   quotations are not readily available are valued at their fair value under
   procedures established by the Fund's Board of Directors. Bonds and other
   fixed income securities may be valued by reference to other securities
   with comparable ratings, interest rates and maturities, using established
   independent pricing services.

   INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
       Investment transactions are accounted for on the trade date. Dividend
   income is recorded on the ex-dividend date and any non-cash dividend income
   is recorded at the fair market value of the securities received. Interest
   income is recorded on the accrual basis. Realized gains and losses from
   investment transactions are determined on the basis of identified cost for
   book and tax purposes.

   EXPENSES:
       The Fund incurs direct and indirect expenses. Expenses directly
   attributable to the Fund are charged to the Fund's operations, while expenses
   applicable to more than one of the Royce Funds are allocated in an equitable
   manner. Allocated personnel and occupancy costs related to The Royce Funds
   are included in administrative and office facilities expenses. The Fund has
   adopted a deferred fee agreement that allows the Fund's Directors to defer
   the receipt of all or a portion of Directors' Fees otherwise payable. The
   deferred fees remain invested in certain Royce Funds until distributed in
   accordance with the agreement.

   TAXES:
       As a qualified regulated investment company under Subchapter M of the
   Internal Revenue Code, the Fund is not subject to income taxes to the extent
   that it distributes substantially all of its taxable income for its fiscal
   year. The Schedule of Investments includes information regarding income taxes
   under the caption "Income Tax Information".

   DISTRIBUTIONS:
       Distributions to Common Stockholders are recorded on the ex-dividend date
   and paid annually in December. Distributions to Preferred Stockholders are
   recorded on an accrual basis and paid quarterly. Distributions are determined
   in accordance with income tax regulations that may differ from accounting
   principles generally accepted in the United States of America. Permanent book
   and tax basis differences relating to stockholder distributions will result
   in reclassifications within the capital accounts. Undistributed net
   investment income may include temporary book and tax basis differences, which
   will reverse in a subsequent period. Any taxable income or gain remaining
   undistributed at fiscal year end is distributed in the following year.

   REPURCHASE AGREEMENTS:
       The Fund enters into repurchase agreements with respect to its portfolio
   securities solely with State Street Bank and Trust Company ("SSB&T"), the
   custodian of its assets. The Fund restricts repurchase agreements to
   maturities of no more than seven days. Securities pledged as collateral for
   repurchase agreements, which are held by SSB&T until maturity of the
   repurchase agreements, are marked-to-market daily and maintained at a value
   at least equal to the principal amount of the repurchase agreement (including
   accrued interest). Repurchase agreements could involve certain risks in the
   event of default or insolvency of SSB&T, including possible delays or
   restrictions upon the ability of the Fund to dispose of the underlying
   securities.

2. SECURITIES LENDING:
           The Fund loans securities to qualified institutional investors for
   the purpose of realizing additional income. This income is included in
   interest income. Collateral on all securities loaned for the Fund is accepted
   in cash and is invested temporarily, typically, and specifically at December
   31, 2002, in a registered money market fund, by the custodian. The collateral
   is equal to at least 100% of the current market value of the loaned
   securities.


                                       33
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

3. CAPITAL STOCK:
       The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock
   outstanding. The stock has a liquidation preference of $25.00 per share.
       Under the Investment Company Act of 1940, the Fund is required to
   maintain an asset coverage of at least 200% for the Preferred Stock. In
   addition, pursuant to the Rating Agency Guidelines established by Moody's,
   the Fund is required to maintain a certain discounted asset coverage. The
   Fund has met these requirements since issuing the Preferred Stock.
       The Fund is required to allocate long-term capital gain distributions
   and other types of income proportionately to distributions made to holders of
   shares of Common Stock and Preferred Stock. To the extent that distributions
   on the shares of Preferred Stock are not paid from long-term capital gains,
   net investment income or net short-term capital gains, they will represent a
   return of capital.
       The Fund issued 79,701 and 162,419 shares of Common Stock as reinvestment
   of distributions by Common Stockholders for the years ended December 31, 2002
   and 2001, respectively.

4. INVESTMENT ADVISORY AGREEMENT:
       The Investment Advisory Agreement between Royce and the Fund provides for
   fees to be paid at an annual rate of 1.0% of the Fund's average daily net
   assets applicable to Common Stockholders plus liquidation value of Preferred
   Stock. Royce has voluntarily committed to waive the portion of its investment
   advisory fee attributable to the Fund's Preferred Stock for any month in
   which the Fund's average annual NAV total return since issuance of the
   Preferred Stock fails to exceed the Preferred Stock's dividend rate.
       For the year ended December 31, 2002, the Fund accrued and paid Royce
   advisory fees totaling $715,813, which is net of $117,259 voluntarily waived
   by Royce.

5. DISTRIBUTIONS TO STOCKHOLDERS:
     The tax character of distributions paid to stockholders during 2002
   and 2001 was as follows:

     ---------------------------------------------------------------------
     Distributions paid from:             2002               2001
                                          ----               ----

       Ordinary income                  $  423,485         $  593,967

       Long-term capital gain            1,891,034          2,155,880
                                        ----------         ----------
                                        $2,314,519         $2,749,847
                                        ==========         ==========
     ---------------------------------------------------------------------

     As of December 31, 2002, the tax basis components of distributable
   earnings included in stockholders' equity were as follows:

     ----------------------------------------------
     Undistributed long-term gain       $ 1,390,793

     Unrealized appreciation             10,876,017

     Accrued preferred distributions        (33,112)
                                        -----------
                                        $12,233,698
                                        ===========
     ----------------------------------------------

6. PURCHASES AND SALES OF INVESTMENT SECURITIES:
       For the year ended December 31, 2002, the cost of purchases and proceeds
   from sales of investment securities, other than short-term securities,
   amounted to $43,961,561 and $47,800,885, respectively.

7. PREFERRED STOCK PRESENTATION
       To reflect recent accounting guidance from the Securities and Exchange
   Commission, the Statement of Assets and Liabilities has been modified to
   present the liquidation value of Preferred Stock below Liabilities and above
   Net Assets Applicable to Common Stockholders. As revised, Preferred Stock is
   no longer included as a component of net assets of the Fund. Likewise, the
   Statement of Operations, the Statement of Changes in Net Assets, and the
   Financial Highlights have been revised to show distributions to Preferred
   Stockholders as a component of the net decrease in net assets applicable to
   Common Stockholders resulting from investment operations. These
   modifications do not change the amount of net assets applicable to Common
   Stockholders, the net asset value per share of Common Stock, or the total
   return per share of Common Stock.


                                       34
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ROYCE FOCUS TRUST, INC.
    We have audited the accompanying statement of assets and liabilities of
Royce Focus Trust, Inc., including the schedule of investments, as of December
31, 2002, and the related statement of operations for the year ended, and the
statement of changes in net assets for the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of December 31, 2002, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements and financial highlights referred
to above and audited by us present fairly, in all material respects, the
financial position of Royce Focus Trust, Inc. at December 31, 2002, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.

                                             TAIT, WELLER & BAKER



Philadelphia, PA
January 15, 2003, except for Note 7, as to which the date is September 12, 2003


                                       35
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

SCHEDULE OF INVESTMENTS                                JUNE 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
COMMON STOCKS - 75.3%
                                                       SHARES             VALUE
                                                       ------             -----
CONSUMER PRODUCTS - 6.2%
Sports and Recreation - 3.6%
    Callaway Golf                                     100,000    $    1,322,000
   +WINNEBAGO INDUSTRIES (c)                           50,000         1,895,000
                                                                 ---------------
                                                                      3,217,000
                                                                 ---------------
Other Consumer Products - 2.6%
    Oakley (a)                                         75,000           882,750
   +YANKEE CANDLE COMPANY (a)                          60,000         1,393,200
                                                                 ---------------
                                                                      2,275,950
                                                                 ---------------
TOTAL (Cost $4,305,372)                                               5,492,950
                                                                 ===============

CONSUMER SERVICES - 5.2%
Direct Marketing - 2.4%
    NU SKIN ENTERPRISES CL. A                         200,000         2,090,000
                                                                 ---------------
    Retail Stores - 2.8%
    Big Lots (a)                                       89,400         1,344,576
    Charming Shoppes (a,c)                            230,000         1,143,100
                                                                 ---------------
                                                                      2,487,676
                                                                 ---------------
TOTAL (Cost $3,614,159)                                               4,577,676
                                                                 ===============

FINANCIAL INTERMEDIARIES - 9.4%
Insurance - 5.1%
    ProAssurance Corporation (a)                       47,155         1,272,713
    WHITE MOUNTAINS INSURANCE GROUP (c)                 4,000         1,580,000
    ZENITH NATIONAL INSURANCE                          59,000         1,681,500
                                                                 ---------------
                                                                      4,534,213
                                                                 ---------------

Securities Brokers - 1.5%
    E*TRADE GROUP (a)                                 150,000         1,275,000
                                                                 ---------------

Other Financial Intermediaries - 2.8%
   +TSX GROUP                                         120,000         2,434,077
                                                                 ---------------
TOTAL (Cost $4,622,704)                                               8,243,290
                                                                 ===============

FINANCIAL SERVICES - 1.7%
Information and Processing - 1.1%
   +eFunds Corporation (a)                             85,000           980,050
                                                                 ---------------

Investment Management - 0.6%
    U.S. Global Investors Cl. A (a,c)                 295,605           546,869
                                                                 ---------------
TOTAL (Cost $1,566,006)                                               1,526,919
                                                                 ===============

HEALTH - 10.5%
Drugs and Biotech - 8.9%
    Antigenics (a,c)                                   80,000           921,600
   +Durect Corporation (a,c)                          220,000           530,200
    Emisphere Technologies (a)                        200,000           720,000
    ENDO PHARMACEUTICALS HOLDINGS (a)                 100,000         1,692,000
    Lexicon Genetics (a)                              200,000         1,342,000
    Perrigo Company                                    87,300         1,365,372
    VIVUS (a,c)                                       250,000         1,285,000
                                                                 ---------------
                                                                      7,856,172
                                                                 ---------------

Personal Care - 1.6%
    OCULAR SCIENCES (a)                                70,000         1,389,500
                                                                 ---------------
TOTAL (Cost $7,522,624)                                               9,245,672
                                                                 ===============

INDUSTRIAL PRODUCTS - 9.1%
Building Systems and Components - 2.9%
    SIMPSON MANUFACTURING (a)                          70,000         2,562,000
                                                                 ---------------
Construction Materials - 2.7%
    FLORIDA ROCK INDUSTRIES                            58,350         2,408,688
                                                                 ---------------

Machinery - 3.5%
    LINCOLN ELECTRIC HOLDINGS                          99,800         2,036,918
    Woodward Governor                                  24,400         1,049,200
                                                                 ---------------
                                                                      3,086,118
                                                                 ---------------
TOTAL (Cost $4,617,941)                                               8,056,806
                                                                 ===============

INDUSTRIAL SERVICES - 7.2%
Commercial Services - 5.3%
    Carlisle Holdings (a)                             400,000         1,320,000
    Cornell Companies (a)                              75,000         1,135,500
    Covance (a)                                        50,000           905,000
   +West Corporation (a)                               50,000         1,332,500
                                                                 ---------------
                                                                      4,693,000
                                                                 ---------------

Engineering and Construction - 1.9%
    DYCOM INDUSTRIES (a)                              100,000         1,630,000
                                                                 ---------------
TOTAL (Cost $3,871,542)                                               6,323,000
                                                                 ===============

NATURAL RESOURCES - 12.2%
Energy Services - 2.7%
   +Ensign Resource Service Group                      53,000           789,674
    INPUT/OUTPUT (a)                                  300,000         1,614,000
                                                                 ---------------
                                                                      2,403,674
                                                                 ---------------

Oil and Gas - 1.6%
    TOM BROWN (a)                                      50,000         1,389,500
                                                                 ---------------

Precious Metals and Mining - 7.9%
    AngloGold ADR b                                    25,000           797,500
   +APEX SILVER MINES (a)                             100,000         1,475,000
    Glamis Gold (a)                                   125,000         1,433,750
    GOLDCORP                                          180,000         2,160,000
   +Meridian Gold (a)                                  99,800         1,146,702
                                                                 ---------------
                                                                      7,012,952
                                                                 ---------------
TOTAL (Cost $8,749,421)                                              10,806,126
                                                                 ===============

TECHNOLOGY - 13.8%
Components and Systems - 1.6%
    REMEC (a)                                         200,000         1,392,000
                                                                 ---------------

Distribution - 1.2%
    Richardson Electronics                            129,000         1,044,900
                                                                 ---------------

Internet Software and Services - 1.6%
   +Overstock.com (a,c)                               100,000         1,451,000
                                                                 ---------------

IT Services - 3.1%
    PEROT SYSTEMS CL. A (a)                           140,500         1,596,080
    Syntel (a)                                         70,000         1,101,100
                                                                 ---------------
                                                                      2,697,180
                                                                 ---------------

Semiconductors and Equipment - 1.9%
    Exar Corporation (a)                               50,000           791,500
   +ParthusCeva (a,c)                                 109,600           893,240
                                                                 ---------------
                                                                      1,684,740
                                                                 ---------------

Software - 1.6%
    Lightspan (a)                                     750,000           508,500
    Transaction Systems Architects Cl. A (a)          100,000           896,000
                                                                 ---------------
                                                                      1,404,500
                                                                 ---------------


                                       36

<PAGE>


ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

SCHEDULE OF INVESTMENTS                                JUNE 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
                                                       SHARES             VALUE
                                                       ------             -----
TECHNOLOGY (CONTINUED)


Telecommunication - 2.8%
    Anaren (a,c)                                      140,000    $    1,311,800
   +ViaSat (a,c)                                       83,700         1,200,258
                                                                 ---------------
                                                                      2,512,058
                                                                 ---------------


TOTAL (Cost $10,466,402)                                             12,186,378
                                                                 ===============
TOTAL COMMON STOCKS
    (Cost $49,336,171)                                               66,458,817
                                                                 ===============

                                                      PRINCIPAL
                                                       AMOUNT
                                                       ------
CORPORATE BONDS - 3.3%
E*TRADE GROUP 6.00%
    Conv. Sub. Note due 2/1/07                     $3,000,000         2,940,000
                                                                 ---------------


TOTAL CORPORATE BONDS
    (Cost $2,226,761)                                                 2,940,000


GOVERNMENT BONDS - 5.7%
NEW ZEALAND 6.50%, DUE 2/15/06                      8,250,000         5,025,385
                                                                 ---------------

TOTAL GOVERNMENT BONDS
    (Cost $4,910,697)                                                 5,025,385
                                                                 ===============

                                                      PRINCIPAL
                                                       AMOUNT
                                                       ------
U.S. TREASURY OBLIGATIONS - 6.1%
U.S. Treasury Notes
    7.25%, due 8/15/04                              5,000,000        $5,344,725
                                                                 ---------------
TOTAL U.S. TREASURY OBLIGATIONS
    (Cost $5,033,324)                                                 5,344,725
                                                                 ===============

REPURCHASE AGREEMENT - 9.6%
State Street Bank & Trust Company,
    0.30% dated 6/30/03, due 7/1/03,
    maturity value $8,442,070
    (collateralized by U.S. Treasury Bonds,
    6.375% due 8/15/27, valued at $8,613,909)
    (Cost $8,442,000)                                                 8,442,000
                                                                 ===============

TOTAL INVESTMENTS - 100.0%
    (Cost $69,948,953)                                               88,210,927

CASH AND OTHER ASSETS
    LESS LIABILITIES                                                    519,568

PREFERRED STOCK                                                     (20,000,000)
                                                                 ---------------

NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS                     $   68,730,495
                                                                 ===============
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) American Depository Receipt.
(c) A portion of these securities were on loan at June 30, 2003. Total market
    value of loaned securities at June 30, 2003 was $3,305,289.
+   New additions in 2003.
    BOLD INDICATES THE FUND'S LARGEST 20 EQUITY HOLDINGS IN TERMS OF JUNE 30,
    2003 MARKET VALUE.

INCOME TAX INFORMATION: The cost of total investments for Federal income tax
purposes was $70,316,034. At June 30, 2003, net unrealized appreciation for all
securities was $17,894,893, consisting of aggregate gross unrealized
appreciation of $19,366,001 and aggregate gross unrealized depreciation of
$1,471,108. The primary differences in book and tax basis cost is the timing of
the recognition of losses on securities sold and amortization of discount for
book and tax purposes.

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       37
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES                    JUNE 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------

ASSETS:
Investments at value (identified cost $61,506,953)                  $79,768,927
Repurchase agreement (at cost and value)                              8,442,000
Cash                                                                        517
Collateral from brokers on securities loaned                          3,403,611
Receivable for investments sold                                         284,594
Receivable for dividends and interest                                   370,313
Prepaid expenses                                                         11,545
- --------------------------------------------------------------------------------
    Total Assets                                                     92,281,507
- --------------------------------------------------------------------------------

LIABILITIES:
Payable for collateral on securities loaned                           3,403,611
Payable for investment advisory fee                                      56,720
Preferred dividends accrued but not yet declared                         33,112
Accrued expenses                                                         57,569
- --------------------------------------------------------------------------------
    Total Liabilities                                                 3,551,012
- --------------------------------------------------------------------------------

PREFERRED STOCK:
7.45% Cumulative Preferred Stock - $0.001 par value,
  $25 liquidation value per share; 800,000 shares outstanding        20,000,000
- --------------------------------------------------------------------------------
    Total Preferred Stock                                            20,000,000
- --------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS                        $68,730,495
- --------------------------------------------------------------------------------

ANALYSIS OF NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
Par value of Common Stock - $0.001 per share; 9,241,025
  shares outstanding (100,000,000 shares authorized)                $     9,241
Additional paid-in capital                                           45,713,027
Undistributed net investment income                                     165,852
Accumulated net realized gain on investments                          5,356,492
Net unrealized appreciation on investments                           18,263,995
Quarterly and accrued distributions                                    (778,112)
- --------------------------------------------------------------------------------
Net Assets applicable to Common Stockholders
  (net asset value per share - $7.44)                               $68,730,495
================================================================================

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       38

<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

STATEMENT OF OPERATIONS               SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------

INVESTMENT INCOME:
Income:
    Interest                                                        $   401,058
    Dividends                                                           197,770
- --------------------------------------------------------------------------------
Total income                                                            598,828
- --------------------------------------------------------------------------------
Expenses:
    Investment advisory fees                                            392,077
    Custody and transfer agent fees                                      38,899
    Stockholder reports                                                  26,154
    Professional fees                                                    25,830
    Directors' fees                                                      15,771
    Administrative and office facilities expenses                         6,178
    Other expenses                                                       27,244
- --------------------------------------------------------------------------------
Total expenses                                                          532,153
Fees waived by investment adviser                                       (99,177)
- --------------------------------------------------------------------------------
Net expenses                                                            432,976
- --------------------------------------------------------------------------------
Net investment income                                                   165,852
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments                                      4,290,829
Net change in unrealized appreciation on investments                  7,062,848
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments                      11,353,677
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS      11,519,529
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS                                (745,000)
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS
  RESULTING FROM INVESTMENT OPERATIONS                              $10,774,529
================================================================================


STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

                                             Six months ended      Year ended
                                              June 30, 2003        December 31,
                                               (unaudited)            2002
                                             ----------------      -----------

INVESTMENT OPERATIONS:
    Net investment income (loss)               $   165,852          $  (103,396)
    Net realized gain on investments             4,290,829            1,317,847
    Net change in unrealized appreciation
      on investments                             7,062,848           (8,047,125)
- --------------------------------------------------------------------------------
       Net increase (decrease) in net assets
         resulting from investment operations   11,519,529           (6,832,674)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS:
    Net investment income                            -                 (272,620)
    Net realized gain on investments                 -               (1,217,380)
    Quarterly distributions*                      (745,000)               -
- --------------------------------------------------------------------------------
       Total distributions to
         Preferred Stockholders                   (745,000)          (1,490,000)
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
  APPLICABLE TO COMMON STOCKHOLDERS RESULTING
  FROM INVESTMENT OPERATIONS                    10,774,529           (8,322,674)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
    Net investment income                            -                 (150,865)
    Net realized gain on investments                 -                 (673,654)
- --------------------------------------------------------------------------------
       Total distributions to Common
         Stockholders                                -                 (824,519)
- --------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
    Reinvestment of distributions to
      Common Stockholders                            -                  449,516
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
  APPLICABLE TO COMMON STOCKHOLDERS             10,774,529           (8,697,677)
NET ASSETS APPLICABLE TO COMMON STOCKHOLDERS:
    Beginning of period                         57,955,966           66,653,643
- --------------------------------------------------------------------------------
    End of period (including undistributed
      net investment income of $165,852
      in 2003)                                 $68,730,495          $57,955,966
================================================================================
*To be allocated to net investment income and capital gains at year-end.

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       39
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
This table is presented to show selected data for a share of Common Stock
outstanding throughout each period, and to assist stockholders in evaluating the
Fund's performance for the periods presented.

<TABLE>
<CAPTION>

                                     Six months ended            Years ended December 31,
                                      June 30, 2003     --------------------------------------------
                                       (unaudited)      2002      2001      2000      1999      1998
- ----------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>        <C>       <C>       <C>       <C>
NET ASSET VALUE, BEGINNING OF PERIOD      $6.27        $7.28     $6.77     $5.94     $5.63     $6.04
- ----------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
    Net investment income (loss)           0.02        (0.01)     0.05      0.12      0.08      0.12
    Net realized and unrealized
     gain (loss) on investments            1.23        (0.74)     0.79      1.26      0.58     (0.35)
- ----------------------------------------------------------------------------------------------------
       Total investment operations         1.25        (0.75)     0.84      1.38      0.66     (0.23)
- ----------------------------------------------------------------------------------------------------
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)
    Quarterly distributions*              (0.08)         -         -         -         -         -
- ----------------------------------------------------------------------------------------------------
       Total distributions to
         Preferred Stockholders           (0.08)       (0.16)    (0.17)    (0.17)    (0.18)    (0.18)
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
  APPLICABLE TO COMMON STOCKHOLDERS
  RESULTING FROM INVESTMENT OPERATIONS     1.17        (0.91)     0.67      1.21      0.48     (0.41)
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON STOCKHOLDERS:
    Net investment income                   -          (0.02)    (0.03)    (0.06)    (0.01)      -
    Net realized gain on investments        -          (0.07)    (0.11)    (0.28)    (0.14)      -
- ----------------------------------------------------------------------------------------------------
       Total distributions to
         Common Stockholders                -          (0.09)    (0.14)    (0.34)    (0.15)      -
- ----------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS:
    Effect of reinvestment of
      distributions by
      Common Stockholders                   -          (0.01)    (0.02)    (0.04)    (0.02)      -
- ----------------------------------------------------------------------------------------------------
       Total capital stock transactions     -          (0.01)    (0.02)    (0.04)    (0.02)      -
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD            $7.44        $6.27     $7.28     $6.77     $5.94     $5.63
- ----------------------------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD               $6.77        $5.56     $6.65     $5.69     $4.72     $4.88
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (a):
Market Value                               21.8%***    (15.1)%    19.7%     27.9%     (0.3)%    (3.7)%
Net Asset Value                            18.7%***    (12.5)%    10.0%     20.9%      8.7%     (6.8)%
RATIOS BASED ON AVERAGE NET ASSETS
    APPLICABLE TO COMMON STOCKHOLDERS:
Total expenses (b,c)                       1.48%**      1.88%     1.47%     1.44%     1.51%     1.62%
    Management fee expense                 1.00%**      1.13%     1.11%     1.00%     1.00%     1.14%
    Other operating expenses               0.48%**      0.75%     0.36%     0.44%     0.51%     0.48%
Net investment income (loss)               0.57%**     (0.16)%    0.70%     1.93%     1.47%     1.95%
SUPPLEMENTAL DATA:
Net Assets Applicable to Common
  Stockholders, End of Period
  (in thousands)                        $68,730      $57,956   $66,654   $60,933   $51,003   $47,457
Liquidation Value of Preferred Stock,
  End of Period (in thousands)          $20,000      $20,000   $20,000   $20,000   $20,000   $20,000
Portfolio Turnover Rate                      34%          61%       54%       69%       60%       90%
PREFERRED STOCK:
Total shares outstanding                800,000      800,000   800,000   800,000   800,000   800,000
Asset coverage per share                $110.91       $97.44   $108.32   $101.17    $88.75    $84.32
Liquidation preference per share         $25.00       $25.00    $25.00    $25.00    $25.00    $25.00
Average market value per share (d)       $25.62       $25.64    $25.09    $22.23    $24.00    $25.16
- ----------------------------------------------------------------------------------------------------
</TABLE>
(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 including liquidation
    value of Preferred Stock were 1.10%, 1.43%, 1.11%, 1.05%, 1.06% and 1.16%
    for the periods ended June 30, 2003 and December 31, 2002, 2001, 2000, 1999
    and 1998, respectively.
(c) Expense ratios based on average net assets applicable to Common Stockholders
    before waiver of fees by the investment adviser would have been 1.82%,
    2.06%, 1.69%, 1.81%, 1.93% and 1.88% for the periods ended June 30, 2003 and
    December 31, 2002, 2001, 2000, 1999 and 1998, respectively.
(d) The average of month-end market values during the period.

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


                                       40
<PAGE>

ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
       Royce Focus Trust, Inc. (the "Fund") is a diversified closed-end
   investment company. The Fund commenced operations on March 2, 1988 and Royce
   & Associates, LLC ("Royce") assumed investment management responsibility for
   the Fund on November 1, 1996. The preparation of financial statements in
   conformity with accounting principles generally accepted in the United States
   of America requires management to make estimates and assumptions that affect
   the reported amounts of assets and liabilities and the disclosure of
   contingent assets and liabilities at the date of the financial statements,
   and the reported amounts of income and expenses during the reporting period.
   Actual results could differ from those estimates.

   VALUATION OF INVESTMENTS:
       Securities are valued as of the close of trading on the New York Stock
   Exchange (generally 4:00 p.m. Eastern Time) on the valuation date. Securities
   listed on an exchange or the Nasdaq National Market System (NMS) are valued
   at their last reported sales price or official closing price taken from the
   primary market in which each security trades or, if no sale is reported for
   such day, at their bid price for exchange-listed securities and at the
   average of their bid and asked prices for Nasdaq NMS securities. Other
   over-the-counter securities for which market quotations are readily available
   are valued at their bid price. Securities for which market quotations are not
   readily available are valued at their fair value under procedures established
   by the Fund's Board of Directors. Bonds and other fixed income securities may
   be valued by reference to other securities with comparable ratings, interest
   rates and maturities, using established independent pricing services.

   INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
       Investment transactions are accounted for on the trade date. Dividend
   income is recorded on the ex-dividend date and any non-cash dividend income
   is recorded at the fair market value of the securities received. Interest
   income is recorded on the accrual basis. Realized gains and losses from
   investment transactions are determined on the basis of identified cost for
   book and tax purposes.

   EXPENSES:
       The Fund incurs direct and indirect expenses. Expenses directly
   attributable to the Fund are charged to the Fund's operations, while expenses
   applicable to more than one of the Royce Funds are allocated in an equitable
   manner. Allocated personnel and occupancy costs related to The Royce Funds
   are included in administrative and office facilities expenses. The Fund has
   adopted a deferred fee agreement that allows the Fund's Directors to defer
   the receipt of all or a portion of Directors' Fees otherwise payable. The
   deferred fees are invested in certain Royce Funds until distributed in
   accordance with the agreement.

   TAXES:
       As a qualified regulated investment company under Subchapter M of the
   Internal Revenue Code, the Fund is not subject to income taxes to the extent
   that it distributes substantially all of its taxable income for its fiscal
   year. The Schedule of Investments includes information regarding income taxes
   under the caption "Income Tax Information".

   DISTRIBUTIONS:
       Distributions to Common Stockholders are recorded on the ex-dividend date
   and paid annually in December. Distributions to Preferred Stockholders are
   recorded on an accrual basis and paid quarterly. Distributions are determined
   in accordance with income tax regulations that may differ from accounting
   principles generally accepted in the United States of America. Permanent book
   and tax basis differences relating to stockholder distributions will result
   in reclassifications within the capital accounts. Undistributed net
   investment income may include temporary book and tax basis differences, which
   will reverse in a subsequent period. Any taxable income or gain remaining
   undistributed at fiscal year end is distributed in the following year.

   REPURCHASE AGREEMENTS:
       The Fund enters into repurchase agreements with respect to its portfolio
   securities solely with State Street Bank and Trust Company ("SSB&T"), the
   custodian of its assets. The Fund restricts repurchase agreements to
   maturities of no more than seven days. Securities pledged as collateral for
   repurchase agreements, which are held by SSB&T until maturity of the
   repurchase agreements, are marked-to-market daily and maintained at a value
   at least equal to the principal amount of the repurchase agreement (including
   accrued interest). Repurchase agreements could involve certain risks in the
   event of default or insolvency of SSB&T, including possible delays or
   restrictions upon the ability of the Fund to dispose of the underlying
   securities.

   SECURITIES LENDING:
       The Fund loans securities to qualified institutional investors for the
   purpose of realizing additional income. This income is included in interest
   income. Collateral on all securities loaned for the Fund is accepted in cash
   and is invested temporarily, typically, and specifically at June 30, 2003, in
   a registered money market fund, by the custodian. The collateral is equal to
   at least 100% of the current market value of the loaned securities.


                                       41

<PAGE>


ROYCE FOCUS TRUST, INC.
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------

CAPITAL STOCK:
       The Fund currently has 800,000 shares of 7.45% Cumulative Preferred Stock
   outstanding. The stock has a liquidation preference of $25.00 per share.
       Under the Investment Company Act of 1940, the Fund is required to
   maintain an asset coverage of at least 200% for the Preferred Stock. In
   addition, pursuant to the Rating Agency Guidelines established by Moody's,
   the Fund is required to maintain a certain discounted asset coverage. The
   Fund has met these requirements since issuing the Preferred Stock.
       The Fund is required to allocate long-term capital gain distributions and
   other types of income proportionately to distributions made to holders of
   shares of Common Stock and Preferred Stock. To the extent that distributions
   are not paid from long-term capital gains, net investment income or net
   short-term capital gains, they will represent a return of capital.
       The Fund issued 79,701 shares of Common Stock as reinvestment of
   distributions by Common Stockholders for the year ended December 31, 2002.

INVESTMENT ADVISORY AGREEMENT:
       The Investment Advisory Agreement between Royce and the Fund provides for
   fees to be paid at an annual rate of 1.0% of the Fund's average daily net
   assets applicable to Common Stockholders plus the liquidation value of
   Preferred Stock. Royce has voluntarily committed to waive the portion of its
   investment advisory fee attributable to the Fund's Preferred Stock for any
   month in which the Fund's average annual NAV total return since issuance of
   the Preferred Stock fails to exceed the Preferred Stock's dividend rate. For
   the six months ended June 30, 2003, the Fund accrued and paid Royce advisory
   fees totaling $292,900, which is net of $99,177 voluntarily waived by Royce.

PURCHASES AND SALES OF INVESTMENT SECURITIES:
       For the six months ended June 30, 2003, the cost of purchases and
   proceeds from sales of investment securities, other than short-term
   securities, amounted to $23,629,502 and $23,175,577, respectively.

PREFERRED STOCK PRESENTATION:
       To reflect recent accounting guidance from the Securities and Exchange
   Commission, the Statement of Assets and Liabilities has been modified to
   present the liquidation value of Preferred Stock below Liabilities and above
   Net Assets Applicable to Common Stockholders. As revised, Preferred Stock is
   no longer included as a component of net assets of the Fund. Likewise, the
   Statement of Operations, the Statement of Changes in Net Assets, and the
   Financial Highlights have been revised to show distributions to Preferred
   Stockholders as a component of the net increase/decrease in net assets
   applicable to Common Stockholders resulting from investment operations. These
   modifications do not change the amount of net assets applicable to Common
   Stockholders, the net asset value per share of Common Stock, or the total
   return per share of Common Stock.


                                       42
<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 Part B hereof:

                  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 Part B hereof:

                  Schedule of Investments, June 30, 2003; Statement of Assets
                  and Liabilities, June 30, 2003; Statement of Operations for
                  the six months ended June 30, 2003; Statement of Changes in
                  Net Assets for the six months ended June 30, 2003 and for
                  the year ended December 31, 2002; Notes to Financial
                  Statements at June 30, 2003; Financial Highlights for the
                  six months ended June 30, 2003 and for the five fiscal years
                  ended December 31, 2002.

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)      Articles of Amendment dated April 28, 1999.*
         (4)      Form of Articles Supplementary creating the 7.45% Cumulative
                  Preferred  Stock  ("7.45% Preferred"). (2)
         (5)      Form of Articles Supplementary dated January 31, 2003. (3)
         (6)      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. (1)
         (2)      Form of share certificate for 7.45% Preferred. (4)
         (3)      Not applicable.
         (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 September 14, 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 Paying Agreement with State
                  Street (7.45% Preferred). (2)
         (3)      Form of Amendment to Registrar, Transfer Agency and Paying
                  Agency Agreement (Cumulative Preferred Stock)*
         (l)      Opinion and Consent of Venable LLP.*
         (m)      Not applicable.
         (n)      Consent of Tait, Weller & Baker, independent auditors for the
                  Fund.*
         (o)      Not applicable.
<PAGE>

         (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.
  * Filed herewith.


ITEM 25. MARKETING ARRANGEMENTS

         Please see Exhibit (h) to this Registration Statement.


<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.....................................       $  2,023
New York Stock Exchange listing fees..................         20,000
Printing expenses ....................................         13,800
Rating agency fees....................................         10,000
Accounting fees and expenses..........................          7,500
Legal fees and expenses...............................        140,000
Miscellaneous.........................................          3,202
                                                            ------------------
Total.................................................       $196,525
                                                            ==================



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 September 22, 2003:


<TABLE>
<CAPTION>

Title of Class                                                        Number of Record Holders
- --------------------------------------------------------------------------------------------------
<S>                                                                                       <C>
Common Stock, $.001 par value...............................................            1072
7.45% Cumulative Preferred Stock, $.001 par value...........................              12
</TABLE>



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.

<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. PO Box 43011 Providence, RI
                  02940-3011 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.
<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.

<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 9th day of
October, 2003.

                                             ROYCE FOCUS TRUST, INC.
                                             (Registrant)

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

         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>
/s/ Charles M. Royce*                       President (Principal Executive Officer)
- -----------------------------------------   and Director
Charles M. Royce


/s/ John D. Diederich*                      Vice President and Treasurer (Principal
- -----------------------------------------   Financial and Accounting Officer)
John D. Diederich


Donald R. Dwight*                           Director
- -----------------------------------------
Donald R. Dwight


Mark R. Fetting*                            Director
- -----------------------------------------
Mark R. Fetting


Richard M. Galkin*                          Director
- -----------------------------------------
Richard M. Galkin


Stephen L. Isaacs*                          Director
- -----------------------------------------
Stephen L. Isaacs


William L. Koke*                            Director
- -----------------------------------------
William L. Koke


David L. Meister*                           Director
- -----------------------------------------
David L. Meister


G. Peter O'Brien*                           Director
- -----------------------------------------
G. Peter O'Brien


*By: /s/ Charles M. Royce                                                               October 9, 2003
- -----------------------------------------
Charles M. Royce
Attorney-in-Fact
</TABLE>

<PAGE>



                                  EXHIBIT INDEX


Exhibit Number        Document
- --------------        --------
(a)(3)                Articles of Amendment dated April 28, 1999.

                      Form of Articles  Supplementary  creating the ___%
                      Cumulative Preferred Stock (the "Cumulative
(a)(6)                Preferred Stock").
(h)                   Form of Underwriting Agreement.

(j)(2)                Amendment to Custodian Contract dated September 14, 2000.
(j)(3)                Amendment to Custodian Contract dated April 16, 2003.
                      Form of Amendment to Registrar, Transfer Agency and Paying
                      Agency  Agreement
(k)(3)                (Cumulative Preferred Stock)
(l)                   Opinion and Consent of Venable LLP.
(n)                   Consent of Tait, Weller & Baker, independent auditors
                      for the Fund.
(r)                   Code of Ethics.





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.A.3
<SEQUENCE>4
<FILENAME>rft63006_ex-99a3.txt
<DESCRIPTION>ARTICLES OF AMENDMENT DATED APRIL 28, 1999'
<TEXT>















                                 EXHIBIT (a)(3)

                   ARTICLES OF AMENDMENT DATED APRIL 28, 1999


<PAGE>

                            ROYCE GLOBAL TRUST, INC.

                              ARTICLES OF AMENDMENT

         Royce Global Trust, Inc., a Maryland corporation having its principal
office in the City of Baltimore, State of Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland:


         FIRST: Article I of the Articles of Incorporation of the Corporation is
amended so as to read in its entirety as follows:

                                   "ARTICLE I

                                      NAME
                                      ----

         The name of the Corporation is ROYCE FOCUS TRUST, INC."

         SECOND: The amendment of the Articles of Incorporation of the
Corporation as hereinabove set forth has been duly approved and advised by a
majority of the entire board of directors and has received the affirmative vote
of a majority of the issued and outstanding capital stock of the Corporation.

         IN WITNESS WHEREOF, Royce Global Trust, Inc. has caused these Articles
of Amendment to be signed in its name and on its behalf by its Vice President,
Daniel A. O'Byrne, and witnessed by its Secretary, John E. Denneen, on April 28,
1999.

         The Vice President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters and facts set forth in these Articles with
respect to the authorization and approval of the Amendment of the Corporation's
Articles of Incorporation are true in all material respects and that this
statement is made under penalties of perjury.

                                      ROYCE GLOBAL TRUST, INC.


                                      By: ______________________________________
                                               Daniel A. O'Byrne, Vice President


(SEAL)


WITNESS:    ______________________________
                John E. Denneen, Secretary



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.A.6
<SEQUENCE>5
<FILENAME>rft63006_ex-99a6.txt
<DESCRIPTION>FORMS OF ARTICLES SUPPLEMENTARY'
<TEXT>















                                 EXHIBIT (a)(6)

                         FORM OF ARTICLES SUPPLEMENTARY



<PAGE>

                             ROYCE FOCUS TRUST, INC.
                             -----------------------

                             ARTICLES SUPPLEMENTARY
                        _____% CUMULATIVE PREFERRED STOCK

         ROYCE FOCUS TRUST, INC., a Maryland corporation, having its principal
office in Baltimore City, Maryland (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:

         FIRST: Under a power contained in Article IV of the Charter of the
Corporation (the "Charter"), the Board of Directors by duly adopted resolutions
classified and designated 1,000,000 shares of authorized but unissued Common
Stock (as such term is used in the Charter) as __% Cumulative Preferred Stock
(the "Cumulative Preferred Stock"), with the following preferences, voting
powers, rights, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption, which,
upon any restatement of the Charter, shall become part of Article IV of the
Charter, with any necessary or appropriate renumbering or relettering of the
sections or subsections hereof:

                         ___% CUMULATIVE PREFERRED STOCK
                         -------------------------------

                                   ARTICLE I.

                                   DEFINITIONS

         1.       Definitions.
                  ------------

         Unless the context or use indicates another or different meaning or
intent, the following terms when used in these terms of the Cumulative Preferred
Stock shall have the meanings set forth below, whether such terms are used in
the singular or plural and regardless of their tense:

         "Accountant's Confirmation"* means a letter from an Independent
Accountant delivered to Moody's with respect to certain Basic Maintenance
Reports as specified by Moody's herein or by separate written notice
substantially to the effect that:

                  (i)     the Independent Accountant has read the Basic
                  Maintenance Report prepared by the Corporation as of the last
                  Quarterly Valuation Date of the Corporation's fiscal year (the
                  "Report");

                  (ii)    with respect to the issue size compliance, issuer
                  diversification and industry diversification calculations,
                  such calculations and the resulting Market Value of Moody's
                  Eligible Assets and Portfolio Calculation are numerically
                  correct;

                  (iii)   with respect to the calculation of the Basic
                  Maintenance Amount, such calculation has been compared with
                  the definition of Basic Maintenance Amount


<PAGE>

                  in these terms of the Cumulative Preferred Stock and is
                  calculated in accordance with such definition and the results
                  of such calculation have been recalculated and are numerically
                  correct;

                  (iv)    with respect to the excess or deficiency of the
                  Portfolio Calculation when compared to the Basic Maintenance
                  Amount calculated for Moody's, the results of the calculation
                  set forth in the Report have been recalculated and are
                  numerically correct;

                  (v)     with respect to the lower of two bid prices (or
                  alternative permissible factors used in calculating the Market
                  Value as provided by these terms of the Cumulative Preferred
                  Stock) provided by the custodian of the Corporation's assets
                  for purposes of valuing securities in the portfolio, the
                  Independent Accountant has traced the price used in the Report
                  to the lower of the two bid prices listed in the report
                  provided by such custodian and verified that such information
                  agrees (in the event such information does not agree, the
                  Independent Accountant will provide a listing in its letter of
                  such differences); and

                  (vi)    with respect to the description of each security
                  included in the Report, the description of Moody's Eligible
                  Assets has been compared to the definition of Moody's Eligible
                  Assets contained in these terms of the Cumulative Preferred
                  Stock, and the description as appearing in the Report agrees
                  with the definition of Moody's Eligible Assets as described in
                  these terms of the Cumulative Preferred Stock.

         Each such letter may state: such Independent Accountant has made no
independent verification of the accuracy of the description of the investment
securities listed in the Report or the Market Value of those securities nor have
they performed any procedures other than those specifically outlined above for
the purposes of issuing such letter; unless otherwise stated in the letter, the
procedures specified therein were limited to a comparison of numbers or a
verification of specified computations applicable to numbers appearing in the
Report and the schedule(s) thereto; the foregoing procedures do not constitute
an examination in accordance with generally accepted auditing standards and the
Report discussed in the letter do not extend to any of the Corporation's
financial statements taken as a whole; such Independent Accountant does not
express an opinion as to whether such procedures would enable such Independent
Accountant to determine that the methods followed in the preparation of the
Report would correctly determine the Market Value or Discounted Value of the
investment portfolio; accordingly, such Independent Accountant expresses no
opinion as to the information set forth in the Report or in the schedule(s)
thereto and make no representation as to the sufficiency of the procedures
performed for the purposes of these terms of the Cumulative Preferred Stock.

         Such letter shall also state that the Independent Accountant is a
"independent accountant" with respect to the Corporation within the meaning of
the Securities Act of 1933, as amended, and the related published rules and
regulations thereunder.

         "Adviser" means Royce & Associates, LLC, a Delaware limited liability
company.


                                       2

<PAGE>

         "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 senior securities of the
Corporation which are stock, including all outstanding shares of Cumulative
Preferred Stock.

         "Asset Coverage Cure Date" means, with respect to the failure by the
Corporation to maintain the Asset Coverage (as required by paragraph 5(a)(i) of
Article II hereof) as of the last Business Day of each March, June, September
and December of each year, 60 calendar days following such Business Day.

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

         "Basic Maintenance Amount Cure Date"* means 14 calendar days following
a Valuation Date, such date being the last day upon which the Corporation's
failure to comply with paragraph 5(a)(ii)(A) of Article II hereof could be
cured.


                                       3

<PAGE>

         "Basic Maintenance Report"* means a report signed by the President, the
Treasurer or any Vice President of the Corporation which sets forth, as of the
related Valuation Date, the assets of the Corporation, the Market Value and
Discounted Value thereof (seriatim and in the aggregate), and the Basic
Maintenance Amount.

         "Board of Directors" means the Board of Directors of the Corporation.

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

         "Charter" means the Articles of Incorporation, as amended and
supplemented (including these terms of the Cumulative Preferred Stock), of the
Corporation on file in the State Department of Assessments and Taxation of
Maryland.

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

         "Corporation" shall mean Royce Focus Trust, Inc., a Maryland
corporation.

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

         "Date of Original Issue" shall have the meaning set forth in paragraph
1(a) of Article II hereof.

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

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

         "Dividend Payment Date" with respect to the Cumulative Preferred Stock,
means any date on which dividends are payable thereon pursuant to the provisions
of paragraph 1(a) of Article II hereof.

         "Dividend Period" shall have the meaning set forth in paragraph 1(a) of
Article II hereof.

         "Fitch" means Fitch Ratings, or its successor.


                                       4

<PAGE>

         "Independent Accountant"* means a nationally recognized accountant, or
firm of accountants, that is with respect to the Corporation an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.

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

         "Liquidation Preference" shall have the meaning set forth in paragraph
2(a) of Article II hereof with respect to the Cumulative Preferred Stock.

         "Market Value"* means the amount determined by State Street Bank and
Trust Company (so long as prices are provided to it by Reuters or another
pricing service and Moody's has received written notice about the use of such
other pricing service), or, if Moody's agrees in writing, the then-current bank
custodian of the Corporation's assets or such other party approved by Moody's in
writing, with respect to specific Moody's Eligible Assets of the Corporation, as
follows: Securities listed on a U.S. or non-U.S. exchange or by Nasdaq, and
securities traded on Nasdaq's Electronic Bulletin Board, shall be valued on the
basis of their last reported sales price or Nasdaq official closing price on the
Valuation Date or, if no sale is reported for such Valuation Date, then at their
bid price for such Valuation Date. Quotations shall be taken from the market
where the security is primarily traded. All other over-the-counter securities
for which market quotations are readily available shall be valued at their
highest bid price. Bonds and other fixed income securities may be valued by
reference to other securities with comparable ratings, interest rates and
maturities, using established independent pricing services.

         Notwithstanding the foregoing, "Market Value" may, at the option of the
Corporation, mean the amount determined with respect to specific Moody's
Eligible Assets of the Corporation in the manner set forth below:

         (a)      as to any corporate bond or convertible corporate bond which
is a Moody's Eligible Asset, (i) the product of (A) the unpaid principal balance
of such bond as of the Valuation Date and (B)(1) if the bond is traded on a
national securities exchange or quoted on the Nasdaq System, the last sales
price reported on the Valuation Date or (2) if there was no reported sales price
on the Valuation Date or if the bond is not traded on a national securities
exchange or quoted on the Nasdaq System, the lower of two bid prices for such
bond provided by two recognized securities dealers with a minimum capitalization
of $25,000,000 (or otherwise approved for such purpose by Moody's) or by one
such securities dealer and any other source (provided that the utilization of
such source would not adversely affect Moody's then-current rating of the
Cumulative Preferred Stock) to the custodian of the Corporation's assets, at
least one of which shall be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation reducible to written form
or similar means, and in turn provided to the Corporation by any such means by
such custodian, plus (ii) accrued interest on such bond or, if two bid prices
cannot be obtained, such Moody's Eligible Asset shall have a Market Value of
zero;

         (b)      as to any common or preferred stock which is a Moody's
Eligible Asset, (i) if the stock is traded on a national securities exchange or
quoted on the Nasdaq System, the last sales price reported on the Valuation Date
or (ii) if there was no reported sales price on the Valuation


                                       5

<PAGE>

Date, the lower of two bid prices for such stock provided by two recognized
securities dealers with a minimum capitalization of $25,000,000 (or otherwise
approved for such purpose by Moody's) or by one such securities dealer and any
other source (provided that the utilization of such source would not adversely
affect Moody's then-current rating of the Cumulative Preferred Stock) to the
custodian of the Corporation's assets, at least one of which shall be provided
in writing or by telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar means, and in turn
provided to the Corporation by any such means by such custodian, or, if two bid
prices cannot be obtained, such Moody's Eligible Asset shall have a Market Value
of zero;

         (c)      the product of (i) as to U.S. Government Obligations, Short
Term Money Market Instruments (other than demand deposits, federal funds,
bankers' acceptances and next Business Day's repurchase agreements) and other
commercial paper, the face amount or aggregate principal amount of such U.S.
Government Obligations, Short Term Money Market Instruments or other commercial
paper, as the case may be, and (ii) the lower of the bid prices for the same
kind of securities or instruments, as the case may be, having, as nearly as
practicable, comparable interest rates and maturities provided by two recognized
securities dealers having minimum capitalization of $25,000,000 (or otherwise
approved for such purpose by Moody's) or by one such securities dealer and any
other source (provided that the utilization of such source would not adversely
affect Moody's then-current rating of the Cumulative Preferred Stock) to the
custodian of the Corporation's assets, at least one of which shall be provided
in writing or by telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar means, and in turn
provided to the Corporation by any such means by such custodian, or, if two bid
prices cannot be obtained, such Moody's Eligible Asset will have a Market Value
of zero;

         (d)      as to cash, demand deposits, federal funds, bankers'
acceptances and next Business Day's repurchase agreements included in Short Term
Money Market Instruments, the face value thereof.

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

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

                  (i)     Preferred securities (non-convertible): The percentage
                  determined by reference to the rating on such asset with
                  reference to whether such asset pays cumulative or
                  non-cumulative dividends, in accordance with the table set
                  forth below.

Rating Category (1)
- -------------------

                                         Cumulative               Non-Cumulative
                                         ----------               --------------
Aaa                                         150%                       165%
Aa                                          155                        171
A                                           160                        176
Baa                                         165                        182


                                       6

<PAGE>

Ba                                          196%                       216%
B                                           216                        238
Below B and Unrated                         250                        275

- ------------
(1) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Corporation's assets can be derived
from other sources as well as combined with a number of sources as presented by
the Corporation 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 non-convertible preferred
security is unrated by Moody's, S&P or Fitch, the Corporation will use the
percentage set forth opposite "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 by Moody's to particular
categories of credits for which the S&P and/or Fitch rating does not seem to
approximate a Moody's rating equivalent. Split rated securities assigned by S&P
and Fitch will be accepted by Moody's at the lower of the two ratings.

The Moody's Discount Factor applied to non-convertible preferred securities that
are Rule 144A Securities will equal the sum of the Moody's Discount Factor which
would apply if such securities were registered under the Securities Act plus
20%.

                  (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>
               Terms To Maturity of                                  Rating Category(1)                     Below B
             Corporate Debt Security                  -------------------------------------------------       and
             -----------------------                  Aaa      Aa        A       Baa      Ba        B       Unrated
                                                      ---      --        -       ---      --        -       -------
<C>                                                   <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 Corporation's assets can be derived
from other sources as well as combined with a number of sources as presented by
the Corporation 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 Corporation 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 by Moody's to particular categories of credits for which
the S&P and/or Fitch rating does not seem to approximate a Moody's rating
equivalent. Split rated securities assigned by S&P and Fitch will be accepted by
Moody's at the lower of the two ratings.

         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.


                                       7

<PAGE>

                  (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
 -----------------------------------------------------   -------------------------------   --------------------------
<C>                                                                        <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
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: Except as set forth in clause
                  (i) above with respect to non-convertible preferred
                  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 were registered under the
                  Securities Act.

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

<TABLE>
<CAPTION>
                                                                  Rating Category(1)
                                   ------------------------------------------------------------------------------
                                                                                                      Below B and
Industry Category                  Aaa        Aa          A        Baa         Ba          B            Unrated
- -----------------                  ---        --          -        ---         --          -            -------
<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>


                                       8

<PAGE>

(1) Unless conclusions regarding liquidity risk as well as estimates of both the
probability and severity of default for the Corporation's assets can be derived
from other sources as well as combined with a number of sources as presented by
the Corporation 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 Corporation 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 by Moody's to particular categories of credits for which the S&P
and/or Fitch rating does not seem to approximate a Moody's rating equivalent.
Split rated securities assigned by S&P and Fitch will be accepted by Moody's at
the lower of the two ratings.

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

         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 by Moody's to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent. Split
rated securities assigned by S&P and Fitch will be accepted by Moody's at the
lower of the two ratings.

         "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 Corporation 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.


                                       9

<PAGE>

                  (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;

                  (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


                                       10

<PAGE>

                  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.

         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
    Corporation'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 Corporation'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 Corporation; provided,
                  however, that common stock which, while a Moody's Eligible
                  Asset owned by the Corporation, ceases paying any regular cash
                  dividend will no longer be considered a Moody's Eligible Asset
                  until 71 days after the date of the announcement of such
                  cessation, unless the issuer of the common stock has senior
                  debt securities rated at least A3 by Moody's 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 (i) sponsored


                                       11

<PAGE>

                  ADR programs or (ii) Level II or Level III ADRs, 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;

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

<TABLE>
<CAPTION>
                                            Maximum Single      Maximum Single      Maximum Single
                  Industry Category         Issuer (%)(1)       Industry (%)(1)      State (%)(1)
                  -----------------         -------------       ---------------      ------------
<S>               <C>                             <C>                 <C>                <C>
                  Utility                         4                   50                   7(2)
                  Industrial                      4                   45                   7
                  Financial                       5                   40                   6
                  Other                           6                   20                  N/A
</TABLE>

                  -----------------------
                  (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
                  Corporation of a letter from Moody's specifying any conditions
                  on including such financial contract in Moody's Eligible
                  Assets and assuring the Corporation 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 Corporation 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 Corporation is required to pay upon repurchase of
                  such security will count as a liability for purposes of
                  calculating the Basic Maintenance Amount. When the Corporation
                  purchases a security and agrees to sell it at a future date to
                  another party, cash receivable by the Corporation 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 Corporation 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


                                       12

<PAGE>

                  payment for services rendered or cash advanced to the
                  Corporation by the Adviser, the Corporation's 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 by Moody's to particular categories of credits for which the S&P and/or
Fitch rating does not seem to approximate a Moody's rating equivalent. Split
rated securities assigned by S&P and Fitch will be accepted by Moody's at the
lower of the two ratings.

         "Moody's Exposure Period"* means the sum of (i) that number of calendar
days from the last Valuation Date on which the Portfolio Calculation was at
least equal to the Basic Maintenance Amount to the Valuation Date on which the
Portfolio Calculation was not at least equal to the Basic Maintenance Amount,
(ii) that number of calendar days following a Valuation Date that the
Corporation has under these terms of the Cumulative Preferred Stock to cure any
failure to maintain a Portfolio Calculation at least equal to the Basic
Maintenance Amount, and (iii) the maximum number of calendar days the
Corporation has to effect a redemption under Article II, paragraph 3 of these
terms of the Cumulative Preferred Stock.

         "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


                                       13

<PAGE>

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

         Diversified/Conglomerate Manufacturing

         Diversified/Conglomerate Service

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

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

         Electronics: Computer Hardware, Electric Equipment, Components,
         Controllers, Motors, Household Appliances, Information Service
         Communication Systems, Radios, 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


                                       14

<PAGE>

         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

         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 Corporation will use its discretion in determining which industry
classification is applicable to a particular investment in consultation with the
Independent Accountant and Moody's, to the extent the Corporation considers
necessary.

         "Nasdaq" means the Nasdaq Stock Market, Inc.

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

         "Notice of Redemption" has the meaning set forth in paragraph 3(c)(i)
of Article II hereof.

         "NRSRO" means any nationally reorganized statistical rating
organization, as that term is used in Rule 15a3-1 under the Securities Exchange
Act of 1934, as amended, or any successor provisions.

         "Officers' Certificate" means a certificate signed by any two of the
President, a Vice President, the Treasurer or the Secretary of the Corporation
or by any one of the foregoing and an Assistant Treasurer or Assistant Secretary
of the Corporation.

         "Paying Agent" means Equiserve Trust Company, N.A. and its successors
or any other paying agent appointed by the Corporation with respect to the
Cumulative Preferred Stock and/or any other Preferred Stock.

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


                                       15

<PAGE>

         "Preferred Stock" means the preferred stock, par value $.001 per share,
of the Corporation, and includes the Cumulative Preferred Stock.

         "Quarterly Valuation Date"* means the last Valuation Date in March,
June, September and December of each year, commencing _____________, ______.

         "Redemption Price" has the meaning set forth in paragraph 3(a) of
Article II hereof.

         "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.

         "Securities Act" means the Securities Act of 1933, as amended.

         "Short-Term Money Market Instruments" means the following types of
instruments if, on the date of purchase or other acquisition thereof by the
Corporation, 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 Corporation, all of the foregoing requirements shall be
                  applicable except that the required long-term unsecured


                                       16

<PAGE>

                  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 Corporation); and
                  provided further, that the interest receivable by the
                  Corporation shall not be subject to any withholding or similar
                  taxes.

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

         "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.

         "Voting Period" shall have the meaning set forth in paragraph 4(b) of
Article II hereof.

         2.       Certain Definitions Dependent on Facts Ascertainable Outside
         the Charter.

         Those of the foregoing definitions which are marked with an asterisk
(the "Definitions") have been adopted by the Board of Directors of the
Corporation in order to obtain an Aaa rating from Moody's on the shares of
Cumulative Preferred Stock on their Date of Original Issue and to maintain such
rating. The interpretation or applicability of any or all of the Definitions 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 ratings then assigned by Moody's
to the Cumulative Preferred Stock. Furthermore, if the Board of Directors
determines not to continue to comply with the provisions of paragraphs 5(a)(ii),
5(c) and 6 of Article II hereof as provided in paragraph 7 of Article II hereof,
then the Definitions, unless the context otherwise requires, shall be without
force and effect and have no meaning for these terms of the Cumulative Preferred
Stock.


                                       17

<PAGE>

                                  ARTICLE II.

                           CUMULATIVE PREFERRED STOCK

         1.       Dividends.
                  ----------

                  (a)     Holders of shares of Cumulative Preferred Stock shall
be entitled to receive, when, as and if authorized by the Board of Directors and
declared by the Corporation, out of funds legally available therefor, cumulative
cash dividends at the annual rate of ____% per share (computed on the basis of a
360-day year consisting of twelve 30-day months) of the initial Liquidation
Preference of $25.00 per share on the Cumulative Preferred Stock and no more,
payable quarterly on March 23, June 23, September 23 and December 23 in each
year (each, a "Dividend Payment Date"), commencing December 23, 2003 (or, if any
such day is not a Business Day, then on the next succeeding Business Day), to
holders of record of Cumulative Preferred Stock as they appear on the stock
register of the Corporation at the close of business on the preceding March 6,
June 6, September 6 and December 6 (or, if any such day is not a Business Day,
then on the next succeeding Business Day), as the case may be, in preference to
dividends on shares of Common Stock and any other stock of the Corporation
ranking junior to the Cumulative Preferred Stock in payment of dividends.
Dividends on shares of Cumulative Preferred Stock shall accumulate from the date
on which the first such shares of Cumulative Preferred Stock are originally
issued ("Date of Original Issue"). Each period beginning on and including a
Dividend Payment Date (or the Date of Original Issue, in the case of the first
dividend period after issuance of such shares) and ending on but excluding the
next succeeding Dividend Payment Date is referred to herein as a "Dividend
Period." Dividends on account of arrears for any past Dividend Period may be
declared and paid at any time, without reference to any Dividend Payment Date,
to holders of record on such date, not exceeding 30 days preceding the payment
date thereof, as shall be fixed by the Board of Directors.

                  (b)     (i)  No dividends shall be declared or paid or set
         apart for payment on any shares of Cumulative Preferred Stock for any
         Dividend Period or part thereof unless full cumulative dividends have
         been or contemporaneously are declared and paid on all outstanding
         shares of Cumulative Preferred Stock through the most recent Dividend
         Payment Date therefor. If full cumulative dividends are not declared
         and paid on the shares of Cumulative Preferred Stock, any dividends on
         the shares of Cumulative Preferred Stock shall be declared and paid pro
         rata on all outstanding shares of Cumulative Preferred Stock. No
         holders of shares of Cumulative Preferred Stock shall be entitled to
         any dividends, whether payable in cash, property or stock, in excess of
         full cumulative dividends as provided in this paragraph 1(b)(i) on
         shares of Cumulative Preferred Stock. No interest or sum of money in
         lieu of interest shall be payable in respect of any dividend payments
         on any shares of Cumulative Preferred Stock that may be in arrears.

                  (ii)    For so long as shares of Cumulative Preferred Stock
         are outstanding, the Corporation shall not declare, pay or set apart
         for payment any dividend or other distribution (other than a dividend
         or distribution paid in shares of, or options, warrants or rights to
         subscribe for or purchase shares of, Common Stock or other stock, if
         any, ranking junior to the Cumulative Preferred Stock as to dividends
         or upon liquidation) in


                                       18

<PAGE>

         respect of the Common Stock or any other stock of the Corporation
         ranking junior to or on parity with the Cumulative Preferred Stock as
         to dividends or upon liquidation, or call for redemption, redeem,
         purchase or otherwise acquire for consideration any shares of Common
         Stock or any other stock of the Corporation ranking junior to the
         Cumulative Preferred Stock as to dividends or upon liquidation (except
         by conversion into or exchange for stock of the Corporation ranking
         junior to or on parity with the Cumulative Preferred Stock as to
         dividends and upon liquidation), unless, in each case, (A) immediately
         thereafter, the Corporation shall have a Portfolio Calculation at least
         equal to the Basic Maintenance Amount and the Corporation shall
         maintain the Asset Coverage, (B) full cumulative dividends on all
         shares of Cumulative Preferred Stock due on or prior to the date of the
         transaction have been declared and paid (or shall have been declared
         and sufficient funds for the payment thereof deposited with the Paying
         Agent) and (C) the Corporation has redeemed the full number of shares
         of Cumulative Preferred Stock required to be redeemed by any provision
         contained herein for mandatory redemption.

                  (iii)  Any dividend payment made on the shares of Cumulative

         Preferred Stock shall first be credited against the dividends
         accumulated with respect to the earliest Dividend Period for which
         dividends have not been paid.

                  (c)     Not later than the Business Day next preceding each
Dividend Payment Date, the Corporation shall deposit with the Paying Agent
Deposit Securities having an initial combined value sufficient to pay the
dividends that are payable on such Dividend Payment Date, which Deposit
Securities shall mature on or prior to such Dividend Payment Date. The
Corporation may direct the Paying Agent with respect to the investment of any
such Deposit Securities, provided that such investment consists exclusively of
Deposit Securities and provided further that the proceeds of any such investment
will be available at the opening of business on such Dividend Payment Date.

                  (d)     The Board of Directors may authorize and the
Corporation may declare an additional dividend on the Cumulative Preferred Stock
each year in order to permit the Corporation to distribute its income in
accordance with Section 855 (or any successor provision) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the other rules and regulations under
Subchapter M of the Code. Any such additional dividend shall be payable to
holders of the Cumulative Preferred Stock on the next Dividend Payment Date,
shall be part of a regular quarterly dividend for the year of declaration
payable to holders of record pursuant to paragraph 1(a) hereof and shall not
result in any increase in the amount of cash dividends payable for such year
pursuant to paragraph 1(a) hereof.

         2.       Liquidation Rights.
                  -------------------

                  (a)     In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
the holders of shares of Cumulative Preferred Stock shall be entitled to receive
out of the assets of the Corporation available for distribution to stockholders,
after claims of creditors but before any distribution or payment shall be made
in respect of the Common Stock or any other stock of the Corporation ranking
junior to the Cumulative Preferred Stock as to liquidation payments, a
liquidation distribution in the amount


                                       19

<PAGE>

of $25.00 per share plus an amount equal to all unpaid dividends thereon
accumulated to and including the date fixed for such distribution or payment
(whether or not earned or declared by the Corporation, but excluding interest
thereon) (the "Liquidation Preference"), and such holders shall be entitled to
no further participation in any distribution or payment in connection with any
such liquidation, dissolution or winding up.

                  (b)     If, upon any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, the assets of
the Corporation available for distribution among the holders of all outstanding
shares of Cumulative Preferred Stock and any other outstanding class or series
of Preferred Stock of the Corporation ranking on a parity with the Cumulative
Preferred Stock as to payment upon liquidation, shall be insufficient to permit
the payment in full to such holders of Cumulative Preferred Stock of the
Liquidation Preference and the amounts due upon liquidation with respect to such
other Preferred Stock, then such available assets shall be distributed among the
holders of shares of Cumulative Preferred Stock and such other Preferred Stock
ratably in proportion to the respective preferential amounts to which they are
entitled. Unless and until the Liquidation Preference has been paid in full to
the holders of shares of Cumulative Preferred Stock, no dividends or
distributions shall be made to holders of the Common Stock or any other stock of
the Corporation ranking junior to the Cumulative Preferred Stock as to
liquidation.

         3.       Redemption.
                  -----------

         Shares of the Cumulative Preferred Stock shall be redeemed or
redeemable by the Corporation as provided below:

                  (a)     Mandatory Redemptions.
                          ----------------------

         If the Corporation is required to redeem any shares of Cumulative
Preferred Stock pursuant to paragraphs 5(b) or 5(c) of Article II hereof, then
the Corporation shall, to the extent permitted by the 1940 Act, Maryland law and
any agreement in respect of indebtedness of the Corporation to which it may be a
party or by which it may be bound, by the close of business on such Asset
Coverage Cure Date or Basic Maintenance Amount Cure Date (herein collectively
referred to as a "Cure Date"), as the case may be, fix a redemption date and
proceed to redeem shares as set forth in paragraph 3(c) hereof. On such
redemption date, the Corporation shall redeem, out of funds legally available
therefor, the number of shares of Cumulative Preferred Stock and/or other
Preferred Stock equal to the minimum number of shares the redemption of which,
if such redemption had occurred immediately prior to the opening of business on
such Cure Date, would have resulted in the Asset Coverage having been satisfied
or the Corporation having a Portfolio Calculation equal to or greater than the
Basic Maintenance Amount, as the case may be, immediately prior to the opening
of business on such Cure Date or, if the Asset Coverage or a Portfolio
Calculation equal to or greater than the Basic Maintenance Amount, as the case
may be, cannot be so restored, all of the shares of Cumulative Preferred Stock,
at a price equal to $25.00 per share plus accumulated but unpaid dividends
thereon (whether or not earned or declared by the Corporation) through the date
of redemption (the "Redemption Price"). In the event that shares of Cumulative
Preferred Stock are redeemed pursuant to paragraph 5(b) of Article II hereof,
the Corporation may, but shall not be required to, redeem a sufficient number of
shares of Cumulative Preferred Stock pursuant to this paragraph 3(a) in order
that the "asset


                                       20

<PAGE>

coverage" of a class of senior security which is stock, as defined in Section
18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock after redemption is up to 275%.

                  (b)     Optional Redemptions.
                          ---------------------

         Prior to October __, 2008, the Corporation may, at its option, redeem
shares of Cumulative Preferred Stock at the Redemption Price per share only if
and to the extent that any such redemption is necessary, in the judgment of the
Corporation, to maintain the Corporation's status as a regulated investment
company under Subchapter M of the Code. Commencing October __, 2008, and at any
time and from time to time thereafter, the Corporation may, at its option, to
the extent permitted by the 1940 Act, Maryland law and any agreement in respect
of indebtedness of the Corporation to which it may be a party or by which it may
be bound, redeem the Cumulative Preferred Stock in whole or in part at the
Redemption Price per share.

                  (c)     Procedures for Redemption.
                          --------------------------

                  (i)     If the Corporation shall determine or be required to
         redeem shares of Cumulative Preferred Stock pursuant to this paragraph
         3, it shall mail a written notice of redemption ("Notice of
         Redemption") with respect to such redemption by first class mail,
         postage prepaid, to each holder of the shares to be redeemed at such
         holder's address as the same appears on the stock books of the
         Corporation on the record date in respect of such redemption
         established by the Board of Directors. Each such Notice of Redemption
         shall state: (A) the redemption date, which shall be not fewer than 30
         days nor more than 45 days after the date of such notice; (B) the
         number of shares of Cumulative Preferred Stock to be redeemed; (C) the
         CUSIP number(s) of such shares; (D) the Redemption Price; (E) that
         dividends on the shares to be redeemed will cease to accumulate on such
         redemption date; and (F) the provisions of this paragraph 3 under which
         such redemption is made. If fewer than all shares of Cumulative
         Preferred Stock held by any holder are to be redeemed, the Notice of
         Redemption mailed to such holder also shall specify the number of
         shares to be redeemed from such holder. No defect in the Notice of
         Redemption or the mailing thereof shall affect the validity of the
         redemption proceedings, except as required by applicable law.

                  (ii)    If the Corporation shall give a Notice of Redemption,
         then by the close of business on the Business Day preceding the
         redemption date specified in the Notice of Redemption the Corporation
         shall (A) deposit with the Paying Agent Deposit Securities having an
         initial combined value sufficient to effect the redemption of the
         shares of Cumulative Preferred Stock to be redeemed, which Deposit
         Securities shall mature on or prior to such redemption date, and (B)
         give the Paying Agent irrevocable instructions and authority to pay the
         Redemption Price to the holders of the shares of Cumulative Preferred
         Stock called for redemption on the redemption date. The Corporation may
         direct the Paying Agent with respect to the investment of any Deposit
         Securities so deposited, provided that the proceeds of any such
         investment will be available at the opening of business on such
         redemption date. Upon the date of such deposit (unless the Corporation
         shall default in making payment of the Redemption Price), all rights of
         the holders of the shares of Cumulative Preferred Stock so called for
         redemption shall cease


                                       21

<PAGE>

         and terminate except the right of the holders thereof to receive the
         Redemption Price thereof, and such shares shall no longer be deemed
         outstanding for any purpose. The Corporation shall be entitled to
         receive, promptly after the date fixed for redemption, any cash in
         excess of the aggregate Redemption Price of the shares of Cumulative
         Preferred Stock called for redemption on such date and any remaining
         Deposit Securities. Any assets so deposited that are unclaimed at the
         end of two years from such redemption date shall, to the extent
         permitted by law, be repaid to the Corporation, after which the holders
         of the shares of Cumulative Preferred Stock so called for redemption
         shall look only to the Corporation for payment thereof. The Corporation
         shall be entitled to receive, from time to time after the date fixed
         for redemption, any interest on the Deposit Securities so deposited.

                  (iii)   On the redemption date, each record owner of shares of
         Cumulative Preferred Stock on the books of the Paying Agent shall be
         entitled to receive the cash Redemption Price, without interest.

                  (iv)    In the case of any redemption of less than all of the
         shares of Cumulative Preferred Stock pursuant to these terms of the
         Cumulative Preferred Stock, such redemption shall be made pro rata from
         each holder of shares of Cumulative Preferred Stock in accordance with
         the respective number of shares held by each such holder on the record
         date for such redemption.

                  (v)     Notwithstanding the other provisions of this paragraph
         3, the Corporation shall not redeem shares of Cumulative Preferred
         Stock or any other Preferred Stock unless all accumulated and unpaid
         dividends on all outstanding shares of Cumulative Preferred Stock for
         all applicable past Dividend Periods (whether or not earned or declared
         by the Corporation) shall have been or are contemporaneously paid or
         declared and Deposit Securities for the payment of such dividends shall
         have been deposited with the Paying Agent as set forth in paragraph
         1(c) of Article II hereof.

                  (vi)    If the Corporation shall not have funds legally
         available for the redemption of, or is otherwise unable to redeem, all
         the shares of the Cumulative Preferred Stock to be redeemed on any
         redemption date, the Corporation shall redeem on such redemption date
         the number of shares of Cumulative Preferred Stock as it shall have
         legally available funds, or is otherwise able, to redeem ratably from
         each holder whose shares are to be redeemed, and the remainder of the
         shares of the Cumulative Preferred Stock required to be redeemed shall
         be redeemed on the earliest practicable date on which the Corporation
         shall have funds legally available for the redemption of, or is
         otherwise able to redeem, such shares.

         4.       Voting Rights.
                  --------------

                  (a)     General.
                          --------

         Except as otherwise provided by law or as specified in the Charter or
Bylaws, each holder of shares of Cumulative Preferred Stock shall be entitled to
one vote for each share held on each matter submitted to a vote of stockholders
of the Corporation, and the holders of outstanding


                                       22

<PAGE>

shares of Preferred Stock, including Cumulative Preferred Stock, and of shares
of Common Stock shall vote together as a single class; provided that, at all
times the holders of outstanding shares of Preferred Stock, including Cumulative
Preferred Stock, shall be entitled, as a class, to the exclusion of the holders
of all other securities and classes of stock of the Corporation, to elect two
directors of the Corporation. Subject to paragraph 4(b) of Article II hereof,
the holders of outstanding shares of stock of the Corporation, including the
holders of outstanding shares of Preferred Stock (including the Cumulative
Preferred Stock), voting as a single class, shall elect the balance of the
directors.

                  (b)     Right to Elect Majority of Board of Directors.
                          ----------------------------------------------

         During any period in which any one or more of the conditions described
below shall exist (such period being referred to herein as a "Voting Period"),
the number of directorships constituting the Board of Directors shall
automatically increase by the smallest number that, when added to the two
directors elected exclusively by the holders of shares of Preferred Stock, would
constitute a majority of the Board of Directors as so increased by such smallest
number; and the holders of shares of Preferred Stock shall be entitled, voting
separately as one class (to the exclusion of the holders of all other securities
and classes of stock of the Corporation), to elect such smallest number of
additional directors, together with the two directors that such holders are in
any event entitled to elect. A Voting Period shall commence:

                  (i)     if at any time accumulated dividends (whether or not
         earned or declared, and whether or not funds are then legally available
         in an amount sufficient therefor) on the outstanding shares of
         Cumulative Preferred Stock equal to at least two full years' dividends
         shall be due and unpaid and sufficient Deposit Securities shall not
         have been deposited with the Paying Agent for the payment of such
         accumulated dividends; or

                  (ii)    if at any time holders of any other shares of
         Preferred Stock are entitled to elect a majority of the directors of
         the Corporation under the 1940 Act.

         Upon the termination of a Voting Period, the term of office of the
additional directors elected by the holders of Preferred Stock, including the
Cumulative Preferred Stock, pursuant to this paragraph 4(b) above shall
terminate, the remaining directors shall constitute the directors of the
Corporation, the number of directorships constituting the Board of Directors
shall decrease accordingly and the voting rights described in this paragraph
4(b) shall cease, subject always, however, to the reverting of such voting
rights in the holders of Preferred Stock upon the further occurrence of any of
the events described in this paragraph 4(b).

                  (c)     Right to Vote with Respect to Certain Other Matters.
                          ----------------------------------------------------

                  (i)     So long as any shares of Cumulative Preferred Stock
         are outstanding, the Corporation shall 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 Cumulative Preferred Stock. The Corporation shall notify
         Moody's ten Business Days prior to any such vote described


                                       23

<PAGE>

         above. Unless a higher percentage is provided for under the Charter,
         the affirmative vote of the holders of a majority of the outstanding
         shares of Preferred Stock, including Cumulative Preferred Stock, voting
         together as a single class, will be required to approve any plan of
         reorganization adversely affecting such shares or any action requiring
         a vote of security holders under Section 13(a) of the 1940 Act. For
         purposes of the preceding sentence, the phrase "vote of the holders of
         a majority of the outstanding shares of Preferred Stock" shall mean,
         with respect to the Preferred Stock, "a majority of the outstanding
         voting securities" as used in the 1940 Act. The class vote of holders
         of shares of Preferred Stock, including Cumulative Preferred Stock,
         described above will be in addition to a separate vote of the requisite
         percentage of shares of Common Stock and shares of Preferred Stock,
         including Cumulative Preferred Stock, voting together as a single
         class, necessary to authorize the action in question. An increase in
         the number of authorized shares of Preferred Stock pursuant to the
         Charter or the issuance of additional shares of any series of Preferred
         Stock (including Cumulative Preferred Stock) pursuant to the Charter
         shall not in and of itself be considered to adversely affect the
         contract rights of the holders of Cumulative Preferred Stock.

                  (ii)    Notwithstanding the foregoing, and 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 stock of the
         Corporation, 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 stock, as expressly set forth
         in the 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.

                  (d)     Voting Procedures.
                          ------------------

                  (i)     As soon as practicable after the accrual of any right
         of the holders of shares of Preferred Stock to elect additional
         directors as described in paragraph 4(b) above, the Corporation shall
         call a special meeting of such holders and instruct the Paying Agent to
         mail a notice of such special meeting to such holders, such meeting to
         be held not less than 10 nor more than 20 days after the date of
         mailing of such notice. If the Corporation fails to send such notice to
         the Paying Agent or if the Corporation does not call such a special
         meeting, it may be called by any such holder on like notice. The record
         date for determining the holders entitled to notice of and to vote at
         such special meeting shall be the close of business on the fifth
         Business Day preceding the day on which such notice is mailed. At any
         such special meeting and at each meeting held during a Voting Period,
         such holders of Preferred Stock, voting together as a class (to the
         exclusion of the holders of all other securities and classes of capital
         stock of the Corporation), shall be entitled to elect the number of
         directors prescribed in paragraph 4(b) above.

                  (ii)    For purposes of determining any rights of the holders
         of Cumulative Preferred Stock to vote on any matter or the number of
         shares required to constitute a


                                       24

<PAGE>

         quorum, whether such right is created by these terms of the Cumulative
         Preferred Stock, by the other provisions of the Charter, by statute or
         otherwise, a share of Cumulative Preferred Stock which is not
         outstanding shall not be counted.

                  (iii)   The terms of office of all persons who are directors
         of the Corporation at the time of a special meeting of holders of
         Preferred Stock, including Cumulative Preferred Stock, to elect
         directors shall continue, notwithstanding the election at such meeting
         by such holders of the number of directors that they are entitled to
         elect, and the persons so elected by such holders, together with the
         two incumbent directors elected by the holders of Preferred Stock,
         including Cumulative Preferred Stock, and the remaining incumbent
         directors elected by the holders of the Common Stock and Preferred
         Stock, shall constitute the duly elected directors of the Corporation.

                  (iv)    Simultaneously with the expiration of a Voting Period,
         the term of office of the additional directors elected by the holders
         of Preferred Stock, including Cumulative Preferred Stock, pursuant to
         paragraph 4(b) above shall terminate, the remaining directors shall
         constitute the directors of the Corporation, the number of
         directorships constituting the Board of Directors shall decrease
         accordingly and the voting rights of such holders of Preferred Stock,
         including Cumulative Preferred Stock, to elect additional directors
         pursuant to paragraph 4(b) above shall cease, subject to the provisions
         of the last sentence of paragraph 4(b).

                  (e)     Exclusive Remedy.
                          -----------------

         Unless otherwise required by law, the holders of shares of Cumulative
Preferred Stock shall not have any rights or preferences other than those
specifically set forth herein. The holders of shares of Cumulative Preferred
Stock shall have no appraisal rights, preemptive rights or rights to cumulative
voting. In the event that the Corporation fails to pay any dividends on the
shares of Cumulative Preferred Stock, the exclusive remedy of the holders shall
be the right to vote for directors pursuant to the provisions of this paragraph
4.

                  (f)     Notification to Moody's.
                          ------------------------

         In the event a vote of holders of Cumulative Preferred Stock is
required pursuant to the provisions of Section 13(a) of the 1940 Act, as long as
the Cumulative Preferred Stock is rated by Moody's, the Corporation shall, not
later than ten Business Days prior to the date on which such vote is to be
taken, notify Moody's that such vote is to be taken and the nature of the action
with respect to which such vote is to be taken and, not later than ten Business
Days after the date on which such vote is taken, notify Moody's of the result of
such vote.

         5.       Coverage Tests.
                  ---------------

                  (a)     Determination of Compliance.
                          ----------------------------

         For so long as any shares of Cumulative Preferred Stock are
outstanding, the Corporation shall make the following determinations:


                                       25

<PAGE>

                  (i)     Asset Coverage. The Corporation shall maintain, as of
         the last Business Day of each March, June, September and December of
         each year in which any shares of Cumulative Preferred Stock are
         outstanding, the Asset Coverage.

                  (ii)    Basic Maintenance Amount Requirement.
                          -------------------------------------

                          (A)      For so long as any shares of Cumulative
Preferred Stock are outstanding, the Corporation shall maintain, on each
Valuation Date, a Portfolio Calculation at least equal to the Basic Maintenance
Amount, each as of such Valuation Date. Upon any failure to maintain the
required Portfolio Calculation, the Corporation shall use its best efforts to
reattain a Portfolio Calculation at least equal to the Basic Maintenance Amount
on or prior to the Basic Maintenance Amount Cure Date, by altering the
composition of its portfolio or otherwise.

                          (B)      The Corporation shall prepare a Basic
Maintenance Report relating to each Valuation Date. On or before 5:00 P.M., New
York City time, on the third Business Day after the first Valuation Date
following the Date of Original Issue of the Cumulative Preferred Stock and after
each (A) Quarterly Valuation Date, (B) Valuation Date on which the Corporation
fails to satisfy the requirements of paragraph 5(a)(ii)(A) above, (C) Basic
Maintenance Amount Cure Date following a Valuation Date on which the Corporation
fails to satisfy the requirements of paragraph 5(a)(ii)(A) above and (D)
Valuation Date on which the Portfolio Calculation exceeds the Basic Maintenance
Amount by 20% or less, the Corporation shall complete and deliver to Moody's a
Basic Maintenance Report, which will be deemed to have been delivered to Moody's
if Moody's receives a copy or telecopy, telex or other electronic transcription
setting forth at least the Portfolio Calculation and the Basic Maintenance
Amount each as of the relevant Valuation Date and on the same day the
Corporation mails to Moody's for delivery on the next Business Day the full
Basic Maintenance Report. The Corporation also shall provide Moody's with a
Basic Maintenance Report relating to any other Valuation Date on Moody's
specific request. A failure by the Corporation to deliver a Basic Maintenance
Report under this paragraph 5(a)(ii)(B) shall be deemed to be delivery of a
Basic Maintenance Report indicating a Portfolio Calculation less than the Basic
Maintenance Amount, as of the relevant Valuation Date.

                          (C)      Within ten Business Days after the date of
delivery to Moody's of a Basic Maintenance Report in accordance with paragraph
5(a)(ii)(B) above relating to the last Quarterly Valuation Date of the
Corporation's fiscal year, the Corporation shall deliver to Moody's an
Accountant's Confirmation relating to such a Basic Maintenance Report. Also,
within ten Business Days after the date of delivery to Moody's of a Basic
Maintenance Report in accordance with paragraph 5(a)(ii)(B) above relating to a
Valuation Date on which the Corporation fails to satisfy the requirements of
paragraph 5(a)(ii)(A) and any Basic Maintenance Amount Cure Date, the
Corporation shall deliver to Moody's an Accountant's Confirmation relating to
such Basic Maintenance Report. If any Accountant's Confirmation delivered
pursuant to this paragraph 5(a)(ii)(C) shows that an error was made in the Basic
Maintenance Report for such Quarterly Valuation Date, or shows that a lower
Portfolio Calculation was determined by the Independent Accountants, the
calculation or determination made by such Independent Accountants shall be final
and conclusive and shall be binding on the Corporation, and the Corporation
shall accordingly amend the Basic Maintenance Report and deliver the amended
Basic Maintenance Report to Moody's promptly following Moody's receipt of such
Accountant's Confirmation.


                                       26

<PAGE>

                          (D)      In the event the Portfolio Calculation shown
in any Basic Maintenance Report prepared pursuant to paragraph 5(a)(ii)(B) above
is less than the applicable Basic Maintenance Amount, the Corporation shall have
until the Basic Maintenance Amount Cure Date to achieve a Portfolio Calculation
at least equal to the Basic Maintenance Amount, and upon such achievement (and
not later than such Basic Maintenance Amount Cure Date) the Corporation shall
inform Moody's of such achievement in writing by delivery of a revised Basic
Maintenance Report showing a Portfolio Calculation at least equal to the Basic
Maintenance Amount as of the date of such revised Basic Maintenance Report,
together with an Officers' Certificate to such effect.

                          (E)      On or before 5:00 P.M., New York City time,
on the first Business Day after shares of Common Stock are repurchased by the
Corporation, the Corporation shall complete and deliver to Moody's a Basic
Maintenance Report as of the close of business on such date that Common Stock is
repurchased. A Basic Maintenance Report delivered as provided in paragraph
5(a)(ii)(B) above also shall be deemed to have been delivered pursuant to this
paragraph 5(a)(ii)(E).

                  (b)     Failure to Meet Asset Coverage.
                          ------------------------------

         If the Asset Coverage is not satisfied as provided in paragraph 5(a)(i)
hereof and such failure is not cured as of the related Asset Coverage Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock and/or proceed to redeem a sufficient
number of shares of any other Preferred Stock to enable it to meet the
requirements of paragraph 5(a)(i) above, and, at the Corporation's discretion,
such additional number of shares of Cumulative Preferred Stock in order that the
"asset coverage" of a class of senior security which is stock, as defined in
Section 18(h) of the 1940 Act, of the remaining outstanding shares of Cumulative
Preferred Stock and any other Preferred Stock is up to 275%, and deposit with
the Paying Agent Deposit Securities having an initial combined value sufficient
to effect the redemption of any shares of Cumulative Preferred Stock to be
redeemed, as contemplated by paragraph 3(a) of Article II hereof, and/or any
other Preferred Stock to be redeemed, as contemplated by its terms.

                  (c)     Failure to Maintain a Portfolio Calculation At Least
                          Equal to the Basic Maintenance Amount.
                          -------------------------------------

         If a Portfolio Calculation for Moody's at least equal to the Basic
Maintenance Amount is not maintained as provided in paragraph 5(a)(ii)(A) above
and such failure is not cured by the related Basic Maintenance Amount Cure Date,
the Corporation shall give a Notice of Redemption as described in paragraph 3 of
Article II hereof with respect to the redemption of a sufficient number of
shares of Cumulative Preferred Stock and/or proceed to redeem a sufficient
number of shares of any other Preferred Stock to enable it to meet the
requirements of paragraph 5(a)(ii)(A) above, and, at the Corporation's
discretion, such additional number of shares of Cumulative Preferred Stock in
order that the Portfolio Calculation exceeds the Basic Maintenance Amount of the
remaining outstanding shares of Cumulative Preferred Stock and any other
Preferred Stock by up to 10%, and deposit with the Paying Agent Deposit
Securities having an initial combined value sufficient to effect the redemption
of any shares of Cumulative


                                       27

<PAGE>

Preferred Stock to be redeemed, as contemplated by paragraph 3(a) of Article II
hereof, and/or any other Preferred Stock to be redeemed, as contemplated by its
terms.

                  (d)     Status of Shares Called for Redemption.
                          ---------------------------------------

         For purposes of determining whether the requirements of paragraphs
5(a)(i) and 5(a)(ii)(A) hereof are satisfied, (i) no share of the Cumulative
Preferred Stock and/or any other Preferred Stock shall be deemed to be
outstanding for purposes of any computation if, prior to or concurrently with
such determination, sufficient Deposit Securities to pay the full Redemption
Price for such share of Cumulative Preferred Stock and/or the applicable
redemption price for such share of any other Preferred Stock shall have been
deposited in trust with the Paying Agent and the requisite Notice of Redemption
and/or applicable notice of redemption for shares of any other Preferred Stock
shall have been given, and (ii) such Deposit Securities deposited with the
Paying Agent shall not be included in determining whether the requirements of
paragraphs 5(a)(i) and 5(a)(ii)(A) hereof are satisfied.

         6.       Certain Other Restrictions.
                  ---------------------------

                  (a)     For so long as the Cumulative Preferred Stock is rated
by Moody's, the Corporation will not, and will cause the Adviser not to, (i)
knowingly and willfully purchase or sell a portfolio security for the specific
purpose of causing, and with the actual knowledge that the effect of such
purchase or sale will be to cause, the Portfolio Calculation as of the date of
the purchase or sale to be less than the Basic Maintenance Amount as of such
date, (ii) in the event that, as of the immediately preceding Valuation Date,
the Portfolio Calculation exceeded the Basic Maintenance Amount by 5% or less,
alter the composition of the Corporation's portfolio securities in a manner
reasonably expected to reduce the Portfolio Calculation, unless the Corporation
shall have confirmed that, after giving effect to such alteration, the Portfolio
Calculation exceeded the Basic Maintenance Amount or (iii) declare or pay any
dividend or other distribution on any shares of Common Stock or repurchase any
shares of Common Stock, unless the Corporation shall have confirmed that, after
giving effect to such declaration, other distribution or repurchase, the
Corporation continues to satisfy the requirements of paragraph 5(a)(ii)(A) of
Article II hereof.

                  (b)     For so long as the Cumulative Preferred Stock is rated
by Moody's, the Corporation shall not (a) acquire or otherwise invest in (i)
future contracts or (ii) options on futures contracts, (b) engage in reverse
repurchase agreements, (c) engage in short sales, (d) overdraw any bank account,
(e) write options on portfolio securities other than call options on securities
held in the Corporation's portfolio or that the Corporation has an immediate
right to acquire through conversion or exchange of securities held in its
portfolio, or (f) borrow money, except for the purpose of clearing and/or
settling transactions in portfolio securities (which borrowings shall under any
circumstances be limited to the lesser of $10,000,000 and an amount equal to 5%
of the Market Value of the Corporation's assets at the time of such borrowings
and which borrowings shall be repaid within 60 days and not be extended or
renewed), unless in any such case, the Corporation shall have received written
confirmation from Moody's that such investment activity will not adversely
affect Moody's then current rating of the Cumulative Preferred Stock.
Furthermore, for so long as the Cumulative Preferred Stock is rated by Moody's,
unless the Corporation shall have received the written confirmation from Moody's


                                       28

<PAGE>

referred to in the preceding sentence, the Corporation may engage in the lending
of its portfolio securities only in an amount of up to 15% of the Corporation's
total assets, provided that the Corporation receives cash collateral for such
loaned securities which is maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities and, if
invested, is invested only in money market mutual funds meeting the requirements
of Rule 2a-7 under the 1940 Act that maintain a constant $1.00 per share net
asset value. In determining the Portfolio Calculation, the Corporation shall use
the Moody's Discount Factor applicable to the loaned securities rather than the
Moody's Discount Factor applicable to the collateral.

                  (c)     For so long as the Cumulative Preferred Stock is rated
by Moody's, the Corporation shall not consolidate the Corporation with, merge
the Corporation into, sell or otherwise transfer all or substantially all of the
Corporation's assets to another entity or adopt a plan of liquidation of the
Corporation, in each case without providing prior written notification to
Moody's.

         7.       Termination of Rating Agency Provisions.
                  ----------------------------------------

                  (a)     The Board of Directors may determine that it is not in
the best interests of the Corporation to continue to comply with the provisions
of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's,
in which case the Corporation will no longer be required to comply with any of
the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with
respect to Moody's, provided that (i) the Corporation has given the Paying
Agent, Moody's and holders of the Cumulative Preferred Stock at least 20
calendar days written notice of such termination of compliance, (ii) the
Corporation is in compliance with the provisions of paragraphs 5(a)(i),
5(a)(ii), 5(c) and 6 of Article II hereof at the time the notice required in
clause (i) hereof is given and at the time of the termination of compliance with
the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with
respect to Moody's, (iii) at the time the notice required in clause (i) hereof
is given and at the time of termination of compliance with the provisions of
paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's the
Cumulative Preferred Stock is listed on the New York Stock Exchange or on
another exchange registered with the Securities and Exchange Commission as a
national securities exchange and (iv) at the time of termination of compliance
with the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with
respect to Moody's, the Cumulative Preferred Stock shall have received a rating
from at least one NRSRO that is at least comparable to the then current rating
from Moody's.

                  (b)     On the date that the notice is given in paragraph 7(a)
above and on the date that compliance with the provisions of paragraphs
5(a)(ii), 5(c) and 6 of Article II hereof with respect to Moody's is terminated,
the Corporation shall provide the Paying Agent and Moody's with an Officers'
Certificate as to the compliance with the provisions of paragraph 7(a) hereof,
and the provisions of paragraphs 5(a)(ii), 5(c) and 6 of Article II hereof with
respect to Moody's shall terminate on such later date and thereafter have no
force or effect.

         8.       Limitation on Issuance of Additional Preferred Stock.
                  -----------------------------------------------------

         So long as any shares of Cumulative Preferred Stock are outstanding,
the Corporation may issue and sell additional shares of Cumulative Preferred
Stock authorized hereby and/or


                                       29

<PAGE>

shares of one or more other series of Preferred Stock constituting a series of a
class of senior securities of the Corporation representing stock under Section
18 of the 1940 Act in addition to the shares of Cumulative Preferred Stock,
provided that (i) immediately after giving effect to the issuance and sale of
such additional Preferred Stock and to the Corporation's receipt and application
of the proceeds thereof, the Corporation will maintain the Asset Coverage of the
shares of Cumulative Preferred Stock and all other Preferred Stock of the
Corporation then outstanding, and (ii) no such additional Preferred Stock shall
have any preference or priority over any other Preferred Stock of the
Corporation upon the distribution of the assets of the Corporation or in respect
of the payment of dividends. Shares of the Cumulative Preferred Stock redeemed
or otherwise acquired by Corporation shall be returned to the status of
authorized but unissued shares of Common Stock.

                                  ARTICLE III.

                     ABILITY OF BOARD OF DIRECTORS TO MODIFY
                   THE TERMS OF THE CUMULATIVE PREFERRED STOCK

         To the extent permitted by law, the Board of Directors may modify or
interpret these terms of the Cumulative Preferred Stock to resolve any
inconsistency or ambiguity or to remedy any formal defect so long as such
modification or interpretation does not materially adversely affect any of the
contract rights of holders of the Cumulative Preferred Stock or any other stock
of the Corporation, as expressly set forth in the Charter, or, if the
Corporation has not previously terminated compliance with the provisions hereof
with respect to Moody's pursuant to paragraph 7 of Article II hereof, adversely
affect the then current rating on the Cumulative Preferred Stock by Moody's.


                                       30

<PAGE>


         SECOND: The shares of Cumulative Preferred Stock have been classified
and designated by the Board of Directors under the authority contained in the
Charter.

         THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.

         FOURTH: The undersigned President of the Corporation acknowledges these
Articles Supplementary to be the corporate act of the Corporation and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that, to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.




















                                       31

<PAGE>

         IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed in its name and on its behalf by its President and
attested to by its Secretary on this ___ day of _____________, 2003

ATTEST:                                         ROYCE FOCUS TRUST, INC.




By:____________________________                 By:____________________________
Name:                                           Name:
Title:  Secretary                               Title:  President




















                                       32


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.H
<SEQUENCE>6
<FILENAME>rft63006_ex-99h.txt
<DESCRIPTION>FORM OF UNDERWRITING AGREEMENT
<TEXT>















                                 EXHIBIT 99 (h)

                         FORM OF UNDERWRITING AGREEMENT

<PAGE>

                             ROYCE FOCUS TRUST, INC.

                       _____ % CUMULATIVE PREFERRED STOCK
                     Liquidation Preference $25.00 per share





                             UNDERWRITING AGREEMENT
                             ----------------------




                                                              New York, New York
                                                              October __, 2003


Citigroup Global Markets Inc.
UBS Securities LLC
As Representatives of the several Underwriters


c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York  10013


Ladies and Gentlemen:

                  The undersigned, Royce Focus Trust, Inc., a Maryland
corporation (the "Fund") and Royce & Associates, LLC, a Delaware limited
liability company (the "Adviser") address you as underwriters and as the
representatives (the "Representatives") of each of the several underwriters
named on Schedule I hereto (herein collectively called "Underwriters"). The Fund
proposes to sell to the Underwriters 1,000,000 shares (the "Securities") of its
___% Cumulative Preferred Stock, par value $.001 per share and liquidation
preference $25.00 per share (the "Cumulative Preferred Stock"). Unless otherwise
stated, the term "you" as used herein means each of Citigroup Global Markets
Inc. and UBS Securities LLC individually on its own behalf and on behalf of the
other Underwriters. Certain terms used herein are defined in Section 18 hereof.
The Securities will be authorized by, and subject to the terms and conditions
of, the Articles Supplementary to be adopted in connection with the issuance of
the Securities (the "Articles Supplementary").

                  The Fund and the Adviser wish to confirm as follows their
agreements with you and the other several Underwriters on whose behalf you are
acting in connection with the several purchases of the Securities by the
Underwriters.

                  The Fund has entered into (i) an Investment Advisory Agreement
with the Adviser, dated as of October 1, 2001; (ii) a Custodian Agreement with
State Street Bank and Trust Company ("State Street") dated as of


<PAGE>

December 31, 1996, as amended to date; and (iii) a Registrar, Transfer Agency
and Paying Agency Agreement with State Street, dated as of December 23, 1996, as
amended to date; and such agreements are herein referred to as the "Advisory
Agreement," the "Custodian Agreement" and the "Transfer Agency Agreement,"
respectively. Collectively, the Advisory Agreement, the Custodian Agreement and
the Transfer Agency Agreement are herein referred to as the "Fund Agreements."

                  1.      Representations and Warranties of the Fund and the
Adviser. The Fund and the Adviser, jointly and severally, represent and warrant
to, and agree with, each Underwriter as set forth below in this Section 1.

                  (a)     The Fund has prepared and filed with the Commission a
         registration statement (file numbers 333-107928 and 811-05379) on Form
         N-2, including a related preliminary prospectus (including the
         statement of additional information incorporated by reference therein),
         for registration under the 1933 Act and the 1940 Act of the offering
         and sale of the Securities. The Fund may have filed one or more
         amendments thereto, including a related preliminary prospectus
         (including the statement of additional information incorporated by
         reference therein), each of which has previously been furnished to you.
         The Fund will next file with the Commission one of the following:
         either (1) prior to the Effective Date of such registration statement,
         a further amendment to such registration statement (including the form
         of final prospectus (including the statement of additional information
         incorporated by reference therein)) or (2) after the Effective Date of
         such registration statement, a final prospectus (including the
         statement of additional information incorporated by reference therein)
         in accordance with Rules 430A and 497. In the case of clause (2), the
         Fund has included in such registration statement, as amended at the
         Effective Date, all information (other than Rule 430A Information)
         required by the Acts and the Rules and Regulations to be included in
         such registration statement and the Prospectus. As filed, such
         amendment and form of final prospectus (including the statement of
         additional information incorporated by reference therein), or such
         final prospectus (including the statement of additional information
         incorporated by reference therein), shall contain all Rule 430A
         Information, together with all other such required information, and,
         except to the extent the Representatives shall agree in writing to a
         modification, shall be in all substantive respects in the form
         furnished to you prior to the Execution Time or, to the extent not
         completed at the Execution Time, shall contain only such specific
         additional information and other changes (beyond that contained in the
         latest Preliminary Prospectus) as the Fund has advised you, prior to
         the Execution Time, will be included or made therein. The Fund has
         furnished the Underwriters with copies of such Registration Statement,
         each amendment to such Registration Statement filed with the Commission
         and each Preliminary Prospectus.

                  (b)     Each Preliminary Prospectus included as part of the
         registration statement as originally filed or as part of any amendment
         or supplement thereto, or filed pursuant to Rule 497, complied when so
         filed in all material respects with the provisions of the Acts and the
         Rules and Regulations. The Commission has not issued any order
         preventing or suspending the use of any Preliminary Prospectus.

                  (c)     The Registration Statement in the form in which it
         became or becomes effective and also in such form as it may be when any
         post-effective amendment thereto shall become effective, the Prospectus
         and any supplement thereto when filed with the Commission under Rule
         497 and the 1940 Act Notification when originally filed with the


                                       2

<PAGE>

         Commission and any amendment or supplement thereto when filed with the
         Commission, complied or will comply in all material respects with the
         provisions of the Acts and the Rules and Regulations and did not or
         will not at any such times contain an untrue statement of a material
         fact or omit to state a material fact required to be stated therein or
         necessary to make the statements therein not misleading, except that
         this representation and warranty does not apply to statements in or
         omissions from the registration statement or the Prospectus made in
         reliance upon and in conformity with information relating to any
         Underwriter furnished to the Fund in writing by or on behalf of any
         Underwriter through you expressly for use therein.

                  (d)     The Securities have been duly authorized and, when
         issued and delivered to the Underwriters against payment therefor in
         accordance with the terms hereof, will be validly issued, fully paid
         and nonassessable and free of any preemptive or similar rights and will
         conform to the description thereof in the Registration Statement and
         the Prospectus (and any amendment or supplement to either of them).

                  (e)     The Fund's capitalization and adjusted capitalization
         as of June 30, 2003 is as set forth in the Prospectus; all outstanding
         shares of the Fund's Common Stock, the 7.45% Preferred have been duly
         authorized and validly issued, are fully paid and nonassessable and are
         free of any preemptive or similar rights, and conform to the
         description thereof in the Registration Statement and the Prospectus
         (and any amendment or supplement to either of them).

                  (f)     The Fund is a corporation duly organized and validly
         existing in good standing under the laws of the State of Maryland with
         full corporate power and authority to own, lease and operate its
         property or assets and to conduct its business as described in the
         Registration Statement and the Prospectus (and any amendment or
         supplement to either of them), and is duly registered and qualified to
         conduct its business and is in good standing in each jurisdiction or
         place where the nature of its property or assets or the conduct of its
         business requires such registration or qualification, except where the
         failure so to register or qualify does not have a material adverse
         effect on the condition (financial or other), business, prospects,
         property, net assets or results of operations of the Fund, or on the
         ability of the Fund to perform its obligations under this Agreement or
         any of the Fund Agreements. The Fund has no subsidiaries.

                  (g)     There are no legal or governmental proceedings pending
         or, to the knowledge of the Fund, threatened, against the Fund, or to
         which the Fund or any of its property or assets is subject, that are
         required to be described in the Registration Statement or the
         Prospectus (and any amendment or supplement to either of them) but are
         not described as required, and there are no agreements, contracts,
         indentures, leases or other instruments that are required to be
         described in the Registration Statement or the Prospectus (and any
         amendment or supplement to either of them) or to be filed as an exhibit
         to the Registration Statement that are not described or filed as
         required by the Acts or the Rules and Regulations.


                                       3

<PAGE>

                  (h)     The Fund is not in violation of its articles of
         incorporation, as amended and supplemented to date, including the
         Articles Supplementary relating to the 7.45% Preferred (collectively,
         the "Charter") or its amended and restated bylaws (the "Bylaws"), or of
         any law, ordinance, administrative or governmental rule or regulation
         applicable to the Fund or of any decree of the Commission, any state
         securities commission, any national securities exchange, any
         arbitrator, any court or governmental agency, body or official having
         jurisdiction over the Fund, or in default in any material respect in
         the performance of any obligation, agreement or condition contained in
         any bond, debenture, note or any other evidence of indebtedness or in
         any material agreement, indenture, lease or other instrument to which
         the Fund is a party or by which it or any of its property or assets may
         be bound.

                  (i)     Neither the issuance and sale of the Securities, the
         execution, delivery or performance of this Agreement or any of the Fund
         Agreements by the Fund, nor the consummation by the Fund of the
         transactions contemplated hereby or thereby (A) requires any consent,
         approval, authorization or other order of or registration or filing
         with, the Commission, any state securities commission, any national
         securities exchange, any arbitrator, any court, regulatory body,
         administrative agency or other governmental body, agency or official
         (except for the registration of the Securities under the 1933 Act and
         such consents, approvals, authorizations, registrations or
         qualifications as may be required under applicable state securities or
         Blue Sky laws in connection with the purchase and distribution of the
         Securities by you and the required rating agency confirmation), (B)
         violates or will violate or conflicts or will conflict with any
         provision of the Charter or bylaws of the Fund or any statute, law,
         regulation or judgment, injunction, order or decree applicable to the
         Fund or any of its property or assets or (C) conflicts or will conflict
         with or constitutes or will constitute a breach of, or a default under,
         any agreement, indenture, lease or other instrument to which the Fund
         is a party or by which it or any of its property or assets may be
         bound, or will result in the creation or imposition of any lien, charge
         or encumbrance upon any property or assets of the Fund pursuant to the
         terms of any agreement or instrument to which it is a party or by which
         it may be bound or to which any of its property or assets is subject.
         The Fund is not subject to any order of any court or of any arbitrator,
         governmental authority or administrative agency.

                  (j)     Tait, Weller & Baker, who have audited the financial
         statements included or incorporated by reference in the Registration
         Statement and the Prospectus, are independent public accountants with
         respect to the Fund within the meaning of the 1933 Act and the 1933 Act
         Rules and Regulations.

                  (k)     The financial statements, together with related
         schedules and notes, included or incorporated by reference in the
         Registration Statement and the Prospectus (and any amendment or
         supplement to either of them), present fairly the financial position,
         results of operations and changes in financial position of the Fund on
         the basis stated or incorporated by reference in the Registration
         Statement at the respective dates or for the respective periods to
         which they apply; such statements and related schedules and notes have
         been prepared in accordance with generally accepted accounting
         principles consistently applied throughout the periods involved, except
         as disclosed therein; and the


                                       4

<PAGE>

         other financial and statistical information and data included in the
         Registration Statement and the Prospectus (and any amendment or
         supplement to either of them) are accurately presented and prepared on
         a basis consistent with such financial statements and the books and
         records of the Fund.

                  (l)     The execution and delivery of, and the performance by
         the Fund of its obligations under, this Agreement and the Fund
         Agreements have been duly and validly authorized by the Fund, and this
         Agreement and the Fund Agreements have been duly executed and delivered
         by the Fund and constitute the valid and legally binding agreements of
         the Fund, enforceable against the Fund in accordance with their terms,
         except as rights to indemnity and contribution hereunder and thereunder
         may be limited under federal or state securities laws.

                  (m)     Except as disclosed in the Registration Statement and
         the Prospectus (or any amendment or supplement to either of them),
         subsequent to the respective dates as of which such information is
         given in the Registration Statement and the Prospectus (or any
         amendment or supplement to either of them), the Fund has not incurred
         any liability or obligation, direct or contingent, or entered into any
         transaction, not in the ordinary course of business, that is material
         to the Fund, and there has not been any change in the capital stock, or
         material increase in the short-term debt or long-term debt, of the
         Fund, or any material adverse change, or any development involving or
         which may reasonably be expected to involve, a prospective material
         adverse change, in the condition (financial or other), business,
         prospects, property, net assets or results of operations of the Fund
         taken as a whole, whether or not arising in the ordinary course of
         business.

                  (n)     The Fund has not distributed and, prior to the later
         to occur of the Closing Date and the completion of the distribution of
         the Securities will not distribute, any offering material in connection
         with the offering and sale of the Securities other than the
         Registration Statement, the Preliminary Prospectus, the Prospectus or
         other materials, if any, permitted by the Acts or the Rules and
         Regulations.

                  (o)     The Fund has such permits, licenses, franchises and
         authorizations of governmental or regulatory authorities ("permits") as
         are necessary to own its property and assets and to conduct its
         business in the manner described in the Prospectus (and any supplement
         thereto), subject to such qualifications as may be set forth in the
         Prospectus; the Fund has fulfilled and performed all its material
         obligations with respect to such permits and no event has occurred
         which allows, or after notice or lapse of time would allow, revocation
         or termination thereof or results in any other material impairment of
         the rights of the Fund under any such permit, subject in each case to
         such qualification as may be set forth in the Prospectus (and any
         supplement thereto); and, except as described in the Prospectus (and
         any supplement thereto), none of such permits contains any restriction
         that is materially burdensome to the Fund.

                  (p)     The Fund maintains a system of internal accounting
         controls sufficient to provide reasonable assurances that (i)
         transactions are executed in accordance with general or specific
         authorization from the Fund's officers and with the applicable
         requirements of the 1940 Act, the 1940 Act Rules and Regulations and
         the Code; (ii)


                                       5

<PAGE>

         transactions are recorded as necessary to permit preparation of
         financial statements in conformity with generally accepted accounting
         principles and to maintain accountability for assets and to maintain
         compliance with the books and records requirements under the 1940 Act
         and the 1940 Act Rules and Regulations; (iii) access to assets is
         permitted only in accordance with general or specific authorization
         from the Fund's officers; and (iv) the recorded accountability for
         assets is compared with existing assets at reasonable intervals and
         appropriate action is taken with respect to any differences.

                  (q)     To the Fund's knowledge, neither the Fund nor any
         employee or agent of the Fund has made any payment of funds of the Fund
         or received or retained any funds in violation of any law, rule or
         regulation, which payment, receipt or retention of funds is of a
         character required to be disclosed in the Prospectus.

                  (r)     The Fund has filed all tax returns required to be
         filed, which returns are complete and correct, and the Fund is not in
         default in the payment of any taxes which were payable pursuant to said
         returns or any assessments with respect thereto; and the statements in
         the Prospectus under the headings "Taxation", "Description of
         Cumulative Preferred Stock" and "Description of Capital Stock" fairly
         summarize the matters therein described.

                  (s)     No holder of any security of the Fund has any right to
         require registration of shares of Cumulative Preferred Stock or any
         other security of the Fund because of the filing of the registration
         statement or consummation of the transactions contemplated by this
         Agreement.

                  (t)     The Fund, subject to the registration statement having
         been declared effective and the filing of the Prospectus under Rule
         497, has taken all required action under the Acts and the Rules and
         Regulations to make the public offering and consummate the sale of the
         Securities as contemplated by this Agreement.

                  (u)     The conduct by the Fund of its business (as described
         in the Prospectus) does not require it to be the owner, possessor or
         licensee of any patents, patent licenses, trademarks, service marks or
         trade names which it does not own, possess or license.

                  (v)     The Fund is registered under the 1940 Act as a closed-
         end, diversified management investment company and the 1940 Act
         Notification has been duly filed with the Commission and, at the time
         of filing thereof and any amendment or supplement thereto, conformed in
         all material respects with all applicable provisions of the 1940 Act
         and the Rules and Regulations. The Fund is, and at all times through
         the completion of the transactions contemplated hereby will be, in
         compliance in all material respects with the terms and conditions of
         the Acts. No person is serving or acting as an officer, director or
         investment adviser of the Fund except in accordance with the provisions
         of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act,
         and the Advisers Act Rules and Regulations; the Fund has not received
         any notice from the Commission pursuant to Section 8(e) of the 1940 Act
         with respect to the 1940 Act Notification or the Registration
         Statement.


                                       6

<PAGE>

                  (w)     Except as stated in this Agreement and in the
         Prospectus (and any supplement thereto), the Fund has not taken, nor
         will it take, directly or indirectly, any action designed to or which
         might reasonably be expected to cause or result in stabilization or
         manipulation of the price of any securities issued by the Fund to
         facilitate the sale or resale of the Securities, and the Fund is not
         aware of any such action taken or to be taken by any affiliates of the
         Fund.

                  (x)     The Fund has filed in a reasonably timely manner each
         document or report required to be filed by it pursuant to the Exchange
         Act and Exchange Act Rules and Regulations; each such document or
         report at the time it was filed conformed to the requirements of the
         Exchange Act and the Exchange Act Rules and Regulations; and none of
         such documents or reports contained an untrue statement of any material
         fact or omitted to state any material fact required to be stated
         therein or necessary to make the statements therein not misleading.

                  (y)     Each of the Fund Agreements and the Fund's and the
         Adviser's obligations under this Agreement and each of the Fund
         Agreements comply in all material respects with all applicable
         provisions of the 1940 Act, the 1940 Act Rules and Regulations, the
         Advisers Act and the Advisers Act Rules and Regulations.

                  (z)     The Fund will use its reasonable best efforts to cause
         the Cumulative Preferred Stock, on or prior to the Closing Date, to be
         assigned a rating of "Aaa" by the Rating Agency.

                  (aa)    At all times since its inception, as required by
         Subchapter M of the Code, the Fund has complied with the requirements
         to qualify as a regulated investment company under the Code.

                  (bb)    Except as disclosed in the Registration Statement and
         the Prospectus (or any amendment or supplement to either of them), no
         director of the Fund is an "interested person" (as defined in the 1940
         Act) of the Fund or an "affiliated person" (as defined in the 1940 Act)
         of any Underwriter.

                  (cc)    The Fund will use its reasonable best efforts to cause
         the Cumulative Preferred Stock to be listed, subject to notice of
         issuance, on the NYSE within 30 days of the effectiveness of the
         Registration Statement and to comply with the rules and regulations of
         such exchange.

                  (dd)    The Fund intends to direct the investment of the
         proceeds of the offering of the Securities in such a manner as to
         comply with the requirements of Subchapter M of the Code.

                  (ee)    All advertising, sales literature or other promotional
         material (including "prospectus wrappers", "broker kits", "road show
         slides" and "road show scripts"), whether in printed or electronic
         form, authorized in writing by or prepared by the Fund or the Adviser
         for use in connection with the offering and sale of the Securities
         (collectively, "sales material"), if any, complied and comply in all
         material respects with the applicable requirements of the 1933 Act, the
         1933 Act Rules and Regulations and the


                                       7

<PAGE>

         rules and interpretations of the NASD and if required to be filed with
         the NASD under the NASD's conduct rules were or will be so filed prior
         to the Closing. No sales material contained or contains an untrue
         statement of a material fact or omitted or omits to state a material
         fact necessary in order to make the statements therein, in the light of
         the circumstances under which they were made, not misleading.

                  (ff)    The Fund's directors and officers/errors and omissions
         insurance policy and its fidelity bond required by Rule 17g-1 of the
         1940 Act Rules and Regulations are in full force and effect; the Fund
         is in compliance with the terms of such policy and fidelity bond in all
         material respects; and there are no claims by the Fund under any such
         policy or fidelity bond as to which any insurance company is denying
         liability or defending under a reservation of rights clause; the Fund
         has not been refused any insurance coverage sought or applied for; and
         the Fund has no reason to believe that it will not be able to renew its
         existing insurance coverage as and when such coverage expires or to
         obtain similar coverage from similar insurers as may be necessary to
         continue its business at a cost that would not have a material adverse
         effect on the condition (financial or otherwise), prospects, earnings,
         business or properties of the Fund, whether or not arising from
         transactions in the ordinary course of business, except as set forth in
         or contemplated in the Prospectus (exclusive of any supplement
         thereto).

                  (gg)    Except as disclosed in the Registration Statement and
         the Prospectus, the Fund (i) does not have any material lending or
         other relationship with any affiliate of Citigroup Global Markets Inc.
         and (ii) does not intend to use any of the proceeds from the sale of
         the Securities hereunder to repay any outstanding debt owed to any
         affiliate of Citigroup Global Markets Inc.

                  (hh)    There is and has been no failure on the part of the
         Fund and any of the Fund's directors or officers, in their capacities
         as such, to comply in all material respects with any provision of the
         Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in
         connection therewith (the "Sarbanes-Oxley Act"), including Sections 302
         and 906 related to certifications.

                  (ii)    The operations of the Fund are and have been conducted
         at all times in compliance in all material respects with any applicable
         financial recordkeeping and reporting requirements of The Bank Secrecy
         Act of 1970, as amended (including amendments pursuant to the
         International Money Laundering Abatement and Anti-Terrorist Financing
         Act of 2001), the money laundering statutes of all jurisdictions, the
         rules and regulations thereunder and any related or similar rules,
         regulations or guidelines, issued, administered or enforced by any
         governmental agency (collectively, the "Money Laundering Laws") and no
         action, suit or proceeding by or before any court or governmental
         agency, authority or body or any arbitrator involving the Fund with
         respect to the Money Laundering Laws is pending or, to the knowledge of
         the Fund, threatened.

                  (jj)    Neither the Fund nor, to the knowledge of the Fund,
         any director, officer, agent, employee or affiliate of the Fund is
         currently subject to any U.S. sanctions administered by the Office of
         Foreign Assets Control of the U.S. Treasury Department


                                       8

<PAGE>

         ("OFAC"); and the Fund will not directly or indirectly use the proceeds
         of the offering, or lend, contribute or otherwise make available such
         proceeds to any other person or entity, for the purpose of financing
         the activities of any person currently subject to any U.S. sanctions
         administered by OFAC.

                  (kk)    Neither the Fund nor, to the knowledge of the Fund,
         any director, officer, agent, employee or affiliate of the Fund is
         aware of or has taken any action, directly or indirectly, that would
         result in a violation by such persons of the FCPA, including, without
         limitation, making use of the mails or any means or instrumentality of
         interstate commerce corruptly in furtherance of an offer, payment,
         promise to pay or authorization of the payment of any money, or other
         property, gift, promise to give, or authorization of the giving of
         anything of value to any "foreign official" (as such term is defined in
         the FCPA) or any foreign political party or official thereof or any
         candidate for foreign political office, in contravention of the FCPA
         and the Fund, and, to the knowledge of the Fund, its affiliates have
         conducted their businesses in compliance with the FCPA and have
         instituted and maintain policies and procedures designed to ensure, and
         which are reasonably expected to continue to ensure, continued
         compliance therewith.

                  Any certificate signed by any officer of the Fund and
delivered to the Representatives or counsel for the Underwriters in connection
with the offering of the Securities shall be deemed a representation and
warranty by the Fund, as to matters covered thereby, to each Underwriter.

                  2.      Representations and Warranties of the Adviser. The
Adviser represents and warrants to each Underwriter as follows:

                  (a)     The Adviser is a limited liability company duly formed
         and validly existing in good standing under the laws of the State of
         Delaware, with full corporate power and authority to own, lease and
         operate its property or assets and to conduct its business as described
         in the Registration Statement and the Prospectus (and any amendment or
         supplement to either of them), and is duly registered and qualified to
         conduct its business and is in good standing in each jurisdiction or
         place where the nature of its property or assets or the conduct of its
         business requires such registration or qualification, except where the
         failure to so register or to qualify does not have a material adverse
         effect on the condition (financial or other), business, prospects,
         property, net assets or results of operations of the Adviser, or on the
         ability of the Adviser to perform its obligations under this Agreement
         and the Investment Advisory Agreement.

                  (b)     The Adviser is duly registered with the Commission as
         an investment adviser under the Advisers Act and is not prohibited by
         the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act
         or the 1940 Act Rules and Regulations from acting under the Investment
         Advisory Agreement for the Fund as contemplated by the Prospectus (or
         any supplement thereto). There does not exist any proceeding or, to the
         Adviser's knowledge, any facts or circumstances the existence of which
         could reasonably lead to any proceeding, which might adversely affect
         the registration of the Adviser with the Commission.


                                       9

<PAGE>

                  (c)     There are no legal or governmental proceedings pending
         or, to the knowledge of the Adviser, threatened against the Adviser, or
         to which the Adviser or any of its property or assets is subject, that
         are required to be described in the Registration Statement or the
         Prospectus (or any amendment or supplement to either of them) but are
         not described as required or that may reasonably be expected to involve
         a prospective material adverse change, in the condition (financial or
         other), business, prospects, property, net assets or results of
         operations of the Adviser or on the ability of the Adviser to perform
         its obligations under this Agreement and the Investment Advisory
         Agreement.

                  (d)     Neither the execution, delivery or performance of this
         Agreement or the Investment Advisory Agreement by the Adviser, nor the
         consummation by the Adviser of the transactions contemplated hereby or
         thereby (i) requires the Adviser to obtain any consent, approval,
         authorization or other order of or registration with, the Commission,
         any state securities commission, any national securities exchange, any
         arbitrator, any court, regulatory body, administrative agency or other
         governmental body, agency or official, (ii) violates or will violate or
         conflicts or will conflict with any provision of the certificate of
         formation or by-laws or other organizational documents of the Adviser
         or any statute, law, regulation or judgment, injunction, order or
         decree applicable to the Adviser or any of its property or assets or
         (iii) conflicts or will conflict with or constitutes or will constitute
         a breach of or a default under, any agreement, indenture, lease or
         other instrument to which the Adviser is a party or by which it or any
         of its property or assets may be bound, or will result in the creation
         or imposition of any lien, charge or encumbrance upon any property or
         assets of the Adviser pursuant to the terms of any agreement or
         instrument to which it is a party or by which it may be bound or to
         which any of the property or assets of the Adviser is subject. The
         Adviser is not subject to any order of any court or of any arbitrator,
         governmental authority or administrative agency.

                  (e)     The execution and delivery of, and the performance by
         the Adviser of its obligations under, this Agreement and the Investment
         Advisory Agreement have been duly and validly authorized by the
         Adviser, and this Agreement and the Investment Advisory Agreement have
         been duly executed and delivered by the Adviser and each constitutes
         the valid and legally binding agreement of the Adviser, enforceable
         against the Adviser in accordance with its terms except as rights to
         indemnity and contribution hereunder may be limited under federal or
         state securities laws.

                  (f)     The Adviser has the financial resources available to
         it necessary for the performance of its services and obligations as
         contemplated in the Prospectus (or any supplement thereto) and under
         this Agreement and the Investment Advisory Agreement.

                  (g)     The description of the Adviser in the Registration
         Statement and the Prospectus (and any amendment or supplement to either
         of them) complied and comply in all material respects with the
         provisions the Acts, the Advisers Act, the Rules and Regulations, and
         the Advisers Act Rules and Regulations and such description did not, as
         of the effective date of the Registration Statement and the date
         hereof, and will not, as of the Closing Date, contain an untrue
         statement of a material fact or omit to state a material fact required
         to be stated therein or necessary to make the statements therein, in
         the light of the circumstances under which they were made, not
         misleading.


                                       10

<PAGE>

                  (h)     Except as disclosed in the Registration Statement and
         the Prospectus (or any amendment or supplement to either of them),
         subsequent to the respective dates as of which such information is
         given in the Registration Statement and the Prospectus (or any
         amendment or supplement to either of them), the Adviser has not
         incurred any liability or obligation, direct or contingent, or entered
         into any transaction, not in the ordinary course of business, that is
         material to the Fund, and there has not been any material adverse
         change, or any development involving or which may reasonably be
         expected to involve, a prospective material adverse change, in the
         condition (financial or other), business, prospects, property, net
         assets or results of operations of the Adviser, whether or not arising
         in the ordinary course of business, or which, in each case, could have
         a material adverse effect on the ability of the Adviser to perform its
         obligations under this Agreement and the Investment Advisory
         Agreement..

                  (i)     The Adviser has such permits, licenses, franchises and
         authorizations of governmental or regulatory authorities ("permits") as
         are necessary to own its property and assets and to conduct its
         business in the manner described in the Prospectus (and any supplement
         thereto); the Adviser has fulfilled and performed all its material
         obligations with respect to such permits, and to the Adviser's
         knowledge no event has occurred which allows, or after notice or lapse
         of time would allow, revocation or termination thereof or results in
         any other material impairment of the rights of the Adviser under any
         such permit; and, except as described in the Prospectus (and any
         supplement thereto), none of such permits contains any restriction that
         is materially burdensome to the Adviser

                  (j)     Except as stated in this Agreement and in the
         Prospectus (and any supplement thereto), the Adviser has not taken, nor
         will it take, directly or indirectly, any action designed to or which
         might reasonably be expected to cause or result in, stabilization or
         manipulation of the price of any securities issued by the Fund to
         facilitate the sale or resale of the Securities, and the Adviser is not
         aware of any such action taken or to be taken by any affiliates of the
         Adviser.

                  (k)     Charles M. Royce is the validly appointed President of
         the Adviser.

                  (l)     In the event that the Fund or the Adviser makes
         available any promotional materials intended for use only by qualified
         broker-dealers and registered representatives thereof by means of an
         Internet web site or similar electronic means, the Adviser will install
         and maintain pre-qualification and password-protection or similar
         procedures which are reasonably designed to effectively prohibit access
         to such promotional materials by persons other than qualified
         broker-dealers and registered representatives thereof.

                  (m)     This Agreement and the Investment Advisory Agreement
         comply in all material respects with all applicable provisions of the
         1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the
         Advisers Act Rules and Regulations.

                  3.      Purchase and Sale. Subject to the terms and conditions
and in reliance upon the representations and warranties herein set forth, the
Fund agrees to sell to each Underwriter, and each Underwriter agrees, severally
and not jointly, to purchase from the Fund, at a purchase


                                       11

<PAGE>

price of $_____ per share, the number of the Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto.

                  4.      Delivery and Payment. Delivery of and payment for the
Underwritten Securities shall be made at 10:00 AM, New York City time, on the
business day after the date hereof at the offices of Simpson Thacher & Bartlett
LLP, 425 Lexington Avenue, New York, New York 10017 or at such time on such
later date not more than three Business Days after the foregoing date as the
Representatives shall designate, which date and time may be postponed by
agreement between the Representatives and the Fund or as provided in Section 10
hereof (such date and time of delivery and payment for the Securities being
herein called the "Closing Date"). Delivery of the Securities shall be made to
the Representatives for the respective accounts of the several Underwriters
against payment by the several Underwriters through the Representatives of the
purchase price thereof to or upon the order of the Fund by wire transfer payable
in same-day funds to an account specified by the Fund. Delivery of the
Underwritten Securities shall be made through the facilities of The Depository
Trust Company unless the Representatives shall otherwise instruct.

                  5.      Offering by Underwriters. It is understood that the
several Underwriters propose to offer the Securities for sale to the public as
set forth in the Prospectus.

                  6.      Agreements of the Fund and the Adviser. The Fund and
the Adviser, jointly and severally, agree with the several Underwriters as
follows:

                  (a)     The Fund will use its best efforts to cause the
         Registration Statement, if not effective at the Execution Time, and any
         amendment thereto, to become effective. Prior to the termination of the
         offering of the Securities, the Fund will not file any amendment of the
         Registration Statement or supplement to the Prospectus or any Rule
         462(b) Registration Statement unless the Fund has furnished you a copy
         for your review prior to filing and will not file any such proposed
         amendment or supplement to which you reasonably object. Subject to the
         foregoing sentence, if the Registration Statement has become or becomes
         effective pursuant to Rule 430A, or filing of the Prospectus is
         otherwise required under Rule 497, the Fund will cause the Prospectus,
         properly completed, and any supplement thereto to be filed in a form
         approved by the Representatives with the Commission pursuant to Rule
         497 within the time period prescribed and will provide evidence
         satisfactory to the Representatives of such timely filing. The Fund
         will promptly advise the Representatives (1) when the Registration
         Statement, if not effective at the Execution Time, shall have become
         effective, (2) when the Prospectus, and any supplement thereto, shall
         have been filed (if required) with the Commission pursuant to Rule 497
         or when any Rule 462(b) Registration Statement shall have been filed
         with the Commission, (3) when, prior to termination of the offering of
         the Securities, any amendment to the Registration Statement shall have
         been filed or become effective, (4) of any request by the Commission or
         its staff for any amendment of the Registration Statement, or any Rule
         462(b) Registration Statement, or for any supplement to the Prospectus
         or for any additional information, (5) of the issuance by the
         Commission of any stop order suspending the effectiveness of the
         Registration Statement or the institution or threatening of any
         proceeding for that purpose and (6) of the receipt by the Fund of any
         notification with respect to the suspension of the qualification of the
         Securities for sale in any jurisdiction or the institution or
         threatening of any proceeding


                                       12

<PAGE>

         for such purpose. The Fund will use its best efforts to prevent the
         issuance of any such stop order or the suspension of any such
         qualification and, if issued, to obtain as soon as possible the
         withdrawal thereof.

                  (b)     If, at any time when a prospectus relating to the
         Securities is required to be delivered under the 1933 Act, any event
         occurs as a result of which, in the judgment of the Fund or in the
         reasonable opinion of counsel for the Underwriters, the Prospectus as
         then supplemented would include any untrue statement of a material fact
         or omit to state any material fact necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading, or if it shall be necessary to amend the Registration
         Statement or supplement the Prospectus to comply with the 1933 Act, the
         1940 Act and the Rules and Regulations, the Fund promptly will (1)
         notify the Representatives of any such event; (2) prepare and file with
         the Commission, subject to the second sentence of paragraph (a) of this
         Section 6, an amendment or supplement which will correct such statement
         or omission or effect such compliance; and (3) supply any supplemented
         Prospectus to you in such quantities as you may reasonably request.

                  (c)     As soon as practicable, the Fund will make generally
         available to its security holders and to the Representatives an
         earnings statement or statements of the Fund which will satisfy the
         provisions of Section 11(a) of the 1933 Act and Rule 158 under the 1933
         Act.

                  (d)     The Fund will furnish to the Representatives and
         counsel for the Underwriters signed copies of the Registration
         Statement (including exhibits thereto) and to each other Underwriter a
         copy of the Registration Statement (without exhibits thereto) and, so
         long as delivery of a prospectus by an Underwriter or dealer may be
         required by the 1933 Act, as many copies of each Preliminary Prospectus
         and the Prospectus and any supplement thereto as the Representatives
         may reasonably request.

                  (e)     The Fund will arrange, if necessary, for the
         qualification of the Securities for sale under the laws of such
         jurisdictions as the Representatives may designate and will maintain
         such qualifications in effect so long as required for the distribution
         of the Securities; provided that in no event shall the Fund be
         obligated to qualify to do business in any jurisdiction where it is not
         now so qualified or to take any action that would subject it to service
         of process in suits, other than those arising out of the offering or
         sale of the Securities, in any jurisdiction where it is not now so
         subject.

                  (f)     The Fund will not, without the prior written consent
         of Citigroup Global Markets Inc., offer, sell, contract to sell,
         pledge, or otherwise dispose of (or enter into any transaction which is
         designed to, or might reasonably be expected to, result in the
         disposition (whether by actual disposition or effective economic
         disposition due to cash settlement or otherwise) by the Fund or any
         affiliate of the Fund or any person in privity with the Fund, directly
         or indirectly, including the filing (or participation in the filing) of
         a registration statement with the Commission in respect of, or
         establish or increase a put equivalent position or liquidate or
         decrease a call equivalent position within the meaning of Section 16 of
         the Exchange Act) any other senior security of the Fund or any
         securities convertible into, or exercisable, or exchangeable for, any
         senior security of the Fund; or


                                       13

<PAGE>

         publicly announce an intention to effect any such transaction for a
         period of 180 days following the Execution Time.

                  (g)     The Fund will comply with all applicable securities
         and other applicable laws, rules and regulations, including, without
         limitation, the Sarbanes-Oxley Act, and to use its best efforts to
         cause the Fund's directors and officers, in their capacities as such,
         to comply with such laws, rules and regulations, including, without
         limitation, the provisions of the Sarbanes-Oxley Act.

                  (h)     The Fund and the Adviser will not take, directly or
         indirectly, any action designed to or that would constitute or that
         might reasonably be expected to cause or result in, under the Exchange
         Act or otherwise, stabilization or manipulation of the price of any
         security of the Fund to facilitate the sale or resale of the
         Securities.

                  (i)     The Fund agrees to pay the costs and expenses relating
         to the following matters: (A) the preparation, printing or reproduction
         and filing with the Commission of the Registration Statement (including
         financial statements and exhibits thereto), each Preliminary
         Prospectus, the Prospectus and the 1940 Act Notification and each
         amendment or supplement to any of them; (B) the printing (or
         reproduction) and delivery (including postage, air freight charges and
         charges for counting and packaging) of such copies of the Registration
         Statement, each Preliminary Prospectus, the Prospectus, any sales
         material and all amendments or supplements to any of them, as may, in
         each case, be reasonably requested for use in connection with the
         offering and sale of the Securities; (C) the preparation, printing,
         authentication, issuance and delivery of certificates for the
         Securities, including any stamp or transfer taxes in connection with
         the original issuance and sale of the Securities; (D) the printing (or
         reproduction) and delivery of this Agreement, any blue sky memorandum,
         dealer agreements and all other agreements or documents printed (or
         reproduced) and delivered in connection with the offering of the
         Securities; (E) the registration of the Securities under the 1933 Act
         and the listing of the Securities on the NYSE; (F) any registration or
         qualification, if necessary, of the Securities for offer and sale under
         the securities or blue sky laws of the several states (including filing
         fees and the reasonable fees and expenses of counsel for the
         Underwriters relating to such registration and qualification); (G) any
         filings required to be made with the NASD (including filing fees and
         the reasonable fees and expenses of counsel for the Underwriters
         relating to such filings); (H) the transportation and other expenses
         incurred by or on behalf of Fund representatives in connection with
         presentations to prospective purchasers of the Securities; (I) the fees
         and expenses of the Fund's accountants and the fees and expenses of
         counsel (including local and special counsel) for the Fund; (J) the
         fees payable to the Rating Agency; and (K) all other costs and expenses
         incident to the performance by the Fund of its obligations hereunder,
         but not including the fees, expenses, and costs of Simpson Thacher &
         Bartlett LLP, counsel to the Underwriters, except as provided in
         Sections 6(i)(D) and (G) and in Section 8 of this Agreement.

                  (j)     The Fund will direct the investment of the net
         proceeds of the offering of the Securities in such a manner as to
         comply with the investment objectives, policies and restrictions of the
         Fund as described in the Prospectus.


                                       14

<PAGE>

                  (k)     The Fund will use its best efforts to cause the
         Cumulative Preferred Stock to be listed, subject to notice of issuance,
         on the NYSE within 30 days of effectiveness of the Registration
         Statement and to comply with the rules and regulations of such
         exchange.

                  (l)     The Fund will use its best efforts to cause the
         Cumulative Preferred Stock, on or prior to the Closing Date, to be
         assigned a rating of "Aaa" by the Rating Agency.

                  (m)     The Fund will comply with the requirements of
         Subchapter M of the Code to qualify as a regulated investment company
         under the Code.

                  (n)     The Fund and the Adviser will use their reasonable
         best efforts to perform all of the agreements required of them by this
         Agreement and discharge all conditions of theirs to closing as set
         forth in this Agreement.

                  7.      Conditions to the Obligations of the Underwriters. The
obligations of the Underwriters to purchase the Securities, as the case may be,
shall be subject to the accuracy of the representations and warranties on the
part of the Fund and the Adviser contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 4 hereof, to the
accuracy of the statements of the Fund made in any certificates pursuant to the
provisions hereof, to the performance by the Fund or the Adviser of its
obligations hereunder and to the following additional conditions:

                  (a)     If the Registration Statement has not become effective
         prior to the Execution Time, unless the Representatives agree in
         writing to a later time, the Registration Statement will become
         effective not later than (i) 6:00 PM New York City time on the date of
         determination of the public offering price, if such determination
         occurred at or prior to 3:00 PM New York City time on such date or (ii)
         9:30 AM on the Business Day following the day on which the public
         offering price was determined, if such determination occurred after
         3:00 PM New York City time on such date; if filing of the Prospectus,
         or any supplement thereto, is required pursuant to Rule 497, the
         Prospectus, and any such supplement, will be filed in the manner and
         within the time period required by Rule 497; and no stop order
         suspending the effectiveness of the Registration Statement shall have
         been issued by the Commission and no proceedings for that purpose shall
         have been instituted or threatened by the Commission.

                  (b)     The Fund shall have requested and caused Sidley Austin
         Brown & Wood LLP, special counsel for the Fund, to have furnished to
         the Representatives their opinion, dated the Closing Date and addressed
         to the Representatives, to the effect that:

                          (i)     the Fund is qualified to do business and is in
                  good standing as a foreign corporation in the State of New
                  York, and, to such counsel's knowledge, owns, possesses or has
                  obtained and currently maintains, all material governmental
                  licenses, permits, consents, orders, approvals and other
                  authorizations under the Federal laws of the United States and
                  the laws of the State of New York necessary to carry on its
                  business as contemplated by the Prospectus;


                                       15

<PAGE>

                          (ii)    the Securities have been duly authorized and,
                  when issued and delivered in accordance with the terms of this
                  Agreement, will be validly issued, fully paid and
                  non-assessable;

                          (iii)   this Agreement has been duly authorized,
                  executed and delivered by the Fund and complies with the
                  provisions of the 1940 Act and the 1940 Act Rules and
                  Regulations applicable to the Fund;

                          (iv)    each of the Fund Agreements has been duly
                  authorized, executed and delivered by the Fund, each complies
                  as to form in all material respects with all applicable
                  provisions of the 1940 Act and the 1940 Act Rules and
                  Regulations;

                          (v)     the Registration Statement is effective under
                  the 1933 Act and the 1933 Act Rules and Regulations and, to
                  such counsel's knowledge, no stop order suspending the
                  effectiveness of the Registration Statement has been issued
                  under the 1933 Act or the 1933 Act Rules and Regulations or
                  proceedings therefor initiated or threatened by the
                  Commission;

                          (vi)    at the time the Registration Statement became
                  effective, the Registration Statement (other than the
                  financial statements, accompanying notes, and other financial
                  or statistical information contained or incorporated by
                  reference therein or omitted therefrom, as to which no opinion
                  need be rendered) complied as to form in all material respects
                  with the requirements of the Acts and the Rules and
                  Regulations;

                          (vii)   to such counsel's knowledge, (A) there are no
                  contracts, indentures, mortgages, loan agreements, notes,
                  leases or other instruments of the Fund required to be
                  described or referred to in the Registration Statement or to
                  be filed as exhibits thereto other than those described or
                  referred to therein or filed as exhibits thereto, (B) the
                  descriptions thereof are correct in all material respects, (C)
                  references thereto are correct and (D) no default exists in
                  the due performance or observance by the Fund of any material
                  obligation, agreement, covenant or condition contained in any
                  contract, indenture, mortgage, loan agreement, note, lease or
                  other instrument so described, referred to or filed as an
                  exhibit to the Registration Statement;

                          (viii)  no consent, approval, authorization or order
                  of any court or governmental authority or agency is required
                  in connection with the performance by the Fund of its
                  obligations under this Agreement, except for (A) such as may
                  be required under state securities or Blue Sky laws in
                  connection with the purchase and distribution of the
                  Securities by you, (B) the required rating agency confirmation
                  (as to which such counsel need express no opinion), (C) such
                  as have been made or obtained under the 1933 Act, and (D) such
                  as may have been obtained under Maryland law; and to such
                  counsel's knowledge, the execution and delivery of this
                  Agreement and the consummation of the transactions
                  contemplated herein will not conflict with or constitute a
                  breach of, or a default under, or result in the creation or
                  imposition of any lien, charge or encumbrance


                                       16

<PAGE>

                  upon any property or assets of the Fund pursuant to, any
                  contract, indenture, mortgage, loan agreement, note, lease or
                  other instrument to which the Fund is a party or by which it
                  may be bound or to which any of the property or assets of the
                  Fund is subject, nor will such action result in any violation
                  of the provisions of the Charter or the Bylaws of the Fund,
                  or, to such counsel's knowledge, any Federal or New York law
                  or administrative regulation, or administrative or court
                  decree;

                          (ix)    the Fund is registered with the Commission
                  under the 1940 Act and the 1940 Act Rules and Regulations as a
                  closed-end, diversified management investment company, and all
                  required action has been taken by the Fund under the Acts and
                  the Rules and Regulations to make the public offering and
                  consummate the sale of the Securities pursuant to this
                  Agreement; the provisions of the Charter and the Bylaws of the
                  Fund comply as to form in all material respects with the
                  requirements of the 1940 Act and the 1940 Act Rules and
                  Regulations; and, to such counsel's knowledge, no order of
                  suspension or revocation of such registration under the 1940
                  Act and the 1940 Act Rules and Regulations, has been issued or
                  proceedings therefor initiated or threatened by the
                  Commission;

                          (x)     the information in the Prospectus under the
                  caption "Taxation", to the extent that it constitutes matters
                  of Federal income tax law or legal conclusions relating to
                  Federal income tax matters, has been reviewed by them and is
                  correct in all material respects; and

                          (xi)    to the knowledge of such counsel, there is no
                  pending or threatened action, suit or proceeding by or before
                  any court or governmental agency, authority or body or any
                  arbitrator involving the Fund or its property of a character
                  required to be disclosed in the Registration Statement which
                  is not adequately disclosed in the Prospectus.


         In rendering such opinion, Sidley Austin Brown & Wood LLP shall
         additionally state that nothing has come to their attention that has
         caused them to believe that the Registration Statement or any amendment
         thereto, at the time it became effective, contained an untrue statement
         of a material fact or omitted to state a material fact required to be
         stated therein or necessary to make the statements therein not
         misleading, or that the Prospectus or any supplement thereto, as of the
         time it was first provided to the Underwriters or as of the Closing
         Date, included an untrue statement of a material fact or omitted to
         state a material fact necessary in order to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading, except that such counsel need not express any belief
         with respect to the financial statements, accompanying notes, and other
         financial and statistical information contained or incorporated by
         reference in the Registration Statement and the Prospectus or omitted
         therefrom (and any amendment or supplement to either of the foregoing).
         In addition, Sidley Austin Brown & Wood LLP (A) may state that they
         express no opinion as to the laws of any jurisdiction other than the
         laws of the State of New York, the laws of the State of Maryland and
         the Federal laws of the United States of America, (B) may rely as to
         matters involving the laws of the State of Maryland upon the opinion of
         Venable LLP referred to in paragraph (c) of this Section 7 and (C)


                                       17

<PAGE>

         may rely, as to matters of fact, upon the representations and
         warranties made by the Fund and the Adviser herein and on certificates
         and written statements of officers and employees of and accountants for
         the Fund and the Adviser and of public officials. Except as otherwise
         specifically provided herein, when giving their opinions to their
         "knowledge", Sidley Austin Brown & Wood LLP have relied solely upon an
         inquiry of the attorneys of that firm who have worked on matters for
         the Fund, on certificates or written statements of officers of the Fund
         and, where appropriate, a review of the Registration Statement,
         Prospectus, exhibits to the Registration Statement, the Charter and
         Bylaws of the Fund and a review of the minute books of the Fund and
         have made no other investigation or inquiry.

                  (c)     You shall have received on the Closing Date an opinion
         of Venable LLP, special Maryland counsel to the Fund, dated the Closing
         Date and addressed to you, to the effect that:

                          (i)     the Fund has been duly incorporated and is
                  validly existing as a corporation in good standing under the
                  laws of the State of Maryland;

                          (ii)    the Fund has corporate power and authority,
                  under the laws of the State of Maryland, to own, lease and
                  operate its property or assets and conduct its business as
                  described in the Registration Statement and in the Prospectus;

                          (iii)   the authorized capital stock of the Fund
                  conforms as to legal matters in all material respects to the
                  description thereof in the Prospectus under the captions
                  "Description of Cumulative Preferred Stock" and "Description
                  of Capital Stock";

                          (iv)    the Securities have been duly authorized and,
                  when issued and delivered in accordance with the terms of this
                  Agreement, will be validly issued, fully paid and
                  non-assessable, and the issuance of the Securities will not be
                  subject to preemptive or other similar rights pursuant to the
                  Charter or Bylaws of the Fund or the Maryland General
                  Corporation Law; and the form of certificate used to evidence
                  the Shares is in due and proper form and complies with all
                  provisions of applicable Maryland law;

                          (v)     the Fund has full corporate power to enter
                  into the Fund Agreements and each has been duly and validly
                  authorized, executed and delivered by the Fund;

                          (vi)    to such counsel's knowledge, the execution and
                  delivery of this Agreement and the consummation of the
                  transactions contemplated hereby will not conflict with or
                  constitute a breach of the Charter or the Bylaws of the Fund,
                  or any Maryland law (other than Maryland securities laws) or
                  regulation, or, to their knowledge, any order of any Maryland
                  court, governmental instrumentality or arbitrator; and


                                       18

<PAGE>

                          (vii)   all descriptions in the Prospectus of Maryland
                  statutes and regulations or legal or governmental proceedings,
                  if any, under the laws of the State of Maryland are accurate
                  in all material respects.

                  In rendering such opinion, Venable LLP may rely, as to matters
         of fact, upon the representations and warranties made by the Fund and
         the Adviser herein and on certificates and written statements of
         officers and employees of and accountants for the Fund and the Adviser
         and of public officials. Except as otherwise specifically provided
         herein, when giving their opinions to their "knowledge", Venable LLP
         have relied solely upon an inquiry of the attorneys of that firm who
         have worked on matters for the Fund, on certificates or written
         statements of officers of the Fund and, where appropriate, a review of
         the Registration Statement, Prospectus, exhibits to the Registration
         Statement, the Charter and Bylaws of the Fund and have made no other
         investigation or inquiry.

                  (d)     You shall have received on the Closing Date an opinion
         of John E. Denneen, Esq., General Counsel for the Adviser, dated the
         Closing Date and addressed to you, as Representatives of the several
         Underwriters, to the effect that:

                          (i)     the Adviser has been duly formed and is
                  validly existing as a limited liability company in good
                  standing under the laws of the State of Delaware, with
                  corporate power and authority to conduct its business as
                  described in the Registration Statement and in the Prospectus;

                          (ii)    the Adviser is duly registered as an
                  investment adviser under the Advisers Act and the Advisers Act
                  Rules and Regulations and, subject to the matters covered by
                  the no-action letters of the Commission in Quest Advisory
                  Corp.; Royce Value Trust, Inc. (pub. avail. December 22, 1986)
                  and Royce Value Trust, Inc. (pub. avail. July 29, 1988)
                  (collectively, the "No-Action Letters"), is not prohibited by
                  the Advisers Act, the Advisers Act Rules and Regulations, the
                  1940 Act or the 1940 Act Rules and Regulations, from acting
                  under the Investment Advisory Agreement for the Fund as
                  contemplated by the Prospectus;

                          (iii)   this Agreement and the Investment Advisory
                  Agreement each has been duly authorized, executed and
                  delivered by the Adviser and, subject to the matters covered
                  by the No-Action Letters, constitutes a valid and binding
                  obligation of the Adviser, enforceable in accordance with its
                  terms, subject, as to enforcement, to bankruptcy, insolvency,
                  reorganization or other laws relating to or affecting
                  creditors' rights generally and to general equitable
                  principles (except as to those provisions relating to
                  indemnity or contribution for liabilities arising under such
                  agreement, as to which no opinion need be expressed); and, to
                  his knowledge, neither the execution and delivery of this
                  Agreement or the Investment Advisory Agreement nor the
                  performance by the Adviser of its obligations hereunder or
                  thereunder will conflict with, or result in a breach of, any
                  of the terms and provisions of, or constitute, with or without
                  the giving of notice or the lapse of time or both, a default
                  under, any agreement or instrument to which the Adviser is a
                  party or by which the Adviser is bound, or, except as set
                  forth in the No-Action Letters, any law, order, rule or
                  regulation applicable to the


                                       19

<PAGE>

                  Adviser of any jurisdiction, court, Federal or state
                  regulatory body, administrative agency or other governmental
                  body, stock exchange or securities association having
                  jurisdiction over the Adviser or its property or assets or
                  operations;

                          (iv)    to such counsel's knowledge, the description
                  of the Adviser in the Registration Statement and in the
                  Prospectus (and any amendment or supplement to either of them)
                  does not contain any untrue statement of a material fact or
                  omit to state any material fact required to be stated therein
                  or necessary to make the statements therein not misleading;

                          (v)     to the best knowledge of such counsel after
                  reasonable inquiry, other than as described or contemplated in
                  the Prospectus, there are no actions, suits or other legal or
                  governmental proceedings pending or threatened against the
                  Adviser or to which the Adviser or any of its property is
                  subject which are required to be described in the Prospectus;
                  and

                          (vi)    no material consent, approval, authorization
                  or order of or registration or filing with any court,
                  regulatory body, administrative or other governmental body,
                  agency or official is required on the part of the Adviser for
                  the performance of this Agreement or the Investment Advisory
                  Agreement or for the consummation by the Adviser of the
                  transactions contemplated hereby or thereby.

         In rendering such opinion, such counsel (A) may state that he expresses
         no opinion as to the laws of any jurisdiction other than the laws of
         the State of New York, the laws of the State of Delaware and the
         federal laws of the United States of America, (B) may rely, as to
         matters of fact, upon the representations and warranties made by the
         Fund and the Adviser herein and on certificates and written statements
         of officers and employees of and accountants for the Fund and the
         Adviser and of public officials, and (C) may state that he is a member
         of the Bar of the State of New York.

                  (e)     The Representatives shall have received on the Closing
         Date an opinion of Simpson Thacher & Bartlett LLP, counsel to the
         Underwriters, dated the Closing Date and addressed to the
         Representatives, with respect to such matters as the Underwriters may
         reasonably request.

                  (f)     The Fund shall have furnished to the Representatives a
         certificate of the Fund, signed by the Chairman of the Board or the
         President and the principal financial or accounting officer of each of
         the Fund and the Adviser, dated the Closing Date, to the effect that
         the signers of such certificate have carefully examined the
         Registration Statement, the Prospectus, any supplements to the
         Prospectus, and this Agreement and that:

                          (i)     The representations and warranties of the Fund
                  and the Adviser in this Agreement are true and correct on and
                  as of the Closing Date with the same effect as if made on the
                  Closing Date and the Fund and the Adviser have complied with


                                       20

<PAGE>

                  all the agreements and satisfied all the conditions on its
                  part to be performed or satisfied at or prior to the Closing
                  Date;

                          (ii)    No stop order suspending the effectiveness of
                  the Registration Statement has been issued and no proceedings
                  for that purpose have been instituted by the Commission or, to
                  the Fund's or the Adviser's knowledge, threatened by the
                  Commission; and

                          (iii)   Since the date of the most recent financial
                  statements included in the Prospectus (exclusive of any
                  supplement thereto), there has been no material adverse effect
                  on the condition (financial or otherwise), prospects,
                  earnings, business or properties of the Fund or the Adviser,
                  whether or not arising from transactions in the ordinary
                  course of business, except as set forth in or contemplated in
                  the Prospectus (exclusive of any supplement thereto).

                  (g)     The Fund shall have requested and caused Tait, Weller
         & Baker, the independent public accountants to the Fund, to have
         furnished to the Representatives, at the Execution Time and at the
         Closing Date, letters, dated respectively as of the Execution Time and
         as of the Closing Date, in form and substance heretofore approved by
         the Representatives.

                  (h)     Subsequent to the Execution Time or, if earlier, the
         dates as of which information is given in the Registration Statement
         (exclusive of any amendment thereof) and the Prospectus (exclusive of
         any supplement thereto), there shall not have been (i) any change or
         decrease specified in the letter or letters referred to in paragraph
         (g) of this Section 7 or (ii) any change, or any development involving
         a prospective change, in or affecting the condition (financial or
         otherwise), earnings, business or properties of the Fund and the
         Adviser, whether or not arising from transactions in the ordinary
         course of business, except as set forth in or contemplated in the
         Prospectus (exclusive of any supplement thereto) the effect of which,
         in any case referred to in clause (i) or (ii) above, is, in the sole
         judgment of the Representatives, so material and adverse as to make it
         impractical or inadvisable to proceed with the offering or delivery of
         the Securities as contemplated by the Registration Statement (exclusive
         of any amendment thereof) and the Prospectus (exclusive of any
         supplement thereto).

                  (i)     The Fund shall have furnished to you a report showing
         compliance with the asset coverage requirements of the 1940 Act and a
         Basic Maintenance Report, each dated the Closing Date and in the form
         and substance satisfactory to you. Each such report shall assume
         receipt of the net proceeds from the sale of the Securities and the use
         of such net proceeds to redeem the 7.45% Preferred as contemplated by
         the Prospectus and may use portfolio holdings and valuations as of the
         close of business of any day not more than six business days preceding
         the Closing Date, provided, however, that the Fund represents in such
         report that its total net assets as of the Closing Date have not
         declined by 5% or more from such valuation date.

                  (j)     The Fund shall have delivered and the Underwriters
         shall have received evidence satisfactory to the Underwriters that the
         Cumulative Preferred Stock is rated


                                       21

<PAGE>

         "Aaa" by the Rating Agency as of the Closing Date, and there shall not
         have been given any notice of any intended or potential downgrading, or
         any review for a potential downgrading, in the rating according to the
         shares of the Cumulative Preferred Stock by the Rating Agency.

                  (k)     Prior to the Closing Date, the Fund and the Adviser
         shall have furnished to the Representatives such further information,
         certificates and documents as the Representatives may reasonably
         request.

                  If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as provided in this Agreement, or if any of the
opinions and certificates mentioned above or elsewhere in this Agreement shall
not be reasonably satisfactory in form and substance to the Representatives and
counsel for the Underwriters, this Agreement and all obligations of the
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date by the Representatives. Notice of such cancellation shall be given to the
Fund in writing or by telephone or facsimile confirmed in writing.

                  The documents required to be delivered by this Section 7 shall
be delivered at the office of Simpson Thacher & Bartlett LLP, counsel for the
Underwriters, at 425 Lexington Avenue, New York, New York, 10017, Attention:
Cynthia G. Cobden, Esq., on the Closing Date.

                  8.      Reimbursement of Underwriters' Expenses. If the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the Underwriters set forth in Section 7 hereof is not
satisfied, because of any termination pursuant to Section 11 hereof or because
of any refusal, inability or failure on the part of the Fund or the Adviser to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Fund will reimburse the
Underwriters severally through Citigroup Global Markets Inc. on demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Securities.

                  9.      Indemnification and Contribution. (a) The Fund and the
Adviser, jointly and severally, agree to indemnify and hold harmless each of the
Representatives and each other Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of the 1933 Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several (including reasonable
costs of investigation), to which they or any of them may become subject under
the 1933 Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, the Prospectus, any Preliminary Prospectus, any
sales material (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action;


                                       22

<PAGE>

provided, however, that the Fund will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Fund by or on behalf of any Underwriter through the
Representatives specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.

                  (b)     Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Fund and the Adviser, each of its directors,
each of its officers who signs the Registration Statement, and each person who
controls the Fund or the Advisers within the meaning of either the 1933 Act or
the Exchange Act, to the same extent as the foregoing indemnity from the Fund
and the Advisers to each Underwriter, but only with reference to written
information relating to such Underwriter furnished to the Fund by or on behalf
of such Underwriter through the Representatives specifically for inclusion in
the documents referred to in the foregoing indemnity. This indemnity agreement
will be in addition to any liability which any Underwriter may otherwise have.
The Fund and the Adviser acknowledge that the statements set forth in the last
paragraph of the cover page regarding delivery of the Securities and, under the
heading "Underwriting", (i) the list of Underwriters and their respective
participation in the sale of the Securities, (ii) the sentences related to
concessions and reallowances and (iii) the paragraph related to stabilization,
syndicate covering transactions and penalty bids in any Preliminary Prospectus
and the Prospectus constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in any Preliminary Prospectus
or the Prospectus.

                  (c)     Promptly after receipt by an indemnified party under
this Section 9 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a) or
(b) above unless and to the extent it did not otherwise learn of such action and
such failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below) and to control such action; provided, however, that such
counsel shall be satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (A) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (B) the actual or
potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, (C) the


                                       23

<PAGE>

indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (D) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party.

                  (d)     In the event that the indemnity provided in paragraph
(a) or (b) of this Section 9 is unavailable to or insufficient to hold harmless
an indemnified party for any reason, the Fund, the Adviser and the Underwriters
severally agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the Fund,
the Adviser and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Fund and the Adviser on the one hand (treated jointly for this purpose as one
person) and by the Underwriters on the other from the offering of the
Securities; provided, however, that in no case shall any Underwriter (except as
may be provided in any agreement among underwriters relating to the offering of
the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Fund, the Adviser and the
Underwriters severally shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the Fund
and the Adviser on the one hand (treated jointly for this purpose as one person)
and of the Underwriters on the other in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Fund and the Adviser (treated jointly
for this purpose as one person) shall be deemed to be equal to the total net
proceeds from the offering (before deducting expenses) received by it, and
benefits received by the Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Fund and the Adviser on the one hand
(treated jointly for this purpose as one person) or the Underwriters on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Fund, the Adviser and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation or any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9, each person who controls an
Underwriter within the meaning of either the 1933 Act or the Exchange Act and
each director, officer, employee and agent of an Underwriter shall have the same
rights to contribution as such Underwriter, and each person who controls the
Fund or the Adviser within the meaning of either the 1933 Act or the Exchange
Act, each officer of the Fund and the Adviser who shall have signed the
Registration Statement and each director of the Fund and the Adviser shall have
the same rights to contribution as the Fund and the Adviser, subject in each
case to the applicable terms and conditions of this paragraph (d). The
Underwriters' obligations to contribute pursuant to this Section 9 are several
in proportion to


                                       24

<PAGE>

the respective number of Securities set forth opposite their names in Schedule I
(or such numbers of Securities increased as set forth in Section 10 hereof) and
not joint.

                  (e)     No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability from claimants on claims that are
the subject matter of such action, suit or proceeding.

                  (f)     Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 9 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Fund and the Adviser set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Fund, the Adviser or their shareholders,
trustees, directors, managers, members or officers or any person controlling the
Fund or the Adviser (control to be determined within the meaning of the 1933 Act
or the Exchange Act), (ii) acceptance of any Securities and payment therefor
hereunder and (iii) any termination of this Agreement. A successor to any
Underwriter or to the Fund, the Adviser or their shareholders, trustees,
directors, managers, members or officers or any person controlling any
Underwriter, the Fund or the Adviser shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.

                  10.     Default by an Underwriter. If any one or more
Underwriters shall fail to purchase and pay for any of the Securities agreed to
be purchased by such Underwriter or Underwriters hereunder and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Underwriters shall be obligated
severally to take up and pay for (in the respective proportions which the number
of Securities set forth opposite their names in Schedule I hereto bears to the
aggregate number of Securities set forth opposite the names of all the remaining
Underwriters or in such other proportion as you may specify in accordance with
the Citigroup Global Markets Inc. Master Agreement Among Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate number of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate number of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all of the Securities,
this Agreement will terminate without liability to any nondefaulting Underwriter
or the Fund. In the event of a default by any Underwriter as set forth in this
Section 10, the Closing Date shall be postponed for such period, not exceeding
five Business Days, as the Representatives shall determine in order that the
required changes in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Underwriter of its liability, if any, to
the Fund and any nondefaulting Underwriter for damages occasioned by its default
hereunder. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I


                                       25

<PAGE>

hereto who, with your approval and the approval of the Fund, purchases Firm
Securities which a defaulting Underwriter agreed, but failed or refused, to
purchase.

                  11.     Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, without liability
on the part of the Underwriters to the Fund or the Adviser, by notice given to
the Fund or the Adviser prior to delivery of and payment for the Securities, if
at any time prior to such time (i) trading in the Fund's Common Stock or
Cumulative Preferred Stock shall have been suspended by the Commission or the
NYSE or trading in securities generally on the NYSE shall have been suspended or
limited or minimum prices shall have been established on either of the
exchanges, (ii) a banking moratorium shall have been declared either by Federal
or New York State authorities or (iii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war, or other calamity or crisis the effect of which on financial
markets is such as to make it, in the sole judgment of the Representatives,
impractical or inadvisable to proceed with the offering or delivery of the
Securities as contemplated by the Prospectus (exclusive of any supplement
thereto).

                  12.     Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Fund and the Adviser or its officers and of the Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Fund or the Adviser or any of the officers, directors, employees, agents
or controlling persons referred to in Section 9 hereof, and will survive
delivery of and payment for the Securities. The provisions of Sections 8 and 9
hereof shall survive the termination or cancellation of this Agreement.

                  13.     Notices. All communications hereunder will be in
writing and effective only on receipt, and, if sent to the Representatives, will
be mailed, delivered or telefaxed to the Citigroup Global Markets Inc. General
Counsel (fax no.: (212) 816-7912) and confirmed to the General Counsel,
Citigroup Global Markets Inc., at 388 Greenwich Street, New York, New York,
10013, Attention: General Counsel; or, if sent to the Fund or the Adviser, will
be mailed, delivered or telefaxed to Royce Focus Trust, Inc. (fax no.: (212)
832-8921) and confirmed to it at Royce Focus Trust, Inc., 1414 Avenue of the
Americas, New York, New York 10019, attention of the Legal Department.

                  14.     Successors. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
the officers, trustees, directors, employees, agents and controlling persons
referred to in Section 9 hereof, and no other person will have any right or
obligation hereunder.

                  15.     Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.

                  16.     Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.


                                       26

<PAGE>

                  17.     Headings. The section headings used herein are for
convenience only and shall not affect the construction hereof.

                  18.     Definitions. The terms which follow, when used in this
Agreement, shall have the meanings indicated.

                  "1933 Act" shall mean the Securities Act of 1933, as amended,
         and the rules and regulations of the Commission promulgated thereunder.

                  "1933 Act Rules and Regulations" shall mean the rules and
         regulations of the Commission under the 1933 Act.

                  "1940 Act" shall mean the Investment Company Act of 1940, as
         amended.

                  "1940 Act Rules and Regulations" shall mean the rules and
         regulations of the Commission under the 1940 Act.

                  "1940 Act Notification" shall mean a notification of
         registration of the Fund as an investment company under the 1940 Act on
         Form N-8A, as the 1940 Act Notification may be amended from time to
         time.

                  "7.45% Preferred" shall mean the Fund's issued and outstanding
         7.45% Cumulative Preferred Stock, par value $.001 per share.

                  "Acts" shall mean, collectively, the 1933 Act and the 1940
         Act.

                  "Advisers Act" shall mean the Investment Advisers Act of 1940,
         as amended.

                  "Advisers Act Rules and Regulations" shall mean the rules and
         regulations of the Commission under the Advisers Act.

                  "Basic Maintenance Report" shall mean that report that is
         delivered to the Rating Agency on or before the third Business Day
         after each Quarterly Valuation Date.

                  "Business Day" shall mean any day other than a Saturday, a
         Sunday or a legal holiday or a day on which banking institutions or
         trust companies are authorized or obligated by law to close in New York
         City.

                  "Code" means the Internal Revenue Code of 1986, as amended.

                  "Commission" shall mean the Securities and Exchange
         Commission.

                  "Effective Date" shall mean each date and time that the
         Registration Statement, any post-effective amendment or amendments
         thereto and any Rule 462(b) Registration Statement became or become
         effective.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
         as amended.


                                       27

<PAGE>

                  "Exchange Act Rules and Regulations" shall mean the rules and
         regulations of the Commission under the Exchange Act.

                  "Execution Time" shall mean the date and time that this
         Agreement is executed and delivered by the parties hereto.

                  "FCPA" means Foreign Corrupt Practices Act of 1977, as
         amended, and the rules and regulations thereunder.

                  "NASD" means the National Association of Securities Dealers,
         Inc.

                  "NYSE" shall mean the New York Stock Exchange.

                   "Preliminary Prospectus" shall mean any preliminary
         prospectus (including the statement of additional information
         incorporated by reference therein) referred to in Section 1(a) above
         and any preliminary prospectus (including the statement of additional
         information incorporated by reference therein) included in the
         Registration Statement at the Effective Date that omits Rule 430A
         Information.

                  "Prospectus" shall mean the prospectus (including the
         statement of additional information incorporated by reference therein)
         relating to the Securities that is first filed pursuant to Rule 497
         after the Execution Time or, if no filing pursuant to Rule 497 is
         required, shall mean the form of final prospectus (including the
         statement of additional information incorporated by reference therein)
         relating to the Securities included in the Registration Statement at
         the Effective Date.

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

                  "Rating Agency" shall mean Moody's Investor Services, Inc.

                  "Registration Statement" shall mean the registration statement
         referred to in Section 1(a) above, including exhibits and financial
         statements, as amended at the Execution Time (or, if not effective at
         the Execution Time, in the form in which it shall become effective)
         and, in the event any post-effective amendment thereto or any Rule
         462(b) Registration Statement becomes effective prior to the Closing
         Date, shall also mean such registration statement as so amended or such
         Rule 462(b) Registration Statement, as the case may be. Such term shall
         include any Rule 430A Information deemed to be included therein at the
         Effective Date as provided by Rule 430A.

                  "Rule 430A" and "Rule 462" refer to such rules under the 1933
         Act.

                  "Rule 430A Information" shall mean information with respect to
         the Securities and the offering thereof permitted to be omitted from
         the Registration Statement when it becomes effective pursuant to Rule
         430A.

                  "Rule 462(b) Registration Statement" shall mean a registration
         statement and any amendments thereto filed pursuant to Rule 462(b)
         relating to the offering covered by the registration statement referred
         to in Section 1(a) hereof.


                                       28

<PAGE>

                  "Rule 497" refers to Rule 497(c) or 497(h) under the 1933 Act,
         as applicable.

                  "Rules and Regulations" shall mean, collectively, the 1933 Act
         Rules and Regulations and the 1940 Act Rules and Regulations.

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




















                                       29

<PAGE>

                  If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Fund, the Adviser and the several Underwriters.

                                  Very truly yours,

                                  ROYCE FOCUS TRUST, INC.


                                  By:
                                       ---------------------------
                                       Name:
                                       Title:




                                  ROYCE & ASSOCIATES, LLC


                                  By:
                                       ---------------------------
                                       Name:
                                       Title:



The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

Citigroup Global Markets Inc.
UBS Securities LLC

     By:      Citigroup Global Markets Inc.




              Name:
              Title:

For itself and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.





                                       30

<PAGE>

                                   SCHEDULE I
                                   ----------

<TABLE>
<CAPTION>
                                                                           NUMBER OF UNDERWRITTEN
UNDERWRITERS                                                             SECURITIES TO BE PURCHASED
- ------------                                                             --------------------------

<S>                                                                             <C>
Citigroup Global Markets Inc................................

UBS Securities LLC .........................................










                                                                                __________


                  Total.....................................                    ==========
</TABLE>



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.J.2
<SEQUENCE>7
<FILENAME>rft63006_ex-99j2.txt
<DESCRIPTION>AMENDMENT TO CUSTODIAN CONTRACT DATED 9-14-03
<TEXT>















                                 EXHIBIT (j)(2)

                        AMENDMENT TO CUSTODIAN CONTRACT
                            DATED SEPTEMBER 14, 2003


<PAGE>

                         AMENDMENT TO CUSTODIAN CONTRACT

         This Amendment to the Custodian Contract is made as of September 14,
2000 by and between Royce Focus Trust, Inc. (formerly Royce Global Trust, Inc.,
the "Fund") and State Street Bank and Trust Company (the "Custodian").
Capitalized terms used in this Amendment without definition shall have the
respective meanings given to such terms in the Custodian Contract referred to
below.

         WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of December 31, 1996 (as amended and in effect from time to time, the
"Contract"); and

         WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") and the
adoption of Rule 17f-7 ("Rule 17f-7") promulgated under the Investment Company
Act of 1940, as amended (the "1940 Act"); and

         WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of the Fund
held outside of the United States.

         NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:


I.       The amendment to the Contract dated November 7, 1997 and relating to
         the 1997 revision of Rule 17f-5 revision is hereby deleted, and the
         parties hereto agree that it shall be and is replaced in its entirety
         by the provisions set forth below.

3.       PROVISIONS RELATING TO RULES 17f-5 AND 17f-7
         --------------------------------------------

3.1.     DEFINITIONS. Capitalized terms in this Amendment shall have the
following meanings:

"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment, economic and financial infrastructure
(including any Eligible Securities Depository operating in the country),
prevailing or developing custody and settlement practices, and laws and
regulations applicable to the safekeeping and recovery of Foreign Assets held in
custody in that country.

"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian


<PAGE>

(as set forth in Rule 17f-5 or by other appropriate action of the U.S.
Securities and Exchange Commission (the "SEC")), or a foreign branch of a Bank
(as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a
custodian under Section 17(f) of the 1940 Act; the term does not include any
Eligible Securities Depository.

"Eligible Securities Depository" has the meaning set forth in section (b)(1) of
Rule 17f-7.

"Foreign Assets" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in such investments.

"Foreign Custody Manager" has the meaning set forth in section (a)(2) of Rule
17f-5.

3.2.     THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
         -----------------------------------------

         3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund,
as authorized by resolution adopted by its Board of Directors (the "Board of
Directors"), hereby delegates to the Custodian, subject to Section (b) of Rule
17f-5, the responsibilities set forth in this Section 3.2 with respect to
Foreign Assets held outside the United States, and the Custodian hereby accepts
such delegation as Foreign Custody Manager of the Fund.

         3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A to this Contract, which list of countries may be amended
from time to time by the Fund with the agreement of the Foreign Custody Manager.
The Foreign Custody Manager shall list on Schedule A the Eligible Foreign
Custodians selected by the Foreign Custody Manager to maintain the Fund's
assets, which list of Eligible Foreign Custodians may be amended from time to
time in the sole discretion of the Foreign Custody Manager. The Foreign Custody
Manager will provide amended versions of Schedule A in accordance with Section
3.2.5 hereof.

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board of Directors responsibility as Foreign Custody
Manager with respect to that country and to have accepted such delegation.
Execution of this Amendment by the Fund shall be deemed to be a Proper
Instruction to open an account, or to place or maintain Foreign Assets, in each
country listed on Schedule A in which the Custodian has previously placed or
currently maintains Foreign Assets pursuant to the terms of the Contract.
Following the receipt of Proper Instructions directing the Foreign Custody
Manager to close the account of the Fund with the Eligible Foreign Custodian
selected by the Foreign Custody Manager in a designated country, the delegation
by the Board of Directors to the Custodian as Foreign Custody Manager for that
country shall be deemed to have been


                                       2

<PAGE>

withdrawn and the Custodian shall immediately cease to be the Foreign Custody
Manager of the Fund with respect to that country.

The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon thirty days prior
written notice to the Fund. Thirty days (or such longer period to which the
parties agree in writing) after receipt of any such notice by the Fund, the
Custodian shall have no further responsibility in its capacity as Foreign
Custody Manager to the Fund with respect to the country as to which the
Custodian's acceptance of delegation is withdrawn.

         3.2.3    SCOPE OF DELEGATED RESPONSIBILITIES:
                  ------------------------------------

                  (a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the
provisions of this Section 3.2, the Foreign Custody Manager may place and
maintain the Foreign Assets in the care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time. In performing its delegated responsibilities as
Foreign Custody Manager to place or maintain Foreign Assets with an Eligible
Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign
Assets will be subject to reasonable care, based on the standards applicable to
custodians in the country in which the Foreign Assets will be held by that
Eligible Foreign Custodian, after considering all factors relevant to the
safekeeping of such assets, including, without limitation the factors specified
in Rule 17f-5(c)(1).

                  (b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign
Custody Manager shall determine that the contract governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the Foreign
Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).

                  (c) MONITORING. In each case in which the Foreign Custody
Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by
the Foreign Custody Manager, the Foreign Custody Manager shall establish a
system to monitor (i) the appropriateness of maintaining the Foreign Assets with
such Eligible Foreign Custodian and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian. In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board of
Directors in accordance with Section 3.2.5 hereunder.





                                       3

<PAGE>

         3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes
of this Section 3.2, the Board of Directors (or its delegate duly authorized by
appropriate action of the Board of Directors) shall be deemed to have considered
and determined to accept such Country Risk as is incurred by placing and
maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Fund.

         3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report
the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the
placement of such Foreign Assets with another Eligible Foreign Custodian by
providing to the Board of Directors an amended Schedule A at the end of the
calendar quarter in which an amendment to such Schedule has occurred. The
Foreign Custody Manager shall make written reports notifying the Board of
Directors of any other material change in the foreign custody arrangements of
the Fund described in this Section 3.2 as soon as is reasonably practicable
after the occurrence of the material change.

         3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE FUND. In
performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.

         3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17f-5. The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined in section
(a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board of
Directors has determined that it is reasonable for the Board of Directors to
rely on the Custodian to perform the responsibilities delegated pursuant to this
Contract to the Custodian as the Foreign Custody Manager of the Fund.

         3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN
CUSTODY MANAGER. The Board of Directors's delegation to the Custodian as Foreign
Custody Manager of the Fund shall be effective as of the date hereof and shall
remain in effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party. Termination will
become effective thirty (30) days after receipt by the non-terminating party of
such notice. The provisions of Section 3.2.2 hereof shall govern the delegation
to and termination of the Custodian as Foreign Custody Manager of the Fund with
respect to designated countries.

3.3      ELIGIBLE SECURITIES DEPOSITORIES.
         ---------------------------------

         3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund
(or its duly-authorized investment manager or investment adviser) with an
analysis of the custody risks associated with maintaining assets with the
Eligible Securities Depositories set forth on Schedule B hereto in accordance
with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a
continuing basis, and promptly notify the Fund (or its duly-authorized
investment manager or investment adviser) of any material change in such risks,
in accordance with section (a)(1)(i)(B) of Rule 17f-7.


                                       4

<PAGE>

         3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable
care, prudence and diligence in performing the duties set forth in Section
3.3.1.

4.       DUTIES OF THE CUSTODIAN WITH RESPECT TO FUND PROPERTY HELD OUTSIDE THE
         UNITED STATES.
         -------------

4.1      DEFINITIONS.  Capitalized terms in this Article 4 shall have the
following meanings:

"Foreign Securities System" means an Eligible Securities Depository listed on
Schedule B hereto.

"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian.

4.2.     HOLDING SECURITIES. The Custodian shall identify on its books as
belonging to the Fund the foreign securities held by each Foreign Sub-Custodian
or Foreign Securities System. The Custodian may hold foreign securities for all
of its customers, including the Fund, with any Foreign Sub-Custodian in an
account that is identified as belonging to the Custodian for the benefit of its
customers, provided however, that (i) the records of the Custodian with respect
to foreign securities of the Fund which are maintained in such account shall
identify those securities as belonging to the Fund and (ii), to the extent
permitted and customary in the market in which the account is maintained, the
Custodian shall require that securities so held by the Foreign Sub-Custodian be
held separately from any assets of such Foreign Sub-Custodian or of other
customers of such Foreign Sub-Custodian.

4.3.     FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a
Foreign Securities System in a designated country through arrangements
implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such
country.

4.4.     TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
         ----------------------------------------

         4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of the Fund held by
the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System
account, only upon receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and only in the following
cases:

         (i)      upon the sale of such foreign securities for the Fund in
                  accordance with commercially reasonable market practice in the
                  country where such foreign securities are held or traded,
                  including, without limitation: (A) delivery against
                  expectation of receiving later payment; or (B) in the case


                                       5

<PAGE>

                  of a sale effected through a Foreign Securities System, in
                  accordance with the rules governing the operation of the
                  Foreign Securities System;

         (ii)     in connection with any repurchase agreement related to foreign
                  securities;

         (iii)    to the depository agent in connection with tender or other
                  similar offers for foreign securities of the Fund;

         (iv)     to the issuer thereof or its agent when such foreign
                  securities are called, redeemed, retired or otherwise become
                  payable;

         (v)      to the issuer thereof, or its agent, for transfer into the
                  name of the Custodian (or the name of the respective Foreign
                  Sub-Custodian or of any nominee of the Custodian or such
                  Foreign Sub-Custodian) or for exchange for a different number
                  of bonds, certificates or other evidence representing the same
                  aggregate face amount or number of units;

         (vi)     to brokers, clearing banks or other clearing agents for
                  examination or trade execution in accordance with market
                  custom; provided that in any such case the Foreign
                  Sub-Custodian shall have no responsibility or liability for
                  any loss arising from the delivery of such securities prior to
                  receiving payment for such securities except as may arise from
                  the Foreign Sub-Custodian's own negligence or willful
                  misconduct;

         (vii)    for exchange or conversion pursuant to any plan of merger,
                  consolidation, recapitalization, reorganization or
                  readjustment of the securities of the issuer of such
                  securities, or pursuant to provisions for conversion contained
                  in such securities, or pursuant to any deposit agreement;

         (viii)   in the case of warrants, rights or similar foreign securities,
                  the surrender thereof in the exercise of such warrants, rights
                  or similar securities or the surrender of interim receipts or
                  temporary securities for definitive securities;

         (ix)     for delivery as security in connection with any borrowing by
                  the Fund requiring a pledge of assets by the Fund;

         (x)      in connection with trading in options and futures contracts,
                  including delivery as original margin and variation margin;

         (xi)     in connection with the lending of foreign securities; and

         (xii)    for any other purpose, but only upon receipt of Proper
                  Instructions specifying the foreign securities to be delivered
                  and naming the person or persons to whom delivery of such
                  securities shall be made.


                                       6

<PAGE>

         4.4.2.   PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, monies of the Fund in the
following cases only:

         (i)      upon the purchase of foreign securities for the Fund, unless
                  otherwise directed by Proper Instructions, by (A) delivering
                  money to the seller thereof or to a dealer therefor (or an
                  agent for such seller or dealer) against expectation of
                  receiving later delivery of such foreign securities; or (B) in
                  the case of a purchase effected through a Foreign Securities
                  System, in accordance with the rules governing the operation
                  of such Foreign Securities System;

         (ii)     in connection with the conversion, exchange or surrender of
                  foreign securities of the Fund;

         (iii)    for the payment of any expense or liability of the Fund,
                  including but not limited to the following payments: interest,
                  taxes, investment advisory fees, transfer agency fees, fees
                  under this Contract, legal fees, accounting fees, and other
                  operating expenses;

         (iv)     for the purchase or sale of foreign exchange or foreign
                  exchange contracts for the Fund, including transactions
                  executed with or through the Custodian or its Foreign
                  Sub-Custodians;

         (v)      in connection with trading in options and futures contracts,
                  including delivery as original margin and variation margin;

         (vi)     for payment of part or all of the dividends received in
                  respect of securities sold short;

         (vii)    in connection with the borrowing or lending of foreign
                  securities; and

         (viii)   for any other purpose, but only upon receipt of Proper
                  Instructions specifying the amount of such payment and naming
                  the person or persons to whom such payment is to be made.

         4.4.3.   MARKET CONDITIONS. Notwithstanding any provision of this
Contract to the contrary, settlement and payment for Foreign Assets received for
the account of the Fund and delivery of Foreign Assets maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or processing practices and procedures in the country or
market in which the transaction occurs, including, without limitation,
delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or
an agent for such purchaser or dealer) with the expectation of receiving later
payment for such Foreign Assets from such purchaser or dealer.


                                       7

<PAGE>

The Custodian shall provide to the Board of Directors the information with
respect to custody and settlement practices in countries in which the Custodian
employs a Foreign Sub-Custodian described on Schedule C hereto at the time or
times set forth on such Schedule. The Custodian may revise Schedule C from time
to time, provided that no such revision shall result in the Board of Directors
being provided with substantively less information than had been previously
provided hereunder.

4.5.     REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained
in the custody of a Foreign Sub-Custodian (other than bearer securities) shall
be registered in the name of the Fund or in the name of the Custodian or in the
name of any Foreign Sub-Custodian or in the name of any nominee of the
foregoing, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such foreign securities. The Custodian or a
Foreign Sub-Custodian shall not be obligated to accept securities on behalf of
the Fund under the terms of this Contract unless the form of such securities and
the manner in which they are delivered are in accordance with reasonable market
practice.

4.6      BANK ACCOUNTS. The Custodian shall identify on its books as belonging
to the Fund cash (including cash denominated in foreign currencies) deposited
with the Custodian. Where the Custodian is unable to maintain, or market
practice does not facilitate the maintenance of, cash on the books of the
Custodian, a bank account or bank accounts shall be opened and maintained
outside the United States on behalf of the Fund with a Foreign Sub-Custodian.
All accounts referred to in this Section shall be subject only to draft or order
by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant
to the terms of this Agreement to hold cash received by or from or for the
account of the Fund. Cash maintained on the books of the Custodian (including
its branches, subsidiaries and affiliates), regardless of currency denomination,
is maintained in bank accounts established under, and subject to the laws of,
The Commonwealth of Massachusetts.

4.7.     COLLECTION OF INCOME. The Custodian shall use reasonable commercial
efforts to collect all income and other payments with respect to the Foreign
Assets held hereunder to which the Fund shall be entitled and shall credit such
income, as collected, to the Fund. In the event that extraordinary measures are
required to collect such income, the Fund and the Custodian shall consult as to
such measures and as to the compensation and expenses of the Custodian relating
to such measures.

4.8      SHAREHOLDER RIGHTS. With respect to the foreign securities held
pursuant to this Article 4, the Custodian will use reasonable commercial efforts
to facilitate the exercise of voting and other shareholder rights, subject
always to the laws, regulations and practical constraints that may exist in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.


                                       8

<PAGE>

4.9.     COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall
transmit promptly to the Fund written information with respect to materials
received by the Custodian via the Foreign Sub-Custodians from issuers of the
foreign securities being held for the account of the Fund (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith). With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Fund written
information with respect to materials so received by the Custodian from issuers
of the foreign securities whose tender or exchange is sought or from the party
(or its agents) making the tender or exchange offer. The Custodian shall not be
liable for any untimely exercise of any tender, exchange or other right or power
in connection with foreign securities or other property of the Fund at any time
held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is
in actual possession of such foreign securities or property and (ii) the
Custodian receives Proper Instructions with regard to the exercise of any such
right or power, and both (i) and (ii) occur at least three business days prior
to the date on which the Custodian is to take action to exercise such right or
power.

4.10.    LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which
the Custodian employs a Foreign Sub-Custodian shall, to the extent possible,
require the Foreign Sub-Custodian to exercise reasonable care in the performance
of its duties, and to indemnify, and hold harmless, the Custodian from and
against any loss, damage, cost, expense, liability or claim arising out of or in
connection with the Foreign Sub-Custodian's performance of such obligations. At
the election of the Fund, the Fund shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a Foreign
Sub-Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim.

4.11     TAX LAW. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund, or the Custodian as
custodian of the Fund, by the tax law of the United States or of any state or
political subdivision thereof. It shall be the responsibility of the Fund to
notify the Custodian of the obligations imposed on the Fund, or the Custodian as
custodian of the Fund, by the tax law of countries other than the United States,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.

4.12. LIABILITY OF CUSTODIAN. Except as may arise from the Custodian's own
negligence or willful misconduct, or the negligence or willful misconduct of a
Sub-Custodian, the Custodian shall be without liability to the Fund for any
loss, liability, claim or expense resulting from or caused by anything which is
part of Country Risk.

The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or


                                       9

<PAGE>

a Foreign Securities System, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism, or any other
loss where the Foreign Sub-Custodian has otherwise acted with reasonable care.

II.      Except as specifically superseded or modified herein, the terms and
         provisions of the Contract shall continue to apply with full force and
         effect. In the event of any conflict between the terms of the Contract
         prior to this Amendment and this Amendment, the terms of this Amendment
         shall prevail. If the Custodian is delegated the responsibilities of
         Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
         the event of any conflict between the provisions of Articles 3 and 4
         hereof, the provisions of Article 3 shall prevail.




















                                       10

<PAGE>

         IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.

WITNESSED BY:                   STATE STREET BANK and TRUST COMPANY





- ---------------
Glenn Ciotti                    By:
VP & Assoc. Counsel             ------------------------------------------------
                                Name:  Ronald E. Logue
                                Title: Vice Chairman and Chief Operating Officer





WITNESSED BY:                   ROYCE FOCUS TRUST, INC.





- ---------------
John Denneen                    By:
Secretary                       ------------------------------------------------
                                Name:  Daniel A. O'Byrne
                                Title: Vice President



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.J.3
<SEQUENCE>8
<FILENAME>rft63006_ex-99j3.txt
<DESCRIPTION>AMENDMENT TO CUSTODIAN CONTRACT DATED 4-16-03
<TEXT>















                                 EXHIBIT (j)(3)

                        AMENDMENT TO CUSTODIAN CONTRACT
                              DATED APRIL 16, 2003


<PAGE>

                        AMENDMENT TO CUSTODIAN CONTRACT


         Amendment dated April 16, 2003, to the Custodian Contract, dated
December 31, 1996, as amended, by and between State Street Bank and Trust
Company (the "Custodian") and ROYCE FOCUS TRUST, INC. (the "Fund")(the
"Contract").

         In consideration of the promises and covenants contained herein, the
Custodian and the Fund hereby agree to amend and replace Section 4 of the
Contract as follows:

5.       Proper Instructions
         -------------------

"PROPER INSTRUCTIONS", which may also be standing instructions, as used
throughout this Contract, shall mean instructions received by the Custodian from
the Fund or from the Fund's investment manager or subadviser, as duly authorized
by the Fund. If instructions are given in writing, such instructions must be
signed or initialed by two or more authorized persons. Proper Instructions also
may include instructions in a tested communication or in a communication
utilizing access codes effected between electro-mechanical or electronic
devices, provided that the Fund supplies to the Custodian a summary of trade
transactions, which shall be signed by two or more authorized persons, on those
days when trades occur, and provided that the Fund has followed any security
procedures agreed to from time to time in writing by the Fund and the Custodian,
including, but not limited to, the security procedures selected by the Fund in
the Funds Transfer Addendum to this Contract. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
promptly in writing, which shall be signed by two or more authorized persons.
For purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any multi-party agreement which requires a
segregated asset account in accordance with Section 2.12 of this Contract. The
Fund or the Fund's investment manager or subadviser shall cause the Fund's duly
authorized officer to certify to the Custodian in writing the names and
specimen signatures of persons authorized to give Proper Instructions. The
Custodian shall be entitled to rely upon the identify and authority of such
persons until it receives notice from the Fund to the contrary.

         IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and on its behalf by its duly authorized representative
as of the date written above.

                          ROYCE FOCUS TRUST, INC.



                          By:  /s/ Daniel A. O'Byrne
                               ---------------------

                          Its: Vice President
                               ---------------------




                          STATE STREET BANK AND TRUST COMPANY



                          By:  /s/ Joseph L. Hooley
                               ---------------------
                               Joseph L. Hooley
                               Executive Vice President


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.K.3
<SEQUENCE>9
<FILENAME>rft63006_ex-99k3.txt
<DESCRIPTION>AMENDMENT TO REGISTRAR
<TEXT>















                                 EXHIBIT (k)(3)

                            AMENDMENT TO REGISTRAR,
                  TRANSFER AGENCY AND PAYING AGENCY AGREEMENT


<PAGE>

                                                                  Exhibit (k)(3)


                                 FIRST AMENDMENT
                                       TO
             REGISTRAR, TRANSFER AGENCY AND PAYING AGENCY AGREEMENT

1.       General Background. In accordance with the Amendment provision in
         Section 11 of the Registrar, Transfer Agency and Paying Agency
         Agreement between State Street Bank and Trust Company (the "Bank") and
         Royce Focus Trust, Inc. (the "Fund") dated November 21, 1997, (the
         "Agreement"), the parties desire to amend the Agreement.

         1.2      This Amendment shall be effective ________ __, 2003 (the
                  "Amendment") and all defined terms and definitions in the
                  Agreement shall be the same in the Amendment except as
                  specifically revised by this Amendment.

2.       Additional Stock. The Fund will be issuing a new series of Cumulative
         Preferred Stock on ________ __, 2003. Section 1.01 of the Agreement is
         hereby deleted in its entirety and the new Section 1.01 below is
         inserted in its place.

         1.01     Subject to the terms and conditions set forth in this
                  Agreement, the Fund hereby employs and appoints the Bank to
                  act as, and the Bank agrees to act as registrar, transfer
                  agent, dividend paying agent and agent in connection with the
                  payment of any redemption or liquidation proceeds for the
                  Fund's authorized and issued shares of its Cumulative
                  Preferred Stock, including its 7.45% Cumulative Preferred
                  Stock and its ____% Cumulative Preferred Stock ("Shares"), as
                  set out in the prospectuses of the Fund offering the sale of
                  the Shares.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in their names and on their behalf by and through their duly authorized
officers, as of this ___ day of ________, 2003.



<TABLE>
<S>                                                             <C>
EQUISERVE, INC.
EQUISERVE TRUST COMPANY, N.A.                                   ROYCE FOCUS TRUST, INC.
(as Successors in interest of State Street
Bank & Trust Company)

ON BEHALF OF BOTH ENTITIES:

By:      __________________________________________             By:      __________________________________________
Name:    __________________________________________             Name:    __________________________________________
Title:   __________________________________________             Title:   __________________________________________
</TABLE>




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.L
<SEQUENCE>10
<FILENAME>rft63006_ex99l.txt
<DESCRIPTION>OPINION AND CONSENT OF VENABLE LLP DRAFT
<TEXT>




                                   EXHIBIT (L)

                       OPINION AND CONSENT OF VENABLE LLP




<PAGE>


                           [LETTERHEAD OF VENABLE LLP]






                               October 8, 2003

Royce Focus Trust, Inc.
1414 Avenue of the Americas
New York, New York  10019

            Re:  Registration Statement on Form N-2:
                 1933 Act File No.: 333-107928
                 1940 Act File No.: 811-05397
                 -----------------------------------

Ladies and Gentlemen:

            We have served as special Maryland counsel to Royce Focus Trust,
Inc., a Maryland corporation registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a closed-end management investment company
(the "Company"), in connection with certain matters of Maryland law arising out
of the registration of 1,000,000 shares (the "Preferred Shares") of a new
series of Cumulative Preferred Stock, $.001 par value per share, of the Company
to be issued in an underwritten public offering, covered by the above-referenced
Registration Statement (the "Registration Statement"), filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "1933 Act"), and the 1940 Act. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings assigned
to them in the Registration Statement.

            In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):

            1.   The Registration Statement, and all amendments thereto relating
to the Preferred Shares, substantially in the form transmitted to the Commission
under the 1933 Act and the 1940 Act;

            2.   The charter of the Company (the "Charter"), certified as of a
recent date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");

<PAGE>

Royce Focus Trust, Inc.
October 8, 2003
Page 2


            3.   The form of Articles Supplementary relating to the Preferred
Shares, substantially in the form to be filed by the Company with the SDAT (the
"Articles Supplementary"), certified as of the date hereof by an officer of the
Company;

            4.   The Bylaws of the Company (the "Bylaws"), certified as of the
date hereof by an officer of the Company;

            5.   A certificate of the SDAT as to the good standing of the
Company, dated as of a recent date;

            6.   Resolutions adopted by the Board of Directors of the Company
(the "Resolutions") relating to the classification and designation of the
Preferred Shares and the authorization of the sale and issuance of the Preferred
Shares, certified as of the date hereof by an officer of the Company;

            7.   A certificate executed by an officer of the Company, dated as
of the date hereof; and

            8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth below, subject to the assumptions,
limitations and qualifications stated herein.

            In expressing the opinion set forth below, we have assumed the
following:

            1.   Each individual executing any of the Documents, whether on
behalf of such individual or any other person, is legally competent to do so.

            2.   Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.

            3.   Each of the parties (other than the Company) executing any
of the Documents has duly and validly executed and delivered each of the
Documents to which such party is a signatory, and such party's obligations set
forth therein are legal, valid and binding.

            4.   All Documents submitted to us as originals are authentic. The
form and content of all Documents submitted to us as unexecuted drafts do
not differ in any respect relevant to this opinion from the form and content of
such Documents as executed and delivered. All Documents submitted to us as
certified or photostatic copies conform to the original documents. All
signatures on all such Documents are genuine. All public records reviewed or

<PAGE>

Royce Focus Trust, Inc.
October 8, 2003
Page 3


relied upon by us or on our behalf are true and complete. All representations,
warranties, statements and information contained in the Documents are true and
complete. There has been no oral or written modification of or amendment to any
of the Documents, and there has been no waiver of any provision of any of the
Documents, by action or omission of the parties or otherwise.

            5.   Prior to the issuance of the Preferred Shares, a pricing
committee of the Board of Directors will determine certain terms of issuance of
such Preferred Shares, and the Articles Supplementary will be filed with, and
accepted for record by, the SDAT (the "Corporate Proceedings").

            Based upon the foregoing, and subject to the assumptions,
limitations and qualifications stated herein, it is our opinion that:

            1.   The Company is a corporation duly incorporated and existing
under and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.

            2.   The issuance of the Preferred Shares has been duly authorized
and (assuming that, upon any issuance of the Preferred Shares, the total number
of Preferred Shares issued and outstanding will not exceed the total number of
Preferred Shares that the Company is then authorized to issue under the
Charter), when and if delivered against payment therefor in accordance with the
Resolutions and the Corporate Proceedings, the Preferred Shares will be validly
issued, fully paid and nonassessable.

            The  foregoing opinion is limited to the substantive laws of the
State of Maryland and we do not express any opinion herein concerning any other
law. We express no opinion as to compliance with federal or state securities
laws, including the securities laws of the State of Maryland, or the 1940 Act.

            The opinion expressed herein is limited to the matters specifically
set forth herein and no other opinion shall be inferred beyond the matters
expressly stated. We assume no obligation to supplement this opinion if any
applicable law changes after the date hereof or if we become aware of any fact
that might change the opinion expressed herein after the date hereof.

            This opinion is being furnished to you solely for submission to the
Commission as an exhibit to the Registration Statement and, accordingly, may not
be relied upon by, quoted in any manner to, or delivered to any other person or
entity without, in each instance, our prior written consent. We hereby consent
to the filing of this opinion as an exhibit to the Registration

<PAGE>

Royce Focus Trust, Inc.
October 8, 2003
Page 4


Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the 1933 Act.

                                              Very truly yours,

                                              /s/ Venable LLP


29350/191533

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.N
<SEQUENCE>11
<FILENAME>rft63006_ex-99n.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>


                                  EXHIBIT 99(n)

                         CONSENT OF INDEPENDENT AUDITORS



<PAGE>

                                                                     Exhibit (n)


                         CONSENT OF INDEPENDENT AUDITORS

We consent to the references to our firm in this Registration Statement (Form
N-2, File Nos. 333-107928 and 811-05379) of Royce Focus Trust, Inc. and to the
use of our report dated January 15, 2003 (except for Note 7, as to which the
date is September 12, 2003) on the financial statements and financial highlights
of Royce Focus Trust, Inc. Such financial statements and financial highlights
appear in the 2002 Annual Report to Stockholders and are included in the
Statement of Additional Information in the Registration Statement.




                                              /s/ TAIT, WELLER & BAKER
                                              ------------------------
                                              TAIT, WELLER & BAKER

Philadelphia, Pennsylvania
October 8, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.R
<SEQUENCE>12
<FILENAME>rft63006_ex99r.txt
<DESCRIPTION>CODE OF ETHICS
<TEXT>



                                  EXHIBIT 99(r)

                       CODE OF ETHICS FOR THE ROYCE FUNDS
                             AND THE ROYCE COMPANIES



<PAGE>

                                 CODE OF ETHICS
                                       FOR
                                 THE ROYCE FUNDS
                                       AND
                               THE ROYCE COMPANIES

                       ADOPTED -- AS OF DECEMBER 30, 1994
                         AS AMENDED AS OF APRIL 10, 2003

                  1. Definitions.
                     -----------

                     (a) "Fund" means each of The Royce Fund, Royce Capital
Fund, Royce Value Trust, Inc., Royce Micro-Cap Trust, Inc., Royce Focus Trust,
Inc. and any other investment company or series of an investment company
registered as such under the Investment Company Act of 1940 which has the same
investment adviser as the Fund.

                     (b) "Royce" means Royce & Associates, LLC and Royce Fund
Services, Inc.

                     (c) "Covered Person" means any interested trustee,
director, officer, employee or Advisory Person of the Fund or any director,
manager, officer, employee or Advisory Person of Royce, other than any employee
of the Fund or Royce (i) who does not, in connection with his or her regular
functions or duties, make, participate in or obtain information regarding the
purchase or sale of securities by the Fund or any other Royce client, (ii) whose
functions do not relate to the making of any recommendations with respect to the
purchases or sales and (iii) whose name appears on a written schedule (which may
be changed at any time or from time to time) signed and maintained by Royce's
Chief Compliance Officer.

                     (d) "Advisory Person" means any natural person in a
control relationship to the Fund or Royce who obtains information concerning
recommendations made to the Fund or any other Royce client with regard to the
purchase or sale of a security.

                     (e) A security is "being considered for purchase or sale"
when a recommendation to purchase or sell such security has been made and
communicated and, with respect to the person making the recommendation, when
such person seriously considers making such a recommendation.

                     (f) "Beneficial ownership" shall be interpreted in the same
manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder, except that the determination of direct or indirect
beneficial ownership shall apply to all securities which a Covered Person has or
acquires. It includes ownership by a member of a Covered Person's immediate
family (such as spouse, minor children and adults living in a Covered Person's
home) and trusts of which a


<PAGE>

Covered Person or such an immediate family member is a trustee or in which any
such person has a beneficial interest.

                     (g) "Control" shall have the same meaning as that set
forth in Section 2(a)(9) of the Investment Company Act of 1940.

                     (h) "Disinterested Director" means a trustee or director of
the Fund who is not an 'interested person' of the Fund within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940.

                     (i) "Interested Director" means a trustee or director of
the Fund who is an 'interested person' of the Fund within the meaning of Section
2(a)(19) of the Investment Company Act of 1940.

                     (j) "Non-Covered Employee" means an employee of the Fund or
Royce who is excluded from the definition of Covered Person pursuant to clauses
(i), (ii) and (iii) thereof.

                     (k) "Non-Management Royce Director" means a Covered Person
who is a director of Royce, but who is not an officer or employee of Royce.

                     (l) "Purchase or sale of a security" includes, inter alia,
the writing of an option to purchase or sell a security.

                     (m) "Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act of 1940, except that it shall not include
(i) shares of registered open-end investment companies, (ii) securities which
are direct obligations of the United States and (iii) bankers' acceptances, bank
certificates of deposit, commercial paper and other money market instruments.

                     (n) "Initial Public Offering" means an offering of
securities registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.

                  2. Statement of General Principles. Each Covered Person shall,
in connection with his or her personal investment activities, (i) at all times
place the interests of Royce clients and Fund shareholders first, (ii) conduct
all such transactions consistent with this Code and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of his or her position
of trust and responsibility and (iii) not take any inappropriate advantage of
his or her positions.

                  3. Prohibited Purchases and Sales. (a) No Covered Person other
than a Non-Management Royce Director shall purchase or sell, directly or
indirectly, any security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership unless such
purchase or sale is exempted pursuant to Section 4 of this Code. The preceding
sentence of this Section 3(a) shall not prohibit the purchase or sale of any
security by Royce for the account of any pooled investment vehicle managed by
Royce, including a limited partnership, limited liability company or other
entity in which Royce or a Covered Person has a beneficial

                                       2
<PAGE>

interest as a general partner and/or otherwise, provided that the aggregate
beneficial interests of Royce and/or all Covered Persons in any such pooled
investment vehicle shall not exceed (i) 24.90% of such vehicle's capital
accounts or other equity interests or (ii) 20% of such vehicle's realized and
unrealized net capital gains from securities transactions. However, purchases of
Initial Public Offerings or private placement securities by any such pooled
investment vehicle in which a Covered Person has a beneficial interest shall be
pre-approved in writing by the Compliance Officer and either an executive
officer or Senior Portfolio Manager of Royce.

                     (b) No Disinterested Director, Non-Management Royce
Director or Non-Covered Employee shall purchase or sell, directly or indirectly,
any security in which he or she has, or by reason of such transaction acquires,
any direct or indirect beneficial ownership if such person knew or, in the
ordinary course of fulfilling his or her official duties as a director or
trustee of the Fund, as a director of Royce or as an employee of Royce or the
Fund, should have known that such security was then being purchased or sold by
the Fund or, in the case of a Non-Management Royce Director or Non-Covered
Employee, another Royce account or was then being considered by the Fund or
Royce for purchase or sale by the Fund or, in the case of a Non-Management Royce
Director or Non-Covered Employee, another Royce account, unless such purchase or
sale is exempted pursuant to Section 4 of this Code.

                  4. Exempted Transactions. The prohibitions of Sections 3(a)
and 3(b) of this Code shall not apply to:

                     (a) Purchases or sales effected in any account over which
the Covered Person or Disinterested Director has no direct or indirect influence
or control.

                     (b) Purchases or sales which are non-volitional on the part
of either the Covered Person, the Disinterested Director or the Fund or other
Royce client.

                     (c) Purchases which are part of an automatic distribution
reinvestment plan or an employer-sponsored, automatic payroll deduction, cash
purchase plan.

                     (d) Purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights so
acquired.

                     (e) Purchases or redemptions or sales of debt securities
which are either "Government securities" within the meaning of Section 2(a)(16)
of the Investment Company Act of 1940 or "municipal securities" within the
meaning of Section 3(a)(29) of the Securities Exchange Act of 1934.

                     (f) Purchases or sales of shares of passively-managed
registered investment companies or other baskets of securities which trade on a
national securities exchange or on Nasdaq and whose investment objective is to
closely track the performance of an index of securities.

                     (g) Purchases or sales by a Covered Person which receive
the prior approval of the Compliance Officer and either an executive officer or
Senior Portfolio Manager of

                                       3
<PAGE>

Royce (to be promptly confirmed in writing) because (i) they are not eligible
for purchase or sale by the Fund or any other Royce account, (ii) they are only
remotely potentially harmful to the Fund and Royce's other accounts because they
would be very unlikely to affect a highly institutional market, (iii) they
clearly are not related economically to the securities to be purchased, sold or
held by the Fund or any other Royce account, (iv) they are not then being
purchased or sold, and neither the executive officer or Senior Portfolio Manager
pre-approving the transaction nor the Covered Person have any current knowledge
that the securities are then being considered for purchase or sale, by the Fund
or any other Royce account or (v) in the case of an Initial Public Offering,
they are available for purchase by the Covered Person solely by virtue of his or
her non-business relationship with a family member or other person and are not
in any way related to the Covered Person's position with the Fund or Royce.

                     Prior approvals pursuant to clause (iv) above shall be
granted only in a limited number of instances, and any prior approval granted
pursuant to this Section 4(g) shall be subject to the following restrictions and
conditions:

                         (1) Each written confirmation by the Compliance Officer
and either an executive officer or Senior Portfolio Manager of Royce of their
prior approval of a purchase or sale by a Covered Person shall show the basis on
which the prior approval was granted and the period for which it was granted
(which shall not exceed five trading days from the date of the grant).

                         (2) Generally, no Covered Person shall be permitted to
acquire any securities in an Initial Public Offering, except to the extent set
forth in Section 3(a) above.

                         (3) Prior approval is required for a Covered Person to
acquire any securities (including limited partnership interests) in a private
placement. Such prior approval should take into account, among other factors,
whether the investment opportunity should be reserved for the Fund and/or other
Royce account(s), and whether the opportunity is being offered to the Covered
Person by virtue of his or her position with the Fund or Royce. Any Covered
Person who may be authorized to acquire securities in a private placement shall
disclose that investment when he or she plays a part in the Fund's or Royce's
subsequent consideration of an investment in the issuer, and, in such
circumstances, the Fund's and/or Royce's decision to purchase securities of the
issuer shall be subject to an independent review by investment personnel with no
personal interest in the issuer.

                         (4) No Covered Person shall be permitted to purchase or
sell a security within at least seven calendar days before and after the Fund or
any other Royce account trades in that security, and any profits realized on
trades within such proscribed periods shall be disgorged by the Covered Person.

                         (5) No Covered Person, except in unusual or
exceptional circumstances, may profit in the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days, and
any profits realized on such short-term trades shall, except in such
circumstances, be disgorged by the Covered Person.

                                       4
<PAGE>

                  5. Gifts. No Covered Person shall receive any gift or other
thing of more than $100 in value from any individual or entity that does
business with or on behalf of the Fund or any other Royce account. This
prohibition does not extend to bona fide business-related entertainment and/or
travel.

                  6. Service as a Director. No Covered Person other than a
Non-Management Royce Director may serve on the board of directors of any
publicly-traded company, absent prior authorization based upon a determination
that the board service would be consistent with the interests of the Fund and
Royce's other accounts. In the relatively small number of instances in which
board service may be authorized, the Covered Person serving as a director
normally should be isolated from those making investment decisions through
"Chinese Wall" or other procedures.

                  7. Reporting.
                     ---------

                     (a) Every Covered Person shall report to the Fund and
Royce the information described in Section 7(d) of this Code with respect to
transactions in any security in which such Covered Person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership in the
security; provided, however, that a Covered Person shall not be required to make
a report with respect to transactions effected for any account over which such
Covered Person does not have any direct or indirect influence or control.

                     (b) A Disinterested Director need only report to the Fund a
transaction in a security if such director, at the time of that transaction,
knew or, in the ordinary course of fulfilling his or her official duties as a
director, should have known that, during the 15 calendar days before or after
the date of the transaction by the director, such security was purchased or sold
by the Fund or was being considered by the Fund or Royce for purchase or sale by
the Fund.

                     (c) A Non-Covered Employee shall report to the Fund and
Royce any instance in which he or she participates in, or obtains information
regarding, the purchase or sale of securities by the Fund or any other Royce
account, whether or not in connection with his or her regular duties.

                     (d) Every report shall be in writing, shall be signed by
the person making it, shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected and shall contain the following information:

                         (i)   The date of the transaction, the title and the
number of shares, and the principal amount of each security involved;

                         (ii)  The nature of the transaction -- i.e., purchase,
sale or any other type of acquisition or disposition;

                         (iii) The price at which the transaction was effected;

                         (iv)  The name of the broker, dealer or bank with or
through whom the transaction was effected; and

                                       5
<PAGE>

                         (v)   With respect to any account established by the
Covered Person during the quarter for the direct or indirect benefit of the
Covered Person, the name of the broker, dealer or bank with whom the account was
established and the date the account was established.

                     Notwithstanding the foregoing, the report of a
Non-Management Royce Director may exclude information contained in any duplicate
copies of broker trade confirmations and/or periodic account statements that are
supplied to the Compliance Officer under Section 7(f) of this Code, provided
that such confirmations and/or statements have been received by the Compliance
Officer no later than 10 days after the end of the calendar quarter in which the
transaction(s) to which they relate to were effected.

                     (e) Any such report shall include transactions exempted
pursuant to Section 4 of this Code and may contain a statement that the report
shall not be construed as an admission by the person making such report that he
or she has any direct or indirect beneficial ownership in the security to which
the report relates.

                     (f) All Covered Persons shall (i) direct their brokers to
supply to the Compliance Officer, on a timely basis, duplicate copies of
confirmations of all personal securities transactions and copies of periodic
statements for all securities accounts and (ii) disclose to the Fund and Royce
all personal securities holdings upon commencement of employment and thereafter
on an annual basis.

                  8. Sanctions. Upon discovering a violation of this Code, Royce
and/or the Board of Trustees/Directors of the Fund may impose such sanctions as
it deems appropriate, including, inter alia, a letter of censure or suspension
or termination of the employment of the violator.


                                       6

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