As filed with the Securities and Exchange Commission on MayAugust 11, 2020

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.         )

 

Filed by the Registrant

Filed by a Party other than the Registrant

 

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

ROYCE CAPITAL FUND

ROYCE CAPITAL FUND

(Name of Registrant as Specified In Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies:

 

(2)

(2)

Aggregate number of securities to which transaction applies:

 

(3)

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

(4)

(4)

Proposed maximum aggregate value of transaction:

 

(5)

(5)

Total fee paid:

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

(1)

Amount Previously Paid:

 

(2)

(2)

Form, Schedule or Registration Statement No.:

(3)Filing Party:

(4)Date Filed:

(3)

Filing Party:

(4)

Date Filed:

 

 

 

 

ROYCE CAPITAL FUND

745 Fifth Avenue

New York, New York 10151

 

MayIMPORTANT PROXY MATERIALS

PLEASE VOTE NOW!

August 11, 2020

 

Dear Royce Capital Fund Shareholder:

 

A special meeting of shareholders of each series (each, a "Fund"I am inviting you to vote on an important proposal relating to the management and collectively, the "Funds")operation of Royce Capital Fund a Delaware statutory trust (the "Trust"“Trust”),. A special shareholder meeting of each series of the Trust is scheduled to be held at the offices of the Trust at 745 Fifth Avenue, 23rd Floor, New York, New York, 10151 at 11:10:00 a.m. (Eastern time)Time) on Tuesday, July 14,Thursday, September 24, 2020 (the “Meeting”) to vote on the proposal listed in the enclosed Proxy Statement. However, as we are concerned about your health and safety during the currentcontinuing COVID-19 pandemic, we intend to monitor the recommendations of public health officials and governmental restrictions as the situation continues to evolve. If we decide to hold the special meetingMeeting at a different time, in a different location, or partially or entirely by means of remote communication (i.e., a virtual meeting), we will provide timely notice of any such change in the manner discussed in these proxy materials. In the event we decide to hold a virtual meeting rather than an in-person meeting, such notice will include important information regarding the virtual meeting, including how to access, participate in, and vote at, such virtual meeting.

 

AsThis package contains information about the proposal and includes materials you know, Royce Investment Partners (“Royce”)1 serves as the investment adviserwill need to each Fund. Royce’s indirect parent company, Legg Mason, Inc. (“Legg Mason”), has entered into an agreement with Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton, pursuant to which Franklin Templeton will, subject to approval by Legg Mason’s shareholders and satisfaction of other conditions, acquire Legg Mason along with Legg Mason’s ownership interest in Royce. Royce will continue to operate on a standalone basis after the completion of the transaction. In addition, the transaction will not result in any changes to either Fund’s portfolio management personnel, investment objective, principal investment strategy, or investment restrictions.

The transaction will, however, result in the termination of the Funds’ current investment advisory agreement in accordance with its terms as required by applicable law. In order for each Fund’s operations to continue uninterrupted after the transaction, we are asking each Fund’s shareholders to approve the new investment advisory agreement.vote. The Board of Trustees of the Trust has already approved the new agreement. It is important to note that: (i) the termsnominated seven (7) individuals for election as Trustees and conditionshas recommended that you vote in favor of all of them. Six (6) of the Funds’ new investment advisory agreement will be substantially identical to those of their current investment advisory agreement and (ii) each Fund’s contractual investment advisory fee rate will remain the same under the new investment advisory agreement.

The Board ofseven (7) individuals nominated for election already serve as Trustees of the Trust. The other Trustee nominee, Cecile B. Harper, does not currently serve in any capacity with respect to the Trust recommendsbut does serve as a member of the Board of Directors of Royce Global Value Trust, Inc., Royce Micro-Cap Trust, Inc., and Royce Value Trust, Inc. (collectively, the “Royce Closed-End Funds”). Royce Investment Partners1 serves as the investment adviser to each series of the Trust and to the Royce Closed-End Funds. Although the Trustees have determined that you vote "FOR" the proposal to approve a new investment advisory agreement for each Fundelection of all of the Trustee nominees is in which you own shares.your best interest, the final decision is yours.

 

The enclosed materials explain this proposal in more detail and I encourage you to review them carefully. As a shareholder, your vote is important, and we hope that you will respond as soon as possibletoday to ensure that your shares will be represented at the special meeting. ToMeeting. You may authorize a proxy to vote you may use anyyour shares by using one of the methods below by following methods:the instructions on your proxy card:

 

By touch-tone telephone;

By Internet;internet; or

By returning the enclosed voting instructionsproxy card in the postage-paid envelope.

You may also vote in person at the Meeting.

Please call Shareholder Services at 1-800-841-1180 with any questions you may have about this Proxy Statement.

 

 

1 Royce & Associates, LP is a Delaware limited partnership that primarily conducts its business under the name Royce Investment Partners.

 

 

 

You may also vote in person at the special meeting.

Please call Shareholder Services at 1-800-841-1180 with any questions you may have about the proposal or the enclosed Proxy Statement. If you need assistance voting, please call Computershare, the proxy solicitor, toll-free at 1-866-209-8568.

 

As always, thank you for your continued support of our work. We look forward to serving you for many years to come.

 

 

Sincerely,

 
 Christopher D. Clark
 President of Royce Capital Fund

TABLE OF CONTENTS

PagePlease vote now. Your vote is important.
QuestionsTo avoid the wasteful and Answers4
Noticeunnecessary expense of Special Meeting of Shareholders9
Proxy Statement11
Proposal 1 -Approval offurther solicitation, we urge you to indicate your voting instructions on the enclosed proxy card, date and sign it and return it promptly in the envelope provided, or record your voting instructions by touch-tone telephone or via the internet, no matter how large or small your holdings may be. If you submit a New Investment Advisory Agreement with Royce Investment Partners13
Introduction13
Description ofproperly executed proxy but do not indicate how you wish your shares to be voted, your shares will be voted “FOR” the Transaction13
Information Concerning Royce, Legg Mason, and Franklin Templeton14
Impact of Transaction on Services Provided to the Funds15
Information About the Current Investment Advisory Agreement15
Terms of New Investment Advisory Agreement and Comparison of New Investment Advisory Agreement with Current Investment Advisory Agreement15
Possible Interim Investment Advisory Agreement17
Board Evaluation17
Section 15(f) of the 1940 Act23
Additional Information24
General24
Inspectors and Judges of Voting24
Quorum24
Required Vote25
Adjournment or Postponement of Meeting with Respect to a Fund25

Information about Royce, Its Affiliated Broker-Dealer, Fees Paid by the Funds to Royce and its Affiliates, and Other U.S. Registered Investment Companies Advised by Royce

26
Fiscal Year26
Shareholder Proposals27
Householding of Proxy Materials27
Other Business27
Appendix ARecord Date Shares Outstanding
Appendix B5% Share Ownership Information
Appendix CInformation Regarding Current Investment Advisory Agreement
Appendix DForm of New Investment Advisory Agreement
Appendix EInformation Regarding Members of Royce’s Board of Managers, Royce’s Principal Executive Officers, and Officers and Certain Trustees of the Trust
Appendix FInformation Regarding Amounts and Brokerage Commissions Paid by Funds to Royce and its Affiliates
Appendix GInformation Regarding Other Funds Advised by Royce
proposal.

3

 

 

IMPORTANT NEWS FOR ROYCE CAPITAL FUND SHAREHOLDERS

While we encourage you to read the full text of the enclosed Notice of Special Meeting and Proxy Statement, for your convenience, we have provided a brief overview of these materials.

QUESTIONS AND ANSWERS

Q.Why did you send me this booklet?

A.This booklet contains a Notice of Special Meeting of Shareholders of Royce Micro-Cap Portfolio and Royce Small-Cap Portfolio (each, a "Fund" and collectively, the "Funds") of Royce Capital Fund, a Delaware statutory trust (the "Trust"). The booklet also contains a Proxy Statement that describes the matters to be considered at the special shareholder meeting and provides related information. Owners of variable annuity contracts or variable life insurance policies (collectively, the "Contracts") who have allocated account value to separate accounts investing in either Fund generally may instruct their insurance company how to vote the shares related to their investment. Thus, Contract owners should consider themselves shareholders for purposes of these proxy materials and have the right to vote on the proposal for each Fund in which they own shares as of the close of business on the record date, May 1, 2020.

Q.Who is asking for my vote?

A.The Board of Trustees of the Trust (the "Board") is asking you to vote at the special meeting on the proposal to approve a new investment advisory agreement for each Fund in which you own shares. The Board oversees the business and affairs of each Fund and is required by law to act in what the Board believes to be the best interests of each Fund.

Q.What am I being asked to consider in connection with the special meeting?

A.You are being asked to consider and vote on a proposal to approve a new investment advisory agreement with Royce Investment Partners (“Royce”)2 with respect to each Fund in which you own shares.

Q.Why am I being asked to vote on a new investment advisory agreement for each Fund in which I own shares?

A.As you know, Royce serves as the investment adviser to each Fund. Royce is a majority-owned, indirect subsidiary of Legg Mason, Inc. (“Legg Mason”). Legg Mason has entered into an agreement with Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton, pursuant to which Franklin Templeton will acquire Legg Mason along with Legg Mason’s ownership interest in Royce. Upon completion of the transaction, Royce will become a majority-owned, indirect subsidiary of Franklin Templeton. The transaction will result in what is commonly called a “change of control” of Royce and will cause the Funds’ current investment advisory agreement to terminate in accordance with its terms as required by applicable law. The transaction will not be completed unless certain conditions are met. One of these conditions is that investment advisory clients of Royce and Legg Mason’s other investment subsidiaries representing a specified percentage of Legg Mason’s overall revenue consent to the continuation of their investment advisory relationships after completion of the transaction. This includes approval of new investment advisory agreement to be effective upon completion of the transaction by shareholders of the Funds.

2   Royce & Associates, LP is a Delaware limited partnership that primarily conducts its business under the name Royce Investment Partners.This Page Intentionally Left Blank

 


Q.How does the Funds’ new investment advisory agreement differ from their current investment advisory agreement?

 

A.The Funds’ new investment advisory agreement will be substantially identical to their current investment advisory agreement, except for its date of execution, effectiveness, and termination, and certain non-material updating changes.

 

Q.Will the contractual investment advisory fee rate for either Fund increase upon the completion of the transaction?

 

A.No. The contractual investment advisory fee rate for each Fund will remain the same upon completion of the transaction.

Q.Will the transaction or the new investment advisory agreement result in any material changes to Royce’s operations or to either Fund’s portfolio management personnel, investment objective, principal investment strategy, or investment restrictions?

A.No. Neither the transaction nor the new investment advisory agreement will result in any material changes to Royce’s operations as Royce will continue to operate on a standalone basis upon completion of the transaction and implementation of the new investment advisory agreement. In addition, the transaction and the new investment advisory agreement will not result in any material changes to either Fund’s portfolio management personnel, investment objective, principal investment strategy, or investment restrictions.

Q.How does the Board recommend that the shareholders of each Fund vote on the proposal?

A.After careful consideration, the Board unanimously recommends that the shareholders of each Fund vote “FOR” the proposal to approve the new investment advisory agreement.

Q.What is the required shareholder vote for approval of the new investment advisory agreement for the Funds?

A.Shareholder approval of the new investment advisory agreement with respect to each Fund requires the affirmative vote of the lesser of:

more than 50% of the Fund’s outstanding shares; or

67% or more of the Fund's shares present at the special meeting, if the holders of more than 50% of the Fund's shares are present, in person or by proxy, at such special meeting.


Because the shares of each Fund are held by the participating insurance companies through the Contracts, such shares will be voted, in accordance with the requirements of the Securities and Exchange Commission, by such insurance companies using a proportional voting procedure known as “echo voting.” That means that each participating insurance company will vote all shares of each Fund owned by it for which it does not receive voting instructions from shareholders in the same proportion as the votes actually cast by shareholders (i.e., for the Proposal, against the Proposal, or abstain).As a result, this proportional voting procedure may result in a relatively small number of shareholders determining the outcome of the vote.

Approval of the new investment advisory agreement by the shareholders of Royce Micro-Cap Portfolio is not contingent upon, and will not affect in any way, shareholder approval of the new investment advisory agreement by the shareholders of Royce Small-Cap Portfolio. Likewise, approval of the new investment advisory agreement by the shareholders of Royce Small-Cap Portfolio is not contingent upon, and will not affect in any way, shareholder approval of the new investment advisory agreement by the shareholders of Royce Micro-Cap Portfolio.

Q.Why might I receive more than one voting instruction card?

A.You may receive more than one voting instruction card if you own shares in both Funds as of the close of business on the record date, May 1, 2020. It is important that all shares owned by you are represented at the Meeting. Even if you plan to attend the Meeting, you should promptly authorize a proxy to vote your shares in both Funds by touch-tone telephone, over the Internet, or by signing, dating and returning each voting instruction card you receive. You are encouraged to consider the proposal for one Fund in which you own shares separately from the proposal for the other Fund in which you own shares. The shares of one Fund in which you own shares may be voted differently than the shares of the other Fund in which you own shares (e.g., your shares in one Fund may be voted "FOR" the proposal while your shares in the other Fund may be voted "AGAINST" the proposal).

Q.When is the Funds’ new investment advisory agreement expected to go into effect?

A.In the event the new investment advisory agreement receives the required shareholder approval with respect to one or both Funds, it will go into effect with respect to that Fund or both Funds, as the case may be, upon completion of the transaction (i.e., when Royce becomes a majority-owned, indirect subsidiary of Franklin Templeton). Such transaction is expected to close later this year.

Q.What happens if the new investment advisory agreement does not receive the required shareholder approval with respect to one or both Funds?

A.If the new investment advisory agreement does not receive the required shareholder approval with respect to one or both Funds and the sale of Legg Mason to Franklin Templeton is completed, the new investment advisory agreement will not go into effect with respect to that Fund or both Funds, as the case may be, and the current investment advisory agreement with respect to that Fund or both Funds, as the case may be, will terminate in accordance with its terms as required by applicable law. In such an event, the Board would implement an interim investment advisory agreement with Royce for a period of no more than 150 days after completion of the transaction in order to continue to solicit proxies for the approval of the new investment advisory agreement with respect to that Fund or both Funds, as the case may be. The Board has approved an interim investment advisory agreement to provide for maximum flexibility for the Funds’ future.

Q.Will there be any changes to the Funds’ custodian or other service providers as a result of Franklin Templeton’s acquisition of Legg Mason?

A.No. There will not be any changes to the Funds’ custodian or other service providers as a result of Franklin Templeton’s acquisition of Legg Mason.


Q.Is my Fund paying for these proxy materials?

A.No. All costs associated with these proxy materials and the special shareholder meeting, including proxy solicitation costs, legal fees, and the costs of printing and mailing the proxy materials, will be borne by Legg Mason (and not by the Funds).

Q.Will my vote make a difference?

A.Yes. Your affirmative vote is needed to ensure that the proposal to approve the new investment advisory agreement with respect to each Fund in which you own shares receives the required shareholder approval at the special meeting. The Board encourages you to participate in the governance of each Fund in which you own shares.

Q.Whom do I call if I have questions?

A.If you have any questions about the proposal or the enclosed Proxy Statement, please call Shareholder Services at 1-800-841-1180. If you have any questions about voting, please call Computershare, the proxy solicitor, toll-free at 1-866-209-8568.

Q.What is a "proxy"?

A.A proxy is your legal designation of another person to vote each Fund's shares of beneficial interest owned by you. That other person is called a proxy. If you designate someone as your proxy in a written document, that document is also called a proxy, proxy card, or voting instruction card.

Q.How do I provide voting instructions for my shares?

A.For your convenience, there are several ways in which you can provide voting instructions:

By touch-tone telephone;

By Internet;

Mark your voting preference, sign, and return the enclosed voting instruction card in the postage-paid envelope; or

In person

Q.When and where is the special meeting scheduled to be held?

A.The special meeting of shareholders of each Fund is scheduled tobe held at the offices of the Trust at 745 Fifth Avenue, 23rd Floor, New York, New York, 10151 at 11:00 a.m. (Eastern time) on Tuesday, July 14, 2020.However, as we are concerned about your health and safety during the current COVID-19 pandemic, we intend to monitor the recommendations of public health officials and governmental restrictions as the situation continues to evolve. If we decide to hold the special meeting at a different time, in a different location, or partially or entirely by means of remote communication (i.e., a virtual meeting), we will provide timely notice of any such change by means of a press release, which will be posted on our website (http://www.royceinvest.com). We encourage you to check the website prior to the special meeting if you plan to attend the special meeting in person. An announcement of any change will also be filed on a timely basis with the Securities and Exchange Commission via its EDGAR system. In the event we decide to hold a virtual meeting rather than an in-person meeting, such notice will include important information regarding the virtual meeting, including how to access, participate in, and vote at, such virtual meeting.


Please see your voting instruction card for specific instructions on how to vote via touch-tone telephone or via the Internet.

It is important that you provide voting instructions for your Fund shares promptly. This will help save the costs of further solicitation.


ROYCE CAPITAL FUND

745 FIFTH AVENUEFifth Avenue

NEW YORK, NEW YORKNew York, New York 10151

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

SCHEDULED TO BE HELD ON JULY 14,SEPTEMBER 24, 2020

 

To the Shareholders of Royce Capital Fund (2 Series):

 

Royce Micro-Cap Portfolio

Royce Small-Cap Portfolio

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Meeting"“Meeting”) of each of the above-listed Seriesseries (each, a "Fund"“Fund” and collectively,together, the "Funds"“Funds”) of Royce Capital Fund a Delaware statutory trust (the "Trust"“Trust”), is scheduled to will be held at the offices of the Trust, 745 Fifth Avenue, 23rd Floor, New York, New York 10151 on Thursday, September 24, 2020, at 11:10:00 a.m. (Eastern time) on Tuesday, July 14, 2020Time) for the following purposes:

 

1.To approve the proposed Investment Advisory Agreement; and

1.  To elect a Board of seven Trustees of the Trust to hold office until the next Special Meeting of Shareholders and until their successors have been duly elected and qualified or until their earlier resignation, removal, or retirement; and

 

2.To transact such other business as may properly come before the Meeting or any postponement ofor adjournment thereof.

 

The Board of Trustees of the Trust has set the close of business on May 1,July 31, 2020 as the record date for determining those shareholders entitled to vote with respect to each Fund at the Meeting or any postponement ofor adjournment thereof, and only holders of record at the close of business on that day will be entitled to vote with respect to the Fund at the Meeting or any postponement of adjournment thereof. If you own shares in both Funds as of the close of business on May 1, 2020, you may receive more than one voting instruction card.Meeting.

 

A complete list of the shareholders of the Trust entitled to vote at the Meeting is scheduled towill be available and open to the examination of any shareholder of the Trust for any purpose relevant to the Meeting during ordinary business hours from and after June 30,September 9, 2020, at the offices of the Trust, 745 Fifth Avenue, 23rd Floor, New York, New York 10151.

 

The Funds’ Annual ReportReports to Shareholders for the year ended December 31, 2019 waswere previously mailed to their shareholders, and copies are available upon request, without charge, by writing to the Trust at 745 Fifth Avenue, New York, New York 10151 or by calling 1-800-221-4268.

Please call Shareholder Services at 1-800-841-1180 with any questions you may have about this Proxy Statement.


IMPORTANT

To save the Funds the expense of additional proxy solicitation, please mark your instructions on the enclosed proxy card, date and sign it, and return it in the enclosed envelope (which requires no postage if mailed in the United States), even if you expect to be present at the Meeting. You may also authorize a proxy to vote your shares via touch-tone telephone or the Internet by following the instructions on the proxy card. Please take advantage of these prompt and efficient proxy authorization options. The accompanying Proxy is solicited on behalf of the Board of Trustees of the Trust, is revocable, and will not affect your right to vote in person in the event that you attend the Meeting.

By Order of the Board of Trustees of Royce Capital Fund,
John E. Denneen
Secretary

August 11, 2020

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE SPECIAL MEETING OF SHAREHOLDERS SCHEDULED TO BE HELD ON JULY 14, 2020:SEPTEMBER 24, 2020

THE NOTICE, PROXY STATEMENT AND YOUR FORM OF PROXY CARD

FOR THE TRUST
ARE AVAILABLE AT https://www.proxy-direct.com/roy-31318.rcf-31560

 

PLEASE NOTE:We are concerned about your health and safety during the current COVID-19 pandemic, and we intend to monitor the recommendations of public health officials and governmental restrictions as the situation continues to evolve. If we decide to hold the Meeting at a different time, in a different location, or partially or entirely by means of remote communication (i.e., a virtual meeting), we will provide timely notice of any such change by means of a press release, which will be posted on our website (http://www.royceinvest.com). We encourage you to check the website prior to the Meeting if you plan to attend the Meeting in person. An announcement of any change will also be filed on a timely basis with the Securities and Exchange Commission via its EDGAR system. In the event it is decided to hold a virtual meeting rather than an in-person meeting, such notice will include important information regarding the virtual meeting, including how to access, participate in, and vote at, such virtual meeting.

 

Please call Shareholder Services at 1-800-841-1180 with any questions you may have about Proposal 1. If you need assistance voting, please call Computershare, the proxy solicitor, toll-free at 1-866-209-8568.

 

IMPORTANT

��

To save the expense of additional proxy solicitation, please mark your instructions on the enclosed voting instruction card, date and sign it, and return it in the enclosed envelope (which requires no postage if mailed in the United States), even if you expect to be present at the Meeting. You have been provided with the opportunity on your voting instruction card to give voting instructions via touch-tone telephone or the Internet, and you are encouraged to take advantage of these prompt and efficient voting instruction options. The accompanying proxy is solicited on behalf of the Board of Trustees of the Trust, is revocable, and will not affect your right to vote in person in the event that you attend the Meeting. Please note that attendance alone without voting will not be sufficient to revoke previously provided voting instructions.

By Order of the Board of Trustees of Royce Capital Fund,

John E. Denneen

Secretary

May 11, 2020


PROXY STATEMENT

 

ROYCE CAPITAL FUND (2 Series)

745 Fifth Avenue

New York, New York 10151

 

Royce Micro-Cap Portfolio

Royce Small-Cap Portfolio

 

745 FIFTH AVENUE

NEW YORK, NEW YORK 10151

 

SPECIAL MEETING OF SHAREHOLDERS
SCHEDULED TO BE HELD ON JULY 14,SEPTEMBER 24, 2020

 

 

INTRODUCTION

 

The accompanying proxyProxy is solicited on behalf of the Board of Trustees of Royce Capital Fund (the "Board"“Board”) for use at a Special Meeting of Shareholders (the "Meeting"“Meeting”) of each of the above-listed Series (each, a "Fund"“Fund” and collectively,together, the "Funds"“Funds”) of Royce Capital Fund a Delaware statutory trust (the "Trust"“Trust”), scheduled to be held at the offices of the Trust, 745 Fifth Avenue, 23rd Floor, New York, New York 10151, on Thursday, September 24, 2020, at 11:10:00 a.m. (Eastern time) on Tuesday, July 14, 2020Time) and at any postponement ofor adjournment thereof. This proxy statement (including all appendices attached hereto, this "Proxy Statement") is dated May 11, 2020 and theThe approximate mailing date of this Proxy Statement and accompanying proxy card is May 15,August 18, 2020.

 

All properly executed voting instruction cardsProxies received prior to the Meeting will be voted at the Meeting in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, votesProxies will be cast “FOR”voted “FOR the approvalelection of the new investment advisory agreement.Trustee nominees of the Trust.

 

You may revoke your voting instructionsProxy at any time before the corresponding votes are castit is exercised by sending written instructions to the Secretary of the Trust at the Trust’s address indicated above or by filingsubmitting a new voting instructionproxy card with a later date. AnyIn addition, any shareholder attending the Meeting may vote in person, whether or not such shareholderhe or she has previously filedsubmitted a voting instruction card.proxy.


The Board has set the close of business on May 1,July 31, 2020 (the "Record Date") as the record date (the “Record Date”) for determining those shareholders entitled to vote with respect to each Fund at the Meeting or any postponement ofor adjournment thereof, and only holders of record at the close of business on that day will be entitled to vote with respect to the Fund at the Meeting or any postponement of adjournment thereof.Meeting. Shareholders of eacha Fund will vote as a single class on Proposal No. 1 and will vote separately from shareholders of the other Fund. Shareholders on the Record Date will be entitled to one vote for each share of beneficial interest ("share"(“share”) held in that Fund (proportional voting rights for fractional shares held), with no shares having cumulative voting rights. Shareholders are not entitled to any appraisal rights as the result of any matters to be considered at the Meeting.

If you own shares in both Funds as of the Record Date, you may receive more than one voting instruction card. You are encouraged to consider the proposal for one Fund in which you own shares separately from the proposal for the other Fund in which you own shares. The shares of one Fund in which you own shares may be voted differently than the shares of the other Fund in which you own shares (e.g., your shares in one Fund may be voted "FOR" the proposal while your shares in the other Fund may be voted "AGAINST" the proposal).

Royce & Associates, LP serves as the investment adviser and administrator to each Fund and is a limited partnership organized under the laws of Delaware. Royce & Associates, LP primarily conducts its business under the name Royce Investment Partners (“Royce”). The principal business address of Royce is 745 Fifth Avenue, New York, New York 10151.

Royce has retained Computershare Fund Services, 250 Royall Street, Canton, MA 02021 (the “Solicitor”), to solicit Proxies for the Meeting. The Solicitor is responsible for printing voting instruction cards, mailing proxy materials to Fund shareholders, soliciting broker-dealer firms, custodians, nominees, and fiduciaries, tabulating the returned proxies, and performing other proxy solicitation services. Some officers of the Trust, employees of Royce Fund Services, LLC (“RFS”), the Funds’ distributor, and the Solicitor may solicit Proxies personally and by telephone, if deemed desirable. The estimated fee to be paid to the Solicitor for these solicitation services is approximately $55,000. Such costs will be paid by Legg Mason (and not by the Funds). Royce will also cause Legg Mason (and not the Funds) to reimburse brokerage firms, custodians, nominees, and fiduciaries for their expenses in forwarding Proxy materials to the beneficial owners of Fund shares. If you need assistance voting, please call the Solicitor toll-free at 1-866-209-8568.

 

As of the Record Date, each Fund had outstanding the number of shares of each share class as set forthindicated inAppendix Exhibit A to this Proxy Statement. Except as set forth inAppendix B, toA listing of persons who owned beneficially more than 5% of any class of the Trust’s knowledge,shares of a Fund as of the Record Date no person is the beneficial or record owner of five percent or more of the Trust’s outstanding shares or five percent or more of the shares of any Class of a Fund. As of the Record Date, all of the Trustees and officers of the Trust (12 persons) owned,contained in the aggregate, less than 1% of each Fund’s outstanding shares. Each member of the Board who is not an “interested person” (as defined in the Investment Company Act of 1940 (the “1940 Act”)) of the Trust, the Funds, or Royce (each, an “Independent Trustee” and collectively, the “Independent Trustees”) does not, as of the Record Date, own any securities of, or have any other material direct or indirect interest in, Legg Mason, Franklin Templeton or any of their respective affiliates.Exhibit B to this Proxy Statement.

 

The Board knows of no business other than that mentioned in ProposalsProposal 1 and 2 of the Notice of Special Meeting that will be presented for consideration at the Meeting. If any other matter is properly presented at the Meeting or any postponement ofor adjournment thereof, it is the intention of the persons named on the enclosed voting instructionproxy card to vote in accordance with their best judgment.


PROPOSAL 1 — APPROVAL1: ELECTION OF A NEW INVESTMENT ADVISORY AGREEMENT
WITH ROYCE INVESTMENT PARTNERS
TRUSTEES

 

At the Meeting, it is proposed that the Trust’s shareholders elect seven (7) Trustees to hold office until their successors are duly elected and qualified or until their earlier resignation, removal, or retirement. The Board has nominated the seven (7) persons listed below to continue or to become Trustees of each Fundthe Trust, as applicable. Certain information concerning the Trustee nominees is set forth below. Each of these seven (7) persons has agreed to serve if elected, and the Trust’s management has no reason to believe that any of such persons will be askedunavailable for service as a Trustee. However, if any of them becomes unwilling or unable to approve a new investment advisory agreementserve, the persons named in the accompanying Proxy will vote for the election of such other persons, if any, as the Board may nominate.

Proposed Interested Person Trustee Nominee

Certain biographical and other information concerning Christopher D. Clark is set forth below. Mr. Clark is an “interested person” of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), due to the positions he holds with Royce with respect to that Fund (the “New Agreement”Investment Partners (“Royce”).

Introduction

Royce is a majority-owned, indirect subsidiary of Legg Mason, Inc. (“Legg Mason”). You are being asked to approve the New Agreement with respect to each Fund in which you own shares because the Funds’ current investment advisory agreement will terminate upon the sale of Legg Mason to Franklin Resources, Inc.2, a global investment management organization operating as Franklin Templeton. This transaction, which will result in a “change of control” of both Legg Mason and Royce, is described in more detail below.

The 1940 Act requires an investment advisory agreement of an investment company to provide for its automatic termination in the event of its “assignment” (as defined in the 1940 Act). A sale of a controlling block of an investment adviser’s “voting securities” (as defined in the 1940 Act) generally is deemed to result in an assignment of such investment adviser’s investment advisory agreements for purposes of the 1940 Act. The consummation of the transaction described below will constitute a sale of a controlling block of voting securities of Royce that will result in the automatic termination of the current investment advisory agreement between Royce and the Trust relating to each Fund (the “Current Agreement”).

If shareholders of a Fund approve the New Agreement with respect to that Fund prior to the consummation of the transaction, such New Agreement will become effective with respect to that Fund upon the consummation of the transaction. In the event that the transaction is not consummated, Royce will continue to serve as investment adviser to both Funds pursuant to the termseach of the Current Agreement.Funds. As set forth below, Mr. Clark currently serves as a Trustee and President of the Trust and is a Trustee nominee.

Name, Age, and AddressPosition(s)
Held With Trust

Term of
Office
and
Length of
Time Served

Principal Occupation(s)
During Past Five Years

Number of
Portfolios in
Fund Complex
Overseen by
Trustee
Other Public
Company
Directorships

Christopher D. Clark* (55) 

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

Trustee and President††Since 2014

Chief Executive Officer (since July 2016), President (since July 2014), Co-Chief Investment Officer (since January 2014), Managing Director, and Member of the Board of Managers (since June 2015) of Royce, having been employed by Royce since May 2007. President and Member of Board of Directors/Trustees of the Trust, Royce Micro-Cap Trust, Inc.

(“RMT”), Royce Global Value Trust, Inc. (“RGT”), Royce Value Trust, Inc. (“RVT”), and The Royce Fund (“TRF”) (the Trust, RMT, RGT, RVT, and TRF are collectively referred to as “The Royce Funds”).

16None
*“Interested person” of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act.

Mr. Clark will hold office as a Trustee until his successor has been duly elected and qualified or until his earlier resignation, removal, or retirement.
††Mr. Clark was elected by, and serves at the pleasure of, the Board in his capacity as an officer of the Trust.

2 Royce & Associates, LP is a Delaware limited partnership that primarily conducts its business under the name Royce Investment Partners.


Proposed Independent Trustee Nominees

 

ThereCertain biographical and other information concerning the Trustee nominees who are not “interested persons” of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act (collectively, the “Independent Trustees”) is set forth below.

Name, Age, and AddressPosition(s)
Held With Trust

Term of
Office
and
Length of
Time Served

Principal Occupation(s)
During Past Five Years

Number of
Portfolios in
Fund Complex
Overseen by
Trustee
Other Public
Company
Directorships

Patricia W. Chadwick (71)

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

TrusteeSince 2009Consultant and President of Ravengate Partners LLC (since 2000).16

Wisconsin Energy Corp.

Voya Funds

Christopher C. Grisanti (58)

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

TrusteeSince 2017Chief Equity Strategist and Senior Portfolio Manager at MAI Capital Management LLC, an investment advisory firm (since May 2020). Previously, Mr. Grisanti was Co-Founder and Chief Executive Officer of Grisanti Capital Management LLC, an investment advisory firm (from 1999 to 2020). Mr. Grisanti’s prior business experience also includes serving as Director of Research and Portfolio Manager at Spears Benzak, Salomon & Farrell (from 1994 to 1999) and a senior associate at the law firm of Simpson, Thacher & Bartlett (from 1988 to 1994).16None

Cecile B. Harper (57)

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

Not Applicable

Not Applicable

Board Member of Pyramid Peak Foundation (since January 2012); and Chief Operating Officer at the College Foundation at the University of Virginia (since October 2019).

Ms. Harpers prior business experience includes serving as Principal of Southeastern Asset Management (from December 1993 to September 2019); and a Board Member of Regional One Health Foundation (from June 2013 to September 2019).

3None

Arthur S. Mehlman (78)

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

TrusteeSince 2004Director of The League for People with Disabilities, Inc.; Director of University of Maryland Foundation (non-profits). Formerly: Director of Municipal Mortgage & Equity, LLC (from October 2004 to April 2011); Director of University of Maryland College Park Foundation (non-profit) (from 1998 to 2005); Partner, KPMG LLP (international accounting firm) (from 1972 to 2002); Director of Maryland Business Roundtable for Education (from July 1984 to June 2002).

36

(Director/Trustee of The Royce Funds, consisting of 16 portfolios; Director/Trustee of the Legg Mason Family of Funds, consisting of 20 portfolios)

None

G. Peter O’Brien (74)

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

TrusteeSince 2001Director, Bridges School (since 2006); Trustee Emeritus of Colgate University (since 2005); Board Member of Hill House, Inc. (since 1999). Formerly: Trustee of Colgate University (from 1996 to 2005); President of Hill House, Inc. (from 2001 to 2005); Director of TICC Capital Corp. (2003 to 2017); and Managing Director/ Equity Capital Markets Group of Merrill Lynch & Co. (from 1971 to 1999).

36

(Director/Trustee of The Royce Funds, consisting of 16 portfolios; Director/Trustee of the Legg Mason Family of Funds, consisting of 20 portfolios) 

None

Michael K. Shields (61)

Royce Capital Fund

745 Fifth Avenue

New York, New York 10151

TrusteeSince 2015President and Chief Executive Officer of Piedmont Trust Company, a private North Carolina trust company (since May 2012). Mr. Shieldss prior business experience includes owning Shields Advisors, an investment consulting firm (from April 2010 to June 2012).16None

† The Trustee nominees listed above will be no increasehold office as Trustees of the Trust until their respective successors have been duly elected and qualified or until their earlier resignation, removal, or retirement. Each of Ms. Chadwick and Messrs. Grisanti, Mehlman, O’Brien and Shields also serves as a trustee/director of TRF (11 portfolios), RGT, RMT, and RVT. Messrs. Mehlman and O’Brien also serve as trustees/directors for the Legg Mason Funds (20 portfolios). Ms. Harper serves as a director of RGT, RMT, and RVT.


The Independent Trustees have adopted a retirement policy that calls for the retirement of each Independent Trustee from the Board on December 31 of the year in which he or she reaches the age of 79.

Additional Information Relating to Trustee Nominees

Additional information about each Trustee nominee follows (supplementing the information provided in the contractual investment advisory fee rate for either Fund as a resulttable above) that describes some of the implementation ofspecific experiences, qualifications, attributes or skills that each Trustee nominee possesses which the New Agreement. The transaction is not expected to result in any diminution in the nature, extent, or quality of the services provided by Royce to either Fund.

Description of the Transaction

Legg Mason, Inc. is the indirect parent company of Royce. On February 17, 2020, Legg Mason entered into a definitive agreement (the “Transaction Agreement”) with Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton, pursuant to which Franklin TempletonBoard believes will acquire Legg Mason. Under the terms of the Transaction Agreement, Franklin Templeton will pay, in cash at closing, $50.00 per share of Legg Mason common stock and will assume approximately $2 billion of Legg Mason’s outstanding debt (the “Transaction”). The total value of the Transaction is approximately $6.5 billion. Upon completion of the Transaction, Royce will become a majority-owned, indirect subsidiary of Franklin Templeton.


Consummation of the Transaction is subject to certain terms and conditions, including, among others: (i) approval of the Transaction by Legg Mason shareholders; (ii) receipt of applicable regulatory approvals; and (iii) consent by investment advisory clients of Legg Mason’s investment affiliates, including Royce, representing a specified percentage of the revenue attributable to the assets under management for those clients to continue their advisory relationships with such Legg Mason investment affiliates, including Royce, following the consummation of the Transaction. This includes approval by shareholders of the Funds of a new investment advisory agreementenable them to be effective upon completion of the transaction, as described below. Subject to satisfaction or waiver of such terms and conditions, the Transaction is expected to close later in 2020.

As part of the Transaction, Franklin Templeton will preserve the investment autonomy of Legg Mason’s investment affiliates, including Royce. Upon consummation of the Transaction, Franklin Templeton will be one of the world’s largest independent, specialized global investment managers with a combined $1.5 trillion in assets under management (based on the assets under management of Franklin Templeton and Legg Mason as of January 31, 2020). The investment platform of the combined organization will be balanced between retail and institutional client assets under management. The combined organization will have greater scale, broader distribution capabilities, and new opportunities to grow. Approval of the New Agreement will assure continuity of the investment programs selected by shareholders through their respective investments in the Funds and allow the Funds’ operations to continue uninterrupted after the completion of the Transaction.

Information Concerning Royce, Legg Mason, and Franklin Templeton

Royce. Royce, whose principal executive offices are at 745 Fifth Avenue, New York, NY 10151, is responsible for the management of each Fund’s assets. Royce has been investing in smaller-company securities with a value approach for more than 45 years. Royce’s assets under management were approximately $730.8 billion as of March 31, 2020.

Legg Mason. Legg Mason, whose principal executive offices are at 100 International Drive, Baltimore, Maryland 21202, is a financial services holding company that provides asset management and financial services through its investment affiliates. Legg Mason’s investment affiliates, including Royce, operate with investment independence and have specialized expertise across equity, fixed income, alternative and liquidity investments and markets around the globe. Legg Mason’s assets under management were approximately $9 billion as of March 31, 2020.

Franklin Templeton. Franklin Resources, Inc., whose principal executive offices are at One Franklin Parkway, San Mateo, California 94403, is a global investment management organization operating, together with its subsidiaries, as Franklin Templeton. Through specialized teams, Franklin Templeton has expertise across all asset classes, including equity, fixed income, alternatives and custom multi-asset solutions. Franklin Templeton has more than 600 investment professionals, who are supported by Franklin Templeton’s integrated, worldwide team of risk management professionals and global trading desk network, and has employees in over 30 countries. The common stock of Franklin Resources, Inc. is traded on The New York Stock Exchange (the “NYSE”) under the ticker symbol “BEN” and is included in the Standard & Poor’s 500 Index.


Impact of Transaction on Services Provided to the Funds

The Transaction is not expected to result in any diminution in the nature, extent, or quality of the services provided by Royce to each Fund and its shareholders. In particular, the Transaction is not expected to result in any material changes in the manner in which Royce provides services to each Fund. The Transaction also is not expected to result in any changes in the personnel providing portfolio management services to each Fund. Royce will be able to draw upon the resources of the combined Franklin Templeton, which will be one of the world’s largest independent asset managers with a broad distribution footprint.

Information About the Current Investment Advisory Agreement

Royce has served as each Fund’s investment adviser since its inception and has managed the investment policies and made investment decisions for each Fund pursuant to the Current Agreement.Appendix C to this Proxy Statement contains certain information relating to the Current Agreement for each Fund, including:Trustees.

 

the dateChristopher D. Clark - In addition to his tenure as a Trustee/Director of The Royce Funds, Mr. Clark serves as Chief Executive Officer, President, Co-Chief Investment Officer, and a Member of the Current Agreement;Board of Managers of Royce, having been employed by Royce since 2007. Mr. Clark has over 25 years of investment and business experience, including extensive experience in the financial sector.

the date on which the Current Agreement was last approved by the Fund’s shareholders;

the date on which the Board last approved the continuation of the Current Agreement; and

the contractual investment advisory fee rate payable by the Fund to Royce under the Current Agreement.

Terms of New Investment Advisory Agreement and Comparison of New Investment Advisory Agreement with Current Investment Advisory Agreement

The terms of the New Agreement for the Funds are substantially identical to the terms of the Funds’ Current Agreement, except for the dates of execution, effectiveness, and termination, and certain non-material updating changes, as described in more detail. The contractual investment advisory fee rate for each Fund under the New Agreement is identical to that Fund’s contractual investment advisory fee rate under the Current Agreement. A form of the New Agreement for the Funds is set forth asAppendix D to this Proxy Statement.

Under the New Agreement (as is the case under the Current Agreement), Royce:

 

determines the compositionPatricia W. Chadwick - In addition to her tenure as a Trustee/Director of the portfolioThe Royce Funds, Ms. Chadwick is designated as an Audit Committee Financial Expert. Ms. Chadwick has over 30 years of each Fund, the natureinvestment and timing of the changes therein, and the manner of implementing such changes;

provides each Fund with such investment advisory, research, and related services as the Fund may, from time to time, reasonably require for the investment of its assets;

performs the duties outlinedbusiness experience, including extensive experience in the immediately preceding two bullet points in accordance with the applicable provisions of the Trust’s Declaration of Trust, By-Lawsfinancial sector and current prospectus and any directions it may receive from the Board;

shall comply with its covenants and agreements contained in Royce’s and the Trust’s application to the Securities and Exchange Commission (the “Commission”) for an exemptive order regarding the use of the shares of each Fund as a funding medium for insurance company variable contracts;

pays all expenses which it may incur in performingconsultant to business and non-profit entities. In addition, Ms. Chadwick has served on the above-described duties; and


is authorized, to the fullest extent now or subsequently permitted by law, to cause each Fund to pay a memberboards of a national securities exchange, broker or dealer an amountvariety of commission for effecting a securities transaction in excesspublic and private companies and non-profit entities, including currently serving on the board of the amount of commission another member of such exchange, broker or dealer would have charged for effecting that transaction, if Royce determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Funds and/or the Fund.two public companies.

Under the New Agreement (as is the case under the Current Agreement), the Trust:

 

is responsible for effecting salesChristopher C. Grisanti – In addition to his tenure as a Trustee/ Director of The Royce Funds, Mr. Grisanti serves as Chief Equity Strategist and redemptionsSenior Portfolio Manager at MAI Capital Management LLC, an investment advisory firm. He previously co-founded and served as Chief Executive Officer of each Fund’s shares, for determining the net asset value thereof, and for each Fund’s other operations; andGrisanti Capital Management LLC, an investment advisory firm. Mr. Grisanti has over 20 years of investment industry experience.

shall causeCecile B. Harper – In addition to her tenure as a Director of each Fundof RGT, RMT, and RVT, Ms. Harper has over 25 years of business experience in the asset management sector. In addition, Ms. Harper has served on the boards of various philanthropic entities.

Arthur S. Mehlman - In addition to pay all administrativehis tenure as a Trustee/Director of The Royce Funds and other costsof the Legg Mason Family of Funds, Mr. Mehlman serves as the Chairman of the Board’s Audit Committee, acting as liaison between the Board and expenses attributablethe Fund’s independent registered public accountants, and is designated as an Audit Committee Financial Expert. Mr. Mehlman has over 35 years of business experience, including as Partner of an international accounting firm and a Director for various private companies and non-profit entities.

G. Peter O’Brien - In addition to its operationshis tenure as a Trustee/Director of The Royce Funds and transactions,of the Legg Mason Family of Funds, Mr. O’Brien serves as Chairman of the Board’s Nominating Committee. Mr. O’Brien has over 35 years of business experience, including without limitation, transfer agentextensive experience in the financial sector. In addition, Mr. O’Brien has served on the boards of public companies and custodian fees; legal, administrativenon-profit entities.

Michael K. Shields - In addition to his tenure as a Trustee/Director of The Royce Funds, Mr. Shields serves as President and clerical services; rent for office spaceChief Executive Officer of Piedmont Trust Company, a private North Carolina trust company. Mr. Shields has over 30 years of investment and facilities; auditing; preparation, printing and distribution of its prospectuses, proxy statements, shareholders’ reports and notices; supplies and postage; Federal and state registration fees; Federal, state and local taxes; Independent Trustees’ fees; and brokerage commissions.business experience, including extensive experience in the financial sector.

 

UnderThe Board believes that each Trustee nominee’s experience, qualifications, attributes and skills should be evaluated on an individual basis and in consideration of the New Agreement (as is the case under the Current Agreement), Royce shall not be liableperspective such Trustee nominee brings to the Trustentire Board, with no single Trustee nominee, or particular factor, being indicative of Board effectiveness. However, the Board believes that Trustees need to eitherhave the ability to critically review, evaluate, question and discuss information provided to them, and to interact effectively with Fund for any action taken or omittedmanagement, service providers and counsel, in order to be taken by Royce in connection with the performance of any of its duties or obligations thereunder or otherwise as an investment adviser to the Trust or to either Fund, and the Trust or each Fund involved, as the case may be, shall indemnify Royce and hold it harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by Royce in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of the Trust or either Fund or its security holders) arising out of or otherwise based upon any action actually or allegedly taken or omitted to be taken by Royce in connection with the performance of any of its duties or obligations thereunder or otherwise as an investment adviser to the Trust or either Fund. Notwithstanding the immediately preceding sentence to the contrary, nothing contained in the New Agreement (or the Current Agreement) shall protect or be deemed to protect Royce against or entitle or be deemed to entitle Royce to indemnification in respect of, any liability to the Trust or to either Fund or its security holders to which Royce would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligenceexercise effective business judgment in the performance of their duties; the Board believes that their members satisfy this standard. Experience relevant to having this ability may be achieved through a Trustee nominee’s educational background; business, professional training or practice, public service or academic positions; experience from service as a board member (including the Board) or as an executive of investment funds, public companies or significant private or non-profit entities or other organizations; and/or other life experiences. The charter for the Board’s Nominating Committee contains certain other specific factors considered by the Nominating Committee in identifying and selecting Trustee candidates (as described below).


To assist them in evaluating matters under federal and state law, the Trustees are counseled by their own independent legal counsel, who participates in Board meetings and interacts with Royce, and also may benefit from information provided by Royce’s internal counsel; both the Board and Royce’s internal counsel have significant experience advising funds and fund board members. The Board and its dutiescommittees have the ability to engage other experts as appropriate. The Board evaluates its performance on an annual basis.

There are no family relationships between or among any Trustee nominee or any of the Trust’s officers.

Share Ownership by reasonTrustee Nominees and Trust Officers

As of the Record Date, no Independent Trustee nominee or any of his or her immediate family members directly or indirectly owned any securities issued by Franklin Resources, Inc., Royce’s indirect corporate parent, or any of its reckless disregardaffiliates (other than registered investment companies). In addition, none of its dutiesthe Trustee nominees or officers of the Trust owned any shares of either Fund as of July 31, 2020. Set forth below is the dollar range of shares of The Royce Funds held by each Trustee nominee as of the Record Date.

Trustee NomineeAggregate Dollar Range of Ownership
in The Royce Funds
Christopher D. ClarkOver $100,000
Patricia W. ChadwickOver $100,000
Cecile B. Harper*None
Christopher C. Grisanti$10,001 - $50,000
Arthur S. MehlmanOver $100,000
G. Peter O’BrienOver $100,000
Michael K. ShieldsOver $100,000

* Ms. Harper is currently not a member of the Board. Ms. Harper became a member of the Boards of Directors of RGT, RMT and obligations under the New Agreement (or the Current Agreement).RVT effective July 21, 2020.

5

Compensation of Independent Trustee Nominees, Interested Trustee Nominees, and Certain Retired Trustees

 

DeterminationsEach of whetherthe Independent Trustee nominees except Cecile B. Harper received compensation from the Trust, The Royce Funds, and the extent to which Royce is entitled to indemnification underFund Complex during the New Agreement (or the Current Agreement) shall be made by reasonable and fair means, including (i) a final decision on the merits by a court or other body before whom the action, suit or other proceeding was brought that Royce was not liable by reason of willful misfeasance, bad faith, gross negligence ,or reckless disregard of its duties, or (ii)year ended December 31, 2019 as set forth in the absence of such a decision, a reasonable determination, based upon a review oftable below. Two Board members who retired from the facts, thatBoard effective December 31, 2019 also received compensation from the Trust, The Royce was not liable by reason of such misconduct by (a)Funds, and the vote of a majority of a quorumFund Complex during the year ended December 31, 2019 as set forth in the table below. Effective January 1, 2020, each of the Independent Trustees who arereceives a fee of $15,500 per year for serving on the Board plus $600 for each Board meeting attended. The Interested Trustee nominee did not parties toreceive any compensation from the action, suitTrust, The Royce Funds, or other proceeding, or (b) an independent legal counsel in a written opinion.the Fund Complex during the year ended December 31, 2019.

 

Name

Aggregate
Compensation
From the Trust

Pension or Retirement
Benefits Accrued as
Part of Fund Expenses

Estimated Annual
Benefits upon
Retirement

Total Compensation
From The Royce
Funds Paid to Trustees

Total Compensation
From the Trust and
Fund Complex Paid to
Trustees*

Patricia W. Chadwick, Trustee$18,500NoneNone$248,300$248,300
Christopher C. Grisanti, Trustee$18,500NoneNone$248,300$248,300
Cecile B. Harper**, Trustee NomineeNoneNoneNoneNoneNone
Stephen L. Isaacs***, Retired Trustee$18,500NoneNone$248,300$248,300
Arthur S. Mehlman, Trustee$18,500NoneNone$248,300$476,300
David L. Meister***, Retired Trustee$18,500NoneNone$248,300$248,300
G. Peter OBrien, Trustee$17,900NoneNone$239,300$454,800
Michael K. Shields, Trustee$18,500NoneNone$248,300$248,300
*Represents aggregate compensation paid to each Director during the calendar year ended December 31, 2019 from the Fund Complex. As of the date hereof, the Fund Complex includes the 16 portfolios of The Royce Funds and the 20 portfolios of the Legg Mason Funds.

Unless sooner terminated as provided therein, the New Agreement will continue in effect until June 30, 2022. Thereafter, if not terminated, the New Agreement shall continue in effect so long as such continuance is specifically approved at least annually in the manner required by the 1940 Act. The original termination date for the Current Agreement has passed but its continuance has been approved annually by the Board in accordance with its terms. The Current Agreement provides that it shall continue in effect so long as such continuance is specifically approved at least annually (i) by the Board, or (ii) by a vote of a majority of the outstanding voting securities of the relevant Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to the Current Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval. Because the requirements for continuance of the Current Agreement are derived from the 1940 Act, those provisions are substantially identical to the requirements for continuance of the New Agreement.

As is the case with the Current Agreement, the New Agreement may be terminated at any time, without the payment of any penalty, on 60 days' written notice by the vote of a majority of the outstanding voting securities of the relevant Fund, or by the vote of a majority of the Fund's trustees or by Royce, and will automatically terminate in the event of its "assignment" (as such term is defined for purposes of Section 15(a)(4) of the 1940 Act); provided, however, that the limitation of liability and indemnification provisions of the New Agreement (and the Current Agreement) shall remain in full force and effect, and Royce shall remain entitled to the benefits thereof, notwithstanding any such termination.

**Ms. Harper is currently not a member of the Board. Ms. Harper became a member of the Boards of Directors of RGT, RMT, and RVT effective July 21, 2020.

***Retired from the Board effective December 31, 2019.

Possible Interim Investment Advisory Agreement

If shareholders do not approve the New Agreement with respect to one or both FundsBoard Composition and the Transaction is completed, an interim investment advisory agreement between the Trust and Royce with respect to that Fund or both Funds, as the case may be (the “Interim Agreement”), will take effect upon the closing of the Transaction. The Interim Agreement, which has been approved by the Board, will allow Royce to continue providing services to the relevant Fund or both Funds, as the case may be, while shareholder approval of the New Agreement continues to be sought.Leadership Structure

 

The termsInvestment Company Act requires that at least 40% of the Interim Agreement are substantially identical to those of the Current Agreement, except for the term and escrow provisions described below. The Interim Agreement will continue in effect for a term ending on the earlier of 150 days from the closing of the Transaction (the "150-day period") or when shareholders of the relevant Fund or both Funds, as the case may be, approve the New Agreement. Pursuant to Rule 15a-4 under the 1940 Act, compensation earned by Royce under the Interim Agreement will be held in an interest-bearing escrow account. If shareholders of the relevant Fund or both Funds, as the case may be, approve the New Agreement prior to the end of the 150-day period, the amount held in the escrow account under the Interim Agreement will be paid to Royce. If the shareholders of the relevant Fund or both Funds, as the case may be, doTrust’s Trustees not approve the New Agreement prior to the end of the 150-day period, the Board will consider what further action to take consistent with its duties under applicable law, and Royce will be paid the lesser of its costs incurred in performing its services under the Interim Agreement or the total amount of the escrow account, plus interest earned. Thereafter, the Board would either negotiate a new investment advisory agreement with an advisory organization selected by the Board or make other appropriate arrangements.

Board Evaluation

At a Board meeting held on April 21, 2020 (the “April Board Meeting”), representatives of Royce, Legg Mason, and Franklin Templeton made presentations to, and responded to questions from, the Board regarding the Transaction and Franklin Templeton’s plans and intentions regarding Legg Mason’s asset management business, including the preservation and continued investment autonomy of Royce and the combination of the distribution resources of Royce, Legg Mason, and Franklin Templeton. The Board was advised that the Transaction, if completed, would constitute a “change of control” under the 1940 Act that would result in the termination of the Current Agreement. At the April Board Meeting, which included meetings of the full Board and separate meetings of the Independent Trustees, the Board considered, among other things, whether it would be in the best interests of each Fund and its shareholders to approve the New Agreement, and the anticipated impacts of the Transaction on each Fund and its shareholders. The Board, including a majority of the Independent Trustees, approved the New Agreement for the Funds at the April Board Meeting.

To assist the Board in its consideration of the New Agreement, Franklin Templeton provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization. Franklin Templeton and Legg Mason also provided materials and information about the Transaction. The Independent Trustees, through their independent legal counsel, also requested and received additional information from Franklin Templeton and Legg Mason in connection with the Independent Trustees' consideration of the New Agreement. The additional information was provided in advance of the April Board Meeting. After the presentations and after reviewing the written materials provided, the Independent Trustees met in executive session with their counsel to consider the New Agreement.


The Board’s evaluation of the New Agreement reflected the information provided specifically in connection with their review of the New Agreement, as well as, where relevant, information that was previously furnished to the Board in connection with the most recent renewal of the Current Agreement at in-person meetings held on June 5, 2019 and at other Board meetings held thereafter.

Among other things, the Trustees considered:

(i) the reputation, experience, financial strength, and resources of Franklin Templeton and its investment advisory subsidiaries;

(ii) that Franklin Templeton has informed the Board that it intends to maintain the investment autonomy of the Legg Mason investment advisory subsidiaries, including Royce;

(iii) that Franklin Templeton and Legg Mason have informed the Board that, following the Transaction, there is not expected to be any diminution in the nature, extent, and quality of services provided to the Funds and their respective shareholders by Royce, including compliance and non-advisory services, and has represented that there are not expected to be any changes in the portfolio management personnel managing the Funds as a result of the Transaction;

(iv) that there will not be any changes to each Fund’s custodian or other service providers as a result of the Transaction;

(v) that Franklin Templeton has informed the Board that it has no present intention to alter the currently effective fee waiver and expense reimbursement arrangements for the Funds, and, while it reserves the right to do so in the future, it would consult with the Board before making any future changes;

(vi) that Franklin Templeton does not expect to propose any changes to the investment objective or principal investment strategies of either Fund as a result of the Transaction;

(vii) the potential benefits to Fund shareholders from being part of a combined fund family with Franklin Templeton-sponsored funds and access to a broader array of investment and distribution opportunities;

(viii) that Franklin Templeton’s distribution capabilities, particularly with respect to retail investors, and significant network of intermediary relationships may provide additional opportunities for the Funds to grow assets and lower fees and expenses by spreading expenses over a larger asset base; 

(ix) that each of Franklin Templeton and Legg Mason will derive benefits from the Transaction and that, as a result, they have a financial interest in the matters that were being considered; 


(x) the fact that each Fund’s contractual investment advisory fee rate and administrative fee arrangements will remain the same and will not increase by virtue of the New Agreement;

(xi) the terms and conditions of the New Agreement, including that the New Agreement is substantially identical to the Current Agreement except for the date of execution, effectiveness, and termination, and certain non-material updating changes;

(xii) the support expressed by the current senior management team at Legg Mason for the Transaction and Legg Mason’s recommendation that the Board approve the New Agreement;

(xiii) that the Current Agreement is the product of multiple years of review and negotiation and information received and considered by the Board in the exercise of its business judgment during those years, and that on June 5, 2019 the Board had performed a full review of and approved the Current Agreement as required by the 1940 Act and had determined in the exercise of its business judgment that Royce has the capabilities, resources, and personnel necessary to provide the services provided to each Fund, and that the investment advisory fees paid by or in respect of each Fund, taking into account any applicable voluntary fee waiver and expense reimbursement arrangements, represent reasonable compensation to Royce in light of the services provided, the costs to Royce of providing those services, the fees and other expenses paid by similar funds, and such other matters as the Board considered relevant in the exercise of its business judgment, and represented an appropriate sharing between Fund shareholders and Royce of any economies of scale in the management of each Fund at current and anticipated asset levels;

(xiv) that the Funds will not bear the costs of obtaining shareholder approval of the New Agreement, including the legal costs associated with the proxy solicitation, regardless of whether the Transaction is consummated; and

(xv) that under the Transaction Agreement, Franklin Templeton acknowledged that Legg Mason had entered into such Transaction Agreement in reliance upon the benefits and protections provided by Section 15(f) of the 1940 Act, and that, in furtherance of the foregoing, Franklin Templeton agreed to use reasonable best efforts to conduct its business so that (a) for a period of not less than three years after the closing of the Transaction, no more than 25% of the Trustees shall be “interested persons” (as defined in the 1940Investment Company Act) of the Trust and as such are not affiliated with Royce (“Independent Trustees”). To rely on certain exemptive rules under the Investment Company Act, a majority of the Trust’s Trustees must be Independent Trustees, and for certain important matters, such as the approval of investment advisory agreements or transactions with affiliates, the Investment Company Act or the rules thereunder require the approval of a majority of the Independent Trustees. Currently, more than 80% of the Trust’s Trustees are Independent Trustees. The Board does not have a chairman, but the President, an interested person of the Trust, acts as chairman at the Board meetings. The Independent Trustees have not designated a lead Independent Trustee, but the Chairman of the Audit Committee, Mr. Mehlman, generally acts as chairman of meetings or executive sessions of the Independent Trustees and, when appropriate, represents the views of the Independent Trustees to management. The Board has determined that its leadership structure is appropriate in light of the services that Royce and (b) for a periodits affiliates provide to the Trust and potential conflicts of not less than two years after the closinginterest that could arise from these relationships.

Standing Committees of the Transaction, neither Franklin Templeton norBoard: Audit Committee

The Board has an Audit Committee, currently comprised of Patricia W. Chadwick, Christopher C. Grisanti, Arthur S. Mehlman, G. Peter O’Brien, and Michael K. Shields. Ms. Harper will become a member of the Audit Committee in the event she is elected as a Trustee of the Trust. The Audit Committee is responsible for, among other things, recommending the selection and nomination of the Funds’ independent accountants and for conducting post-audit reviews of the Funds’ financial statements with such independent accountants. The Trust has adopted an Audit Committee charter, a copy of which is attached as Exhibit C to this Proxy Statement. Mr. Mehlman serves as Chairman of the Audit Committee. Mr. Mehlman and Ms. Chadwick are designated as Audit Committee Financial Experts, as defined under Securities and Exchange Commission Regulations.

Standing Committees of the Board: Nominating Committee

The Board has a Nominating Committee, currently comprised of Patricia W. Chadwick, Christopher C. Grisanti, Arthur S. Mehlman, G. Peter O’Brien, and Michael K. Shields. Ms. Harper was nominated by another Independent Trustee and will become a member of the Nominating Committee in the event she is elected as a Trustee of the Trust. The Nominating Committee is responsible for, among other things, identifying individuals qualified to serve as Independent Trustees of the Trust and recommending its nominees for consideration by the full Board. The Trust has adopted a Nominating Committee charter. Mr. O’Brien serves as the Chairman of the Nominating Committee. While the Nominating Committee is solely responsible for the selection and nomination of the Trust’s Independent Trustees, the Committee will review and consider nominations for the office of Trustee made by management and by Fund shareholders as it deems appropriate. Shareholders who wish to recommend a nominee should send their suggestions to the Secretary of the Trust, which should include biographical information and set forth their proposed nominee’s qualifications.

The Nominating Committee charter requires the Nominating Committee to identify individuals qualified to serve as Independent Trustees of the Trust and to recommend its nominees for consideration by the Board. In considering potential nominees, the Nominating Committee will take into consideration; (i) the contribution which the person can make to the Board, with consideration given to the person’s business and professional experience, education and such other factors as the Committee may consider relevant, including but not limited to whether a potential nominee’s personal and professional qualities and attributes would provide a beneficial diversity of skills, experience and/or perspective to the Board; (ii) the character and integrity of the person; (iii) whether or not the person is an “interested person” as defined in the Investment Company Act and whether the person is otherwise qualified under applicable laws and regulations to serve as a Trustee or Independent Trustee of the Trust; (iv) whether or not the person has any relationships that might impair his or her independence, such as any business, financial or family relationships with Fund management, the investment adviser of the Funds, Fund service providers or their affiliates; (v) whether or not the person is financially literate pursuant to stock exchange audit committee membership standards; (vi) whether or not the person serves on boards of, or is otherwise affiliated with, competing financial service organizations or their related investment company complexes; (vii) whether or not the person is willing to serve as, and willing and able to commit the time necessary for the performance of the duties of, a Trustee of the Trust; and (viii) whether or not the selection and nomination of the person would be in the best interest of the Trust in light of the requirements of the Trust’s retirement policies. While the Nominating Committee does not have a formal policy regarding diversity, as noted above, it may consider the diversity of skills, experience and/or perspective a potential nominee will bring to the Board as part of its affiliates shall imposeevaluation of the contribution such potential nominee will make to the Board. Such factors will be considered in light of the other factors described above and in the context of the Board’s existing membership at the time such potential candidate is considered. A copy of the Nominating Committee charter is attached as Exhibit D to this Proxy Statement.


Standing Committees of the Board: Distribution Committee

The Board has a Distribution Committee (the “Distribution Committee”), currently comprised of Christopher D. Clark. As noted above, Mr. Clark is an “unfair burden” (within“interested person” of the Trust within the meaning of the 1940 Act, including any interpretations or no-action lettersSection 2(a)(19) of the Commission) on either Fund as a resultInvestment Company Act. The Distribution Committee is responsible for, among other things, approving the Funds’ payment of dividends from net investment income and distributions from capital gains, if any, to ensure compliance with the requirements of Subchapter M of the transactions contemplatedInternal Revenue Code of 1986, as amended.

Board’s Oversight Role in Management

The Board’s role in management of the Trust is oversight. As is the case with virtually all investment companies (as distinguished from operating companies), service providers to the Trust, primarily Royce and its affiliates, have responsibility for the day-to-day management of the Trust, which includes responsibility for risk management (including management of investment performance and investment risk, valuation risk, issuer and counterparty credit risk, compliance risk and operational risk). As part of its oversight, the Board, acting at its scheduled meetings, or the Chairman of the Audit Committee, acting between Board meetings, regularly interacts with and receives reports from senior personnel of service providers, including the Trust’s and Royce’s Chief Compliance Officer and portfolio management personnel. The Audit Committee (which consists of the five current Independent Trustees) meets during its scheduled meetings, and between meetings the Chairman of the Audit Committee maintains contact with the Trust’s independent registered public accounting firm and the Trust’s Treasurer. The Board also receives periodic presentations from senior personnel of Royce or its affiliates regarding risk management generally, as well as periodic presentations regarding specific operational, compliance or investment areas such as business continuity, anti-money laundering, personal trading, valuation, investment research and securities lending. The Board also receives reports from counsel to Royce and the Board’s own independent legal counsel regarding regulatory, compliance and governance matters. The Board’s oversight role does not make the Board a guarantor of the Trust’s investments or activities.

Committee and Board Meetings

During the year ended December 31, 2019, the Board held five meetings, the Audit Committee held two meetings, and the Nominating Committee held two meetings. The Distribution Committee took action in respect of the Funds three times by written consent. Each Trustee then in office attended 75% or more of the aggregate of the total number of meetings of the Board and the total number of meetings of the Audit Committee held during that year.


Officers of the Trust

Officers of the Trust are elected each year by the Transaction Agreement or any express or implied terms, conditions, or understandings applicable thereto.Board. The following sets forth information concerning the Trust’s officers:

Name, Address* and Principal Occupations During Past Five Years

Age

Office**Officer of Trust Since

Christopher D. Clark,

Chief Executive Officer (since July 2016), President (since July 2014), Co-Chief Investment Officer (since January 2014), and Member of the Board of Managers (since June 2015) of Royce, having been employed by Royce since May 2007.

 

55President2014

Francis D. Gannon,

Co-Chief Investment Officer (since January 2014) and Managing Director of Royce, having been employed by Royce since September 2006.

 

52Vice President2014

Peter K. Hoglund,

Chief Financial Officer, Chief Administrative Officer, and Managing Director of Royce, having been employed by Royce since December 2014. Prior to joining Royce, Mr. Hoglund spent more than 20 years with Munder Capital Management in Birmingham, MI, serving as Managing Director and Chief Financial Officer and overseeing all financial aspects of the firm.

 

54Treasurer2015

Daniel A. O’Byrne,

Principal and Vice President of Royce, having been employed by Royce since October 1986.

 

58Vice President1994

John E. Denneen,

General Counsel, Managing Director, Chief Legal and Compliance Officer, Secretary, and, since 2015, Member of the Board of Managers of Royce; Secretary and Chief Legal Officer of The Royce Funds.

 

53Secretary and Chief Legal Officer1996 to 2001
and since 2002

Lisa Curcio,

Chief Compliance Officer of The Royce Funds (since October 2004); and Compliance Officer of Royce (since June 2004).

 

60Chief Compliance Officer2004
*The address of each officer of the Trust is c/o Royce Investment Partners, 745 Fifth Avenue, New York, New York 10151.
**Each officer of the Trust is elected by, and serves at the pleasure of, the Board.

Officers of the Trust receive no compensation from the Trust. Each officer is an interested person of the Trust, as defined in the Investment Company Act, by virtue of each such officer’s position with Royce.

 

Certain of these considerations are discussed in more detail below.Independent Registered Public Accounting Firm

 

In their deliberations,PricewaterhouseCoopers LLP (“PWC”), whose address is 100 East Pratt Street, Suite 1900, Baltimore, MD 21202-1096, is the Trustees considered information receivedTrust’s independent registered public accounting firm, providing audit services, tax return preparation and assistance and consultation in connection with the most recent approval or continuationreview of various Securities and Exchange Commission filings. PWC also acts as independent auditors for Legg Mason and its subsidiaries and for certain investment companies for which Legg Mason’s asset management subsidiaries act as investment adviser. Representatives from PWC are not expected be present at the Meeting.

Audit Fees

PWC billed $43,933 and $43,072 in fees for professional services rendered for the audit of the Current Agreement in additionFunds’ annual financial statements for the fiscal years ended December 31, 2019 and December 31, 2018, respectively.

Audit-Related Fees

For each Fund’s two most recently completed fiscal years, PWC did not bill any fees related to information provided by Franklin Templeton and Legg Mason in connection with their evaluationthe performance of the termsaudit or review of financial statements that are not reported under “Audit Fees,” including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and conditions of the New Agreement. The Board also took into account information furnished throughout the year at regular Board meetings,internal control reviews not required by regulators.

Tax Fees

PWC billed $18,748 and $18,380 in fees related to tax compliance, tax advice and tax planning, including reports on investment performance, shareholder services distribution fees and expenses, regulatory compliance, liquidity risk management, cybersecurity risk, allocation of brokerage commissions, “soft dollar” research services received by Royce, payments made to affiliates of Royce, as well as payments made by Royce relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, tax distribution of each Fund’s shares, and other directanalysis reviews and indirect benefits to Roycemiscellaneous tax advice, for the fiscal years ended December 31, 2019 and its affiliates from their relationship with the Funds. The Trustees did not identify any particular information that was all-important or controlling, and each Trustee may have attributed different weights to the various factors. The Trustees evaluated all information available to them on a Fund-by-Fund basis, and their determinations were made separately in respect of each Fund.December 31, 2018, respectively.

 


The information provided and presentations made to the Board encompassed each of the Funds. The discussion below for each Fund covers both the investment advisory functions rendered by Royce for the Fund pursuant to the New Agreement and the administrative functions rendered by Royce for the Funds pursuant to the Administration Agreement, by and between Royce and the Trust. The Independent Trustees considered the New Agreement separately with respect to each Fund in the course of their review.All Other Fees

 

The Independent Trustees were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Trustees received a memorandum from their independent legal counsel discussing the legal standardsFor each Fund’s two most recently completed fiscal years, PWC did not bill any fees for their consideration of the New Agreement. The Independent Trustees also reviewedproducts and discussed the proposed approval of the New Agreement with their independent legal counsel in a private session at which no representatives of Royce, Legg Mason, or Franklin Templeton were present.

Nature, extent, and quality of the services under the New Agreement.The Board received and considered information regarding the nature, extent, and quality of services provided to the Funds by Royceother than those reported under the Current Agreement. The Board considered the following factors to be“Audit Fees,” “Audit-Related Fees” and “Tax Fees.”

Quorum and Required Vote

A quorum consists of fundamental importance to its considerationshareholders representing a majority of the Current Agreement: (i) Royce’s more than 45 years of value investing experience and track record; (ii) the history of long-tenured Royce portfolio managers managing manyoutstanding shares of the Funds; (iii) Royce’s focus on mid-cap, small-cap and micro-cap value investing; (iv)Trust, entitled to vote, who are present at the consistencyMeeting in person or by proxy. Assuming a quorum is present at the Meeting, the election of Royce’s approach to managing each Fund, other open-end mutual funds, and closed-end funds over more than 45 years; (v) the integrity and high ethical standards adhered to at Royce; (vi) Royce’s specialized experience in the area of trading small- and micro-cap securities; (vii) Royce’s historical ability to attract and retain portfolio management talent; and (viii) Royce’s focus on shareholder interests as exemplified by capping expenses on smaller funds and providing expansive shareholder reporting and communications. The Board also reviewed the services that Royce provides to each Fund, including, but not limited to, managing each Fund’s investments in accordance with the stated policies of each Fund. The Board considered the fact that Royce provided certain administrative services to the Funds at cost pursuant to the Administration Agreement between Royce and the Trust. The Board also took into consideration the histories, reputations and backgrounds of Royce’s portfolio managers for each Fund, finding that these would likely have an impact on the continued success of such Fund. Lastly, the Board also noted Royce’s ability to attract and retain qualified and experienced personnel.

In evaluating the nature, extent, and qualitya Trustee will require a plurality of the services to be provided to the Funds by Royce under the New Agreement, the Trustees considered, among other things, the expected impact, if any,outstanding shares of the Transaction onTrust cast at the operations, facilities, organization and personnel of Royce, and that Franklin Templeton and Legg Mason have advised the Board that, following the completion of the Transaction, there is not expected to be any diminution in the nature, extent, and quality of the services provided to the Funds and their shareholders by Royce, including compliance and other non-advisory services, and that there are not expected to be any changes in portfolio management personnel for either Fund as a result of the Transaction. The Board also considered information provided by Franklin Templeton regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition. The Board recognized the importance of the Funds having an investment adviser with access to significant organizational and financial resources.


The Board received and considered information prepared internally by Royce and independently by Broadridge Financial Solutions, Inc. (“Broadridge”) using the database and methodology of Morningstar Associates, LLC (“Morningstar”) containing detailed investment advisory fee, expense ratio, and investment performance comparisons for each Fund with other mutual funds in its “peer group” and “category” in connection with its consideration of the Current Agreement. The Board was provided with a description of the methodology used to determine the similarity of each Fund with the funds included in its peer group. It was noted that while the Trustees found the Broadridge data generally useful, they recognized its limitations, including that the data may vary depending on the end date selected and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. The Trustees believe that risk-adjusted performance continues to be the most appropriate measure of each Fund’s investment performance and attach primary importance to risk-adjusted performance over relatively long periods of time, typically 3 to 10 years. It was also noted that the Board received and discussed with management information throughout the year at periodic intervals comparing each Fund’s performance against its benchmark and against its peers. In addition, the Board considered each Fund’s performance in light of overall financial market conditions. Where a Fund’s performance was below the median during one or more specified periods, the Board noted the explanations from Royce concerning the Fund’s relative performance versus the peer group for the various periods. The Board also reviewed and considered the Funds’ absolute total returns, monthly rolling average returns, and down-market performance, and long-term performance records for periods exceeding 10 years.

Based on their review of the materials provided and the assurances they had received from Franklin Templeton, Legg Mason, and Royce, the Trustees determined that the Transaction was not expected to affect adversely the nature, extent, and quality of services provided by Royce and that the Transaction was not expected to have a material adverse effect on Royce’s ability to provide those services, and the Board concluded that, overall, the nature, extent, and quality of services expected to be provided, including performance, under the New Agreement were sufficient for approval.

Investment advisory fees and expense ratios.The Board reviewed and considered each Fund’s contractual investment advisory fee rate, the actual investment advisory fee rate paid by each Fund, and each Fund’s total and net operating expense ratio in light of the nature, extent, and quality of the investment advisory services provided to each Fund by Royce in connection with its consideration of the Current Agreement. In addition, the Board has also received and considered information provided by Broadridge comparing each Fund’s contractual investment advisory fee rate, the actual investment advisory fee rate paid by each Fund, and each Fund’s total and net expense ratios with those of funds in both the relevant expense group and a broader group of funds, each selected by Broadridge based on classifications provided by Morningstar. It was noted that while the Board found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the selection of the peer group. The Board has also noted in the past that Royce manages each Fund in an active fashion and that each Fund has historically had a high active share score. The Trustees also considered fees charged by Royce to institutional and other clients and noted that, given the greater levels of services that Royce provides to registered investment companies such as the Funds as compared to other accounts, each Fund’s investment advisory fees compared favorably to these other accounts.


In evaluating the costs of the services to be provided by Royce under the New Agreement, the Trustees considered, among other things, whether investment advisory fees or other expenses would change as a result of the Transaction. Based on their review of the materials provided and the assurances they had received from Franklin Templeton, Legg Mason, and Royce, the Trustees determined that the Transaction would not increase the total fees payable by either Fund for investment advisory services.

Taking all of the above into consideration, as well as the factors identified below, the Board determined that the investment advisory fee for each Fund was reasonable in light of the nature, extent, and quality of the services to be provided under the New Agreement.

Profitability and economies of scale.The Board considered the cost of the services provided by Royce and the profits realized by Royce from its relationship with each Fund in connection with its consideration of the Current Agreement. As part of the analysis, the Board discussed with Royce its methodology in allocating its costs to each Fund and concluded that Royce's allocations were reasonable. The Board concluded that Royce's profits with respect to each Fund were reasonable in relation to the nature and quality of services provided.

The Board also considered whether there have been economies of scale in respect of the management of each Fund, whether each Fund has appropriately benefited from any economies of scale and whether there is potential for realization of any further economies of scale in connection with its consideration of the Current Agreement. The Board noted the time and effort involved in managing portfolios of small- and micro-cap stocks and that they did not involve the same efficiencies as do portfolios of large-cap stocks. The Trustees concluded that the current fee structure for each Fund was reasonable and that the relevant shareholders sufficiently participated in economies of scale and that no changes were necessary.

The Trustees noted that Franklin Templeton and Legg Mason expected to realize cost savings from the Transaction based on synergies of operations, as well as to benefit from possible growth of the Funds resulting from enhanced distribution capabilities. However, they noted that other factors could also affect profitability and potential economies of scale, and that it was not possible to predict with any degree of certainty how the Transaction would affect Royce’s profitability from its relationship with the Funds, nor to quantify at this time any possible future economies of scale, but the Trustees noted they would continue to evaluate these matters going forward.

Other benefits to Royce. The Board considered other benefits received by Royce as a result of its relationship with each Fund, including the opportunity to offer additional products and services to Fund shareholders. In light of the costs of providing investment advisory and other services to each Fund and the ongoing commitment of Royce to the Funds, the Board considered that the ancillary benefits that Royce received were reasonable. In evaluating the fall-out benefits to be received by Royce under the New Agreement, the Trustees considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Current Agreement. Based on their review of the materials provided, and their discussions with Franklin Templeton and Legg Mason, the Trustees determined that those benefits could include increased ability for Franklin Templeton, Legg Mason, and Royce to distribute shares of their funds and other investment products. The Trustees noted that any such benefits were difficult to quantify with certainty at this time, and indicated that they would continue to evaluate them going forward.


The Board also considered that Franklin Templeton may derive reputational and other benefits from its ability to use the Royce name in connection with operating and marketing of its funds. The Board also considered that the Transaction, if completed, would significantly increase Franklin Templeton’s assets under management and expand Franklin Templeton’s investment capabilities.

Conclusion. After consideration of the factors described above as well as other factors, and in the exercise of their business judgment, the Trustees, including the Independent Trustees, unanimously concluded that the New Agreement, including the fees payable by each Fund thereunder, was fair and reasonable and that entering into the New Agreement was in the best interests of each Fund’s shareholders, and they voted to approve the New Agreement and to recommend that the shareholders of each Fund approve the New Agreement.

Section 15(f) of the 1940 Act

Section 15(f) of the 1940 Act permits, in the context of a change in control of an investment adviser to a registered investment company, the receipt by such investment adviser (or any of its affiliated persons) of any amount or benefit in connection with such sale, as long as two conditions are satisfied. First, during the three-year period immediately following the sale of such interest, at least 75% of the investment company’s board of directors/trustees must not be “interested persons” of the investment adviser within the meaning of the 1940 Act. Second, there may not be imposed an “unfair burden” on the investment company as a result of the sale of such interest, or any express or implied terms, conditions or understandings applicable thereto. The term “unfair burden,” as defined in the 1940 Act, includes any arrangement during the two-year period after the transaction whereby the investment adviser (or predecessor or successor adviser), or any interested person of any such adviser, receives or is entitled to receive any compensation, directly or indirectly, from the investment company or its security holders (other than fees for bona fide investment advisory or other services), or from any person in connection with the purchase or sale of securities or other property to, from or on behalf of the investment company (other than ordinary fees for bona fide principal underwriting services).

The Board has not been advised by Royce, Legg Mason, or Franklin Templeton of any circumstances arising from the Transaction that might result in the imposition of an “unfair burden” being imposed on the Trust or either Fund. Moreover, Franklin Templeton has advised the Board that it will not take, nor cause its affiliates to take, any action that would have the effect of causing the conditions of Section 15(f) not to be satisfied with respect to the Transaction.


THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF EACH FUND VOTE "FOR" THE PROPOSAL TO APPROVE THE NEW INVESTMENT ADVISORY AGREEMENT

23

ADDITIONAL INFORMATION

GeneralMeeting.

 

Shares of the Funds are offered to participatinglife insurance companies for allocation to certain separate accounts established for the purpose of funding qualified and non-qualified variable annuity contracts and variable life insurance contracts, (collectively, the “Contracts”), and may also be offered directly to certain pension plans and retirement plans and accounts permitting accumulation of assets on a tax-deferred basis. The insurance company separate accounts of insurance companies and the trustees of qualified plans invested in the Funds, rather than individual Contractcontract owners or plan participants, are the shareholders of record for the Funds. However, undereach insurance company or qualified plan will vote such shares as required by law and interpretations thereof, as amended or changed from time to time. Under current law, an insurance companies arecompany is required to request voting instructions from their Contract owners. Thus, Contractits contract owners should consider themselves shareholders for purposesand must vote Fund shares held by each of these proxy materials and have the right to vote on the proposal for any Fund for which Contract account value was allocated as of the close of business on the Record Date.

Under the rules of the NYSEits separate accounts that govern brokers who have record ownership of the shares of a Fund that are held in "street name" for their customers (i.e., the beneficial owners of such Fund shares), brokers who have not receivedgiven it instructions in proportion to the voting instructions from beneficial owners have the discretion to vote such shares on routine matters. With respect to Proposal No. 1 for each Fund, it is not expected that brokers will be permitted to vote shares of either Fund in their discretion.

Inspectors and Judges of Voting

Shareholders vote at the Meeting with respect to each Fund in which they own sharesreceived by casting ballots (in person or by proxy), which votes will be tabulated by one or two persons who were appointed by the Board before the Meeting to serve as Inspectors and Judges of Voting at the Meeting and who have executed an Inspectors and Judges Oath.

Quorum

A quorum of shareholders of each Fund is necessary to hold a valid meeting of shareholders with respect to the Fund. Under the Bylaws of the Trust, a quorum will exist with respect to a Fund if shareholders entitled to vote more than 50% of the issued and outstanding shares of that Fund on the Record Date are present at the Meeting in person or by proxy. In determining whether a quorum is present at the Meeting with respect to a Fund, the Inspectors and Judges of Voting will count shares of that Fund represented by proxies that reflect abstentions, "uninstructed shares," and the withholding of authority to vote as shares that are present and entitled to vote at the Meeting with respect to that Fund. "Uninstructed shares" are, with respect to Proposal No. 1 for each Fund, shares of the Fund held by brokers or nominees as to which the broker or nominee does not have discretionary voting power and for which the broker or nominee has not received instructions from the beneficial owner or other person who is entitled to instruct how such shares will be voted, but for which a broker or nominee returns the voting instruction card without actually voting on Proposal No. 1 with respect to the Fund. Thus, shares of a Fund represented by proxies that reflect abstentions, "uninstructed shares," and the withholding of authority to vote will be counted in determining (i) whether a quorum is present at the Meeting with respect to that Fund and (ii) the total number of shares present at the Meeting with respect to that Fund. A significant number of "uninstructed shares" are not currently expected to be submitted with respect to either Fund due to the use of "echo voting" by the participating insurance companies as described below under the heading "Required Vote."


Required Vote

Approval of the New Agreement with respect to each Fund requires the affirmative vote of a majority of the outstanding voting securities of the Fund, which is defined in the 1940 Act as the lesser of: (i) 67% or more of the shares of the Fund present at the Meeting, if the holders of more than 50% of the outstanding shares of such Fund are present or represented by proxy at the Meeting; or (ii) more than 50% of the outstanding shares of the Fund. Shares of a Fund represented by proxies that reflect abstentions, "uninstructed shares," and the withholding of authority to vote will have the same effect as a vote against Proposal No. 1 at the Meeting with respect to that Fund as well as a vote against any adjournment of the Meeting with respect to that Fund.

Because the shares of each Fund are held by the participating insurance companies through the Contracts, such shares will be voted, in accordance with the requirements of the Commission, by such insurance companies using ait. Therefore, this proportional voting procedure, thatwhich is often referred to as “echo voting.voting, That means that each participating insurance company will vote all shares of each Fund owned of record by it for which it does not receive timely voting instructions from shareholders in the same proportion as the votes actually cast by shareholders (i.e., for the Proposal, against the Proposal, or abstain).As a result, this proportional voting procedure may result in a relatively small number of shareholders determining the outcome of the vote.

 

In accordance with the provisions of agreements governing certain Individual Retirement Accounts holding shares of any particular Fund and GiftShare Accounts holding shares of Royce Pennsylvania Mutual Fund, the applicable trustee or custodian may vote all unvoted shares of that Fund held in such accounts in the same proportion as shares of that Fund for which voting instructions are timely received (i.e., for Proposal No. 1, against Proposal No. 1, or abstain) by such Fund or its agent.

THE BOARD RECOMMENDS THAT ALL SHAREHOLDERS VOTE “FOR” ALL OF THE TRUSTEE NOMINEES.

PROXY COSTS

All of the costs of the Meeting, including printing, postage, voting tabulation, and other proxy-related expenses, will be borne by the Funds.

Royce will reimburse brokerage firms, custodians, nominees and fiduciaries for their expenses in forwarding Proxy material to the beneficial owners of each Fund’s shares. Some officers and employees of the Trust and Royce may solicit Proxies personally and by telephone, if deemed desirable.


ADDITIONAL INFORMATION

Adjournment or Postponement of Meeting with Respect to a FundMeeting; Other Matters

 

If a quorum is not present at the Meeting with respect to a Fund, or if a quorum is present at the Meeting with respect to a Fund but sufficient votes to approve Proposal No. 1 are not received, with respect to that Fund, the Meeting with respect to that Fund may be adjourned to permit further solicitation of proxies. In the absence of a quorum with respect to a Fund, the persons named as proxies may propose an adjournment of the Meeting with respect to that Fund, and will vote in favor of such adjournment those proxies which they are entitled to vote in favor of Proposal No. 1 with respect to that Fund and will vote against any such adjournment those proxies required to be voted against Proposal No. 1 with respect to that Fund. If a quorum is present with respect to a Fund but insufficient votes have been received to approve Proposal No. 1 with respect to that Fund, the chairperson of the Meeting may adjourn the Meeting with respect to that Fund to permit further solicitation of proxies if the chairperson determines that an adjournment and additional solicitation is reasonable and in the interest of shareholders of that Fund.the Funds’ shareholders. Solicitation of votes may continue to be made without any obligation to provide any additional notice of the adjournment other than announcement at the Meeting or any adjournment or postponement thereof. If the Meeting is adjourned or postponed to a date more than 60 days after the originally established meeting date (i.e., July 14, 2020), the Board will set a new record date for the Meeting.

 

The Meeting with respect to either Fund may also be postponed prior to the Meeting. If it is decided to hold the Meeting at a different time or in a different location, or partially or entirely by means of remote communication (i.e., a virtual meeting), any such updates will be announced by means of a press release, which will be posted on the following website: http://www.royceinvest.com.www.royceinvest.com. An announcement will also be filed with the Commission via its EDGAR system.

 


Information about Royce, Its Affiliated Broker-Dealer, Fees Paid byIf the FundsMeeting is adjourned or postponed to Royce and its Affiliates, and Other U.S. Registered Investment Companies Advised by Royce

Royce.Royce, whose principal executive offices are at 745 Fifth Avenue, New York, NY 10151, is responsiblea date more than 60 days after the originally established meeting date, the Board will set a new record date for the management of each Fund’s assets. Royce has been investing in smaller-company securities with a value approach for more than 45 years. Royce’s assets under management were approximately $9 billion as of March 31, 2020.

Royce is a Delaware limited partnership. Royce’s general partner is Royce & Associates GP, LLC (“Royce GP”). Royce’s limited partners are Legg Mason Royce Holdings, LLC (“Legg Mason Royce Holdings”) and certain employees of Royce GP. Royce is more than 75% owned and controlled by Legg Mason Royce Holdings. Legg Mason Royce Holdings is 100% owned and controlled by Legg Mason. The principal executive offices of Legg Mason and Legg Mason Royce Holdings are at 100 International Drive, Baltimore, Maryland 21202.

Appendix E to this Proxy Statement sets forth the names and principal occupations of the members of Royce’s Board of Managers and Royce’s principal executive officers along with the names and titles of eachTrustee and officer of the Trust who is an officer, employee, or director of Royce.The principal address of each individual as it relates to such duties is the same as that set forth above for Royce.

Affiliated Broker-Dealer.Royce Fund Services, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Royce, is the distributor of each Fund. RFS’s principal office is located at 745 Fifth Avenue, New York, New York 10151. RFS will continue as distributor if the New Agreement are approved.

Information Relating to Amounts and Brokerage Commissions Paid by Funds to Royce and its Affiliates. Appendix F to this Proxy Statement sets forth, for the fiscal year ended December 31, 2019, information relating to: (i) amounts paid by the Funds to Royce and its affiliates and related waivers and (ii) brokerage commissions paid by the Funds to affiliated brokers. There were no other material payments by the Funds to Royce or its affiliates during that period.

Information Relating to Other U.S. Registered Investment Companies Advised by Royce. Appendix G to this Proxy Statement sets forth information relating to other U.S. registered investment companies for which Royce serves as investment adviser.

Fiscal Year

The fiscal year end of the Trust and each Fund is December 31.


Shareholder ProposalsMeeting.

 

The Trust expects that broker-dealer firms holding shares of the Funds in “street name” for the benefit of their customers and each Fundclients will request the instructions of such customers and clients on how to vote their shares on Proposal 1. The Trust understands that, under the rules of the New York Stock Exchange, such broker-dealers may, without instructions from such customers and clients, grant authority to the proxies designated by the Trust to vote on the election of Trustees if no instructions have been received prior to the date specified in the broker-dealer firm’s request for voting instructions. Certain broker-dealer firms may exercise discretion over shares held in their name for which no instructions are received by voting such shares in the same proportion as they have voted shares for which they have received instructions.

The shares as to which the Proxies so designated are granted authority by broker-dealer firms to vote on Proposal 1 and any other matter to be considered at the Meeting, the shares as to which broker-dealer firms have declined to vote (“broker non-votes”), and the shares as to which Proxies are returned by record shareholders but which are marked “abstain” on any item will be included in the Trust’s tabulation of the total number of votes present for purposes of determining whether the necessary quorum of shareholders exists. However, abstentions and broker non-votes will not be counted as votes cast. Therefore, abstentions and broker non-votes will not have an effect on the election of Trustees.

Shareholders vote at the Meeting by casting ballots (in person or by proxy) which are tabulated by one or two persons, appointed by the Board of Trustees before the Meeting, who serve as Inspectors and Judges of Voting at the Meeting and who have executed an Inspectors and Judges Oath.

Shareholder Proposals

The Trust is not required, and they currently dodoes not intend, to hold annual shareholder meetings. Shareholders wishing to submit proposals for inclusion in a proxy statement for a subsequent shareholder meeting must send their written proposal to the Trust a reasonable time before the Board’s solicitation relating to such meeting is to be made. Any shareholder who wishes to bring any proposal at any subsequent shareholder meeting without including such proposal in the Trust’s proxy statement relating to the meeting also must send his or her written proposal to the Trust a reasonable time before the Board’s solicitation relating to such meeting is to be made. Written proposals should be sent to the Secretary of the Trust, 745 Fifth Avenue, New York, New York 10151.

 

Shareholder proposals that are submitted in a timely manner will not necessarily be included in the Trust’s proxy materials. Inclusion of such proposals is subject to limitations under the federal securities laws.


Householding of Proxy Materials

Under the Commission's rules, companies and intermediaries (such as brokers) may satisfy the delivery requirements for proxy statements with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This practice, known as "householding," is intended to improve the convenience of shareholders and to reduce each Fund's printing and postage costs.

A number of brokers with accountholders who are shareholders of a Fund will be householding the Fund’s proxy materials and, accordingly, a single proxy statement will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from an affected shareholder. Shareholders who participate in householding will continue to receive separate proxy cards. Once you have received notice from your broker that they will be householding communications to your address, householding will continue until you are notified otherwise or you revoke your consent. If at any time you no longer wish to participate in householding and would prefer to receive a separate proxy statement, please notify your broker or call the relevant Fund at 1-800-221-4268 or write the relevant Fund at 745 Fifth Avenue, New York, New York 10151.

Shareholders who currently receive multiple copies of the proxy statement at their address and would like to request householding of their communications should contact their brokers. The Trust will provide, upon availability, without charge to each person being solicited by this Proxy Statement a copy of the Funds’ 2019 Annual Reports to Shareholders on Form N-CSR for the year ended December 31, 2019.

Forward-Looking Statements

This Proxy Statement contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are predictions and generally can be identified by use of statements that include phrases such as “plan,” “expect,” “will,” “should,” “could,” “anticipate,” “intend,” “project,” “estimate,” “guidance,” “possible,” “continue” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to, each Fund’s future operating results, the prospects of each Fund’s portfolio companies, the impact of investments that each Fund has made or may make, the dependence of each Fund’s future success on the general economy and its impact on the companies and industries in which each Fund invests, the ability of each Fund’s portfolio companies to achieve their objectives and those described under the heading “Important Performance, Expense and Risk Information” and elsewhere in the Funds’ Annual Reports to Shareholders on Form N-CSR, for the year ended December 31, 2019, and subsequent filings with the Commission. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. No assurance can be given that the future results covered by the forward-looking statements will be achieved. Except as required by applicable law, all information contained herein is as of the date of this Proxy Statement, and neither Fund intends to update this information.

OTHER BUSINESS

 

While the Meeting has been called to transact any business that may properly come before it, the only matters which the Trustees intend to present areknow of no other business than the matters stated in the Notice of Special Meeting. However, if any additional matter properly comes before the Meeting and on all matters incidental to the conduct of the Meeting, it is the intention of the persons named in the enclosed proxy card to vote the proxyProxy in accordance with their judgment on such matters.

 

 

By order of the Board of Trustees of Royce Capital Fund

John E. Denneen

Secretary

 

Please fill in,August 11, 2020

It is important that you execute, date and sign the voting instruction card and return it in the accompanying postage-paid envelope. You may also provideALL
of your voting instructions via telephone or the Internet by following the instructions on the voting instruction card. Please take advantage of these prompt and efficient voting options.

Dated: May 11, 2020proxies promptly.


APPENDIX A

RECORD DATE SHARES OUTSTANDING

Fund
Share ClassTotal Shares OutstandingApproximate Net Assets ($)
Royce Micro-Cap PortfolioInvestment Class12,893,222.7697,588,411.37
Service Class1,683,969.7512,459,712.05
Royce Small-Cap PortfolioInvestment Class21,699,478.48115,344,858.54
Service Class15,733,101.7181,696,660.81

This Page Intentionally Left Blank

 

 

 

APPENDIXEXHIBIT A

NUMBER OF SHARES OUTSTANDING FOR

THE FUNDS’ SHARE CLASSES AS OF THE RECORD DATE

As of the Record Date, each Fund had outstanding the number of shares as indicated in the table below:

FundClassShares Outstanding
Royce Micro-Cap PortfolioInvestment

12,126,812.848

Service2,248,920.934
Royce Small-Cap PortfolioInvestment21,609,785.697
Service16,337,877.911

A-1

EXHIBIT B

 

5% SHARE OWNERSHIP INFORMATIONFIVE PERCENT SHAREHOLDER REPORT
AS OF THE RECORD DATE

 

The following persons were known to the Trust to be beneficial owners or owners of record of 5% or more of the outstanding shares of beneficial interest of each Classclass of Royce Small-Cap Portfolioa Fund as of the Record Date are listed in the table immediately below.Date:

 

 

Fund

Number ofSharesType ofOwnershipPercentage ofOutstanding Shares

Royce Small-Cap Portfolio

Investment Class

 

   

Ohio National Life Insurance

Company

FBO Benefit of its Separate Accts

P.O. Box 237

One Financial Way Cincinnati, OH 45201-0237

16,655,019Record76.77%
    

Jefferson National Life Insurance Company

Attn: Separate Accounts

10350 Ornsby Park Place, Suite 600
Louisville, KY 40223-6175

1,267,669Record5.84%
    

Metlife Insurance Co. of

Connecticut (MIC)

P.O. Box 990027

Hartford, CT 06199-0027

1,276,354Record5.88%
    

Royce Small-Cap Portfolio

Service Class

   

Protective Life Insurance Co. VA

P.O. Box 2606

Birmingham, AL 35202-2606

12,729,688Record81.97%
    
Protective Life Insurance Co. Vul
P.O. Box 2606
Birmingham, AL  35202-2606
1,119,775Record7.21%
    
Midland National Life Insurance Co.
Separate Account C
4350 Westown Pkwy.
West Des Moines, IA  50266-1036
1,110,601Record7.15%
    
     

Thepersons known to the Trust to be beneficial owners or owners of record of 5% or more of the shares of each Class of Royce Micro-Cap Portfolio as of the Record Date are listed in the table immediately below.

Royce Micro-Cap Portfolio

Investment Class

   
    

Ohio National Life Insurance Company

The Benefit of its Separate Accts

P.O. Box 237

One Financial Way

Cincinnati, OH 45201-0237

 

5,804,608Record44.95%

Fund

 Number of
Shares
 Type of
Ownership
 Percentage of
Outstanding Shares
      

Royce Small-Cap Portfolio

Investment Class

     
      

Ohio National Life Insurance

Company

FBO Benefit of its Separate Accts

P.O. Box 237

One Financial Way

Cincinnati, OH 45201-0237

 16,680,868 Record77.15%
      

Jefferson National Life Insurance Company

Attn: Separate Accounts

10350 Ornsby Park Place, Suite 600
Louisville, KY 40223-6175

 1,215,814 Record5.62%
      

Metlife Insurance Co. of

Connecticut (MIC)

P.O. Box 990027

Hartford, CT 06199-0027

 1,282,096 Record5.93%
      

Royce Small-Cap Portfolio

Service Class

 

     

Protective Life Insurance Co. VA

P.O. Box 2606

Birmingham, AL 35202-2606

 13,452,928 Record82.33%
      
Protective Life Insurance Co. Vul
P.O. Box 2606
Birmingham, AL  35202-2606
 1,189,075 Record7.28%
      
Midland National Life Insurance Co.
Separate Account C
4350 Westown Pkwy.
West Des Moines, IA  50266-1036
 1,118,967 Record6.85%

IDS Life Insurance Company

222 Ameriprise Financial Center

Minneapolis, MN 55474-0002

4,037,817Record31.27%
    

Royce Micro-Cap Portfolio
Service Class

 

   

Protective Life Insurance Co. VA

P.O. Box 2606

Birmingham, AL 35202-2606

1,226,416Record73.26%
    
Pacific Select Exec. Separate Acct.
of Pacific Life Insurance Co.
700 Newport Center Drive
Newport Beach, CA 92660-6307
250,803Record14.98%
    
Protective Life Insurance Co. VUL
P.O. Box 2606
Birmingham, AL  35202-2606
95,089Record5.68%
    

Royce Micro-Cap Portfolio

Investment Class

   
    

Ohio National Life Insurance Company

The Benefit of its Separate Accts

P.O. Box 237

One Financial Way

Cincinnati, OH 45201-0237

5,487,297Record45.21%
    

IDS Life Insurance Company

222 Ameriprise Financial Center

Minneapolis, MN 55474-0002

3,917,219Record32.28%
    

Royce Micro-Cap Portfolio
Service Class

   
    

Protective Life Insurance Co. VA

P.O. Box 2606

Birmingham, AL 35202-2606

1,782,022Record79.70%
    
Pacific Select Exec. Separate Acct.
of Pacific Life Insurance Co.
700 Newport Center Drive
Newport Beach, CA 92660-6307
234,114Record10.47%
    

B-2

 

 

APPENDIXEXHIBIT C

INFORMATION REGARDING CURRENT INVESTMENT ADVISORY AGREEMENT
FundDate of Current AgreementDate Last Submitted
for Stockholder Approval*
Date Last Approved
by Directors**
Contractual Investment Advisory Fee
(as a percentage of average daily net assets)
Royce Micro-Cap PortfolioJuly 1, 2016September 14, 2001June 5, 20191.25%
Royce Small-Cap Portfolio1.00%
* The Current Agreement was approved by each Fund’s stockholders in connection with Legg Mason’s acquisition of Royce in 2001.

** The only action taken by the Board with respect to the Current Agreement since the fiscal year ended December 31, 2018 was the approval of the continuation of such Current Agreement as described in this Proxy Statement.     

APPENDIX D

FORM OF NEW INVESTMENT ADVISORY AGREEMENT

 

INVESTMENT ADVISORY AGREEMENTCharter of the AuditCommittee

of the Board of Directors/Trustees

For the Royce Funds Listed In Appendixa Hereto

 

BETWEEN

ROYCE CAPITAL FUND

AND

ROYCE & ASSOCIATES, LP

Investment Advisory Agreement made this _____ day of __________, 202_, by and between ROYCE CAPITAL FUND, a Delaware statutory trust (the “Fund”), and ROYCE & ASSOCIATES, LP, a Delaware limited partnership (formerly Royce & Associates, Inc. and Royce & Associates, LLC) (the “Adviser”).

I.Composition of the Audit Committee

 

The Audit Committee shall be composed of at least three Directors/Trustees, each of whom:

(a)shall not be an “interested person” of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”);

(b)shall not accept directly or indirectly any consulting, advisory, or other compensatory fee from the Fund (other than fees for serving on the Board of Directors/Trustees or any committee thereof); and

(c)shall be financially literate at the time of his or her appointment to the Audit Committee, as such qualification is interpreted by the Board of Directors/Trustees in its business judgment, or shall become financially literate within a reasonable period of time after his or her appointment to the Audit Committee.

In the event Fund andshares are or become listed on a national securities exchange or are or become quoted on a national market quotation system, the Adviser hereby agree as follows in respectadditional qualification requirements set forth below also shall apply:

(d)each Director/Trustee who is a member of the Audit Committee shall satisfy the applicable independence requirements for any such national securities exchange or national market quotation system; and

(e)at least one Director/Trustee who is a member of the Audit Committee shall have accounting or related financial management expertise as the Board of Directors/Trustees interprets such qualification in its business judgment.

The Board of Royce Micro-Cap Portfolio and Royce Small-Cap Portfolio, each a seriesDirectors/Trustees shall determine annually: (i) whether at least one of the Fund (the “Series”):

1.     Dutiesmembers of the Adviser. The Adviser shall, during the term and subject to the provisionsAudit Committee is an “audit committee financial expert,” as defined in rules of this Agreement, (a) determine the composition of the portfolio of the Series, the nature and timing of the changes therein and the manner of implementing such changes, and (b) provide the Series with such investment advisory, research and related services as the Series may, from time to time, reasonably require for the investment of its funds. The Adviser shall perform such duties in accordance with the applicable provisions of the Fund’s Declaration of Trust, By-Laws and current prospectus and any directions it may receive from the Fund’s Trustees. The Adviser shall also comply with its covenants and agreements contained in the Adviser’s and the Fund’s application to the Securities and Exchange Commission and (ii) whether simultaneous service on more than three public company audit committees by a member of the Audit Committee would not impair the ability of such member to effectively serve on the Audit Committee, and, with respect to the closed-end funds only, the Board must disclose any determination made under clause (ii) either on or through the applicable Funds website or in its annual proxy statement. If the disclosure is made on the Fund’s website, the Fund must disclose that fact in its annual proxy statement and provide the website address. Multiple boards in the same fund complex are considered one board for an exemptive order regardingthis determination.


II.Purposes of the Audit Committee

The Audit Committee shall be responsible for:

(1)assisting Board oversight of the

(a)integrity of the Fund’s financial statements;

(b)independent accountants’ qualifications and independence; and

(c)performance of the Fund’s independent accountants; and

(2)preparation, or overseeing the preparation of, any audit committee report required by rules of the Securities and Exchange Commission to be included in the Fund’s proxy statement for its annual meeting of stockholders.

III.Responsibilities and Duties of the Audit Committee

The Fund’s independent accountants shall report directly to the useAudit Committee.

As may be necessary or appropriate to carry out its purposes, or to comply with applicable law or the requirements of any securities exchange or market quotation system on which Fund shares are or may become listed or quoted, the Audit Committee shall have the following responsibilities and duties:

(a)the appointment, compensation, retention and oversight of the work of the Fund’s independent accountants, including the resolution of disagreements between management and the independent accountants regarding financial reporting;

(b)to (i) select an accounting firm to (1) serve as the Fund’s independent accountants, (2) audit the Fund’s financial statements on an annual basis, and (3) provide an opinion on an annual basis with respect to the Fund’s financial statements, and (ii) recommend that the members of the Board of Directors/Trustees who are not "interested persons" of the Fund, as defined in Section 2(a)(19) of the 1940 Act, ratify such selection;

(c)to pre-approve (i) all audit and permissible non-audit services to be provided to the Fund by the Fund’s independent accountants and (ii) all permissible non-audit services to be provided by the Fund’s independent accountants to the Fund’s Investment Adviser or any entity controlling, controlled by, or under common control with the Investment Adviser (“Adviser Affiliate”) that provides ongoing services to the Fund, if the engagement by the Adviser Affiliate relates directly to the operations and financial reporting of the Fund;

(d)if determined to be advisable, to develop policies and procedures for pre-approval of the engagement of the Fund’s independent accountants to provide any of the audit or non-audit services described in Section III(c) above;

(e)to consider whether each non-audit service provided by the Fund’s independent accountants to the Fund and to the Fund’s Investment Adviser or any Adviser Affiliate that provides ongoing services to the Fund is compatible with maintaining the independence of such independent accountants;

(f)to ensure that the Fund’s independent accountants submit on a periodic basis to the Audit Committee a formal written statement delineating all relationships between such independent accountants and the Fund, consistent with Independence Standards Board Standard No. 1, and to actively engage in a dialogue with, and receive and consider specific representations from, the Fund’s independent accountants with respect to any disclosed relationships or services that may affect the objectivity and independence of such independent accountants;

(g)to review the arrangements for annual and special audits and the scope of such audits with the Fund’s independent accountants;

(h)to meet to review and discuss the Fund’s audited financial statements and, to the extent required by applicable law or regulations, the Fund’s semi-annual financial statements with Fund management and the Fund’s independent accountants;

(i)to review with the Fund’s independent accountants any audit problems or difficulties the accountants may have encountered during or relating to the conduct of the audit, including any matters required to be discussed pursuant to rules of The Public Company Accounting Oversight Board and other relevant regulatory and professional organizations, and management’s response;

(j)to establish and administer policies and procedures relating to the hiring by the Fund, its Investment Adviser, or any administrator that is an Adviser Affiliate of employees or former employees of the Fund’s independent accountants;

(k)to consider information and comments from the Fund’s independent accountants with respect to the Fund’s accounting and financial reporting policies, procedures and internal control over financial reporting (including the Fund’s critical accounting policies and practices) and management’s responses to any such comments;

(l)to request, receive and/or review from the Fund’s independent accountants such other materials as may be deemed necessary or advisable in the discretion of the Committee in the exercise of its duties under this Charter; such materials may (but are not required to) include, without limitation, any other material written communications relating to the Fund’s financial statements, or internal or disclosure controls, between the independent accountants and the Fund, the Investment Adviser, the Fund’s sub-adviser(s), if any, or other Fund service providers, such as any management letter or schedule of unadjusted differences;

(m)at least annually, to obtain and review a report by the Fund’s independent accountants describing: (i) such independent accountants’ internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of such independent accountants, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by such firm, and any steps taken to deal with any such issues; and (iii) all relationships between the Fund’s independent accountants and the Fund, the Investment Adviser, Adviser Affiliates and members of management of such entities (to assess the independence of the Fund’s independent accountants);

(n)to establish procedures for: (i) the receipt, retention, and treatment of complaints received by the Fund regarding accounting, internal accounting controls, or auditing matters; and (ii) the confidential, anonymous submission of concerns by employees of the Fund’s Investment Adviser, manager, administrator, principal underwriter, or any other provider of accounting related services for the Fund regarding questionable accounting or auditing matters;

(o)to address reports received from attorneys in accordance with procedures adopted by the Fund’s Investment Adviser relating to the possible violation of federal or state law or fiduciary duty;

(p)to discuss with Fund management and the Fund’s independent accountants policies with respect to risk assessment and risk management;

(q)with respect to closed-end funds only, to discuss with Fund management the Fund’s press releases that discuss earnings (if any), as well as financial information or earnings guidance provided to analysts and ratings agencies (this may be done generally, e.g., the type of information to be disclosed and the type of presentation to be made); and

(r)to perform such other functions and to have such other powers consistent with this Charter, the Fund’s Articles of Incorporation or Declaration of Trust, as amended and supplemented, the Fund’s By-laws, as amended, and applicable law, as the Audit Committee or the Board deems necessary or appropriate.

The Audit Committee may delegate any portion of its authority, including the authority to grant preapprovals of audit related services and permitted non-audit services, to a subcommittee of one or more members of the Audit Committee pursuant to preapproval policies and procedures established by the Audit Committee; provided, however, that the Audit Committee may not delegate preapproval of the audit required by the Securities Exchange Act of 1934. Any decision of such subcommittee of the Audit Committee to grant preapprovals shall be presented to the full Audit Committee at its next regularly scheduled meeting.

The function of the Audit Committee is oversight; it is the responsibility of Fund management to maintain appropriate systems for accounting and internal control over financial reporting, and the responsibility of the Fund’s shares asindependent accountants to plan and carry out a funding mediumproper audit. Specifically, Fund management is responsible for: (1) the preparation, presentation and integrity of the Fund’s financial statements; (2) the maintenance of appropriate accounting and financial reporting principles and policies; and (3) the maintenance of internal control over financial reporting and other procedures designed to assure compliance with accounting standards and related laws and regulations. The Fund’s independent accountants are responsible for insurance company variable contracts.

2.     Expenses Payable byplanning and carrying out an audit consistent with applicable legal and professional standards and the Series. Except as otherwise providedterms of their engagement letter. Nothing in Paragraphs l and 3 hereof, the Fundthis Charter shall be responsible for effecting sales and redemptionsconstrued to reduce the responsibilities or liabilities of the Series’ shares, for determiningFund’s service providers, including the net asset value thereof and for all of the Series’ other operations and shall cause the Series to pay all administrative and other costs and expenses attributable to its operations and transactions, including, without limitation, transfer agent and custodian fees; legal, administrative and clerical services; rent for office space and facilities; auditing; preparation, printing and distribution of its prospectuses, proxy statements, shareholders’ reports and notices; supplies and postage; Federal and state registration fees; Federal, state and local taxes; non-affiliated Trustees’ fees; and brokerage commissions.

3.     Expenses Payable by the Adviser. The Adviser shall pay all expenses which it may incur in performing its duties under Paragraph 1 hereof and shall reimburse the Fund for any space leased by the Fund and occupied by the Adviser. In the event the Fund shall qualify shares of the Series for sale in any jurisdiction, the applicable statutes or regulations of which expressly limit the amount of the Series’ total annual expenses, the Adviser agrees to reduce its annual investment advisory fee for the Series, to the extent that such total annual expenses (other than brokerage commissions and other capital items, interest, taxes, distribution fees, extraordinary items and other excludable items, charges, costs and expenses) exceed the limitations imposed on the Series by the most stringent regulations of any such jurisdiction.

Fund’s independent accountants.


 

4.     CompensationAlthough the Audit Committee is expected to review appropriately the matters that come before it, such review of a Fund’s financial statements by the Audit Committee is not an audit, nor does the Committee’s review substitute for the responsibilities of the Adviser. The Fund agrees to causeFund’s management for preparing, or the Series to pay toFund’s independent accountants for auditing, the Adviser, and the Adviser agrees to accept as compensation for the services provided by the Adviser hereunder, fees equal to 1.25% per annumfinancial statements. Members of the average net assets of Royce Micro-Cap Portfolio, and a fee equal to 1.00% per annum of the average net assets of Royce Small-Cap Portfolio, at the close of business on each day that the value of their respective net assets is computed during the year. However, the Fund and the Adviser may agree in writing to temporarily or permanently reduce such fees. Such compensation shall be accrued on the Series’ books at the close of business on each day that the value of its net assets is computed during each year and shall be payable to the Adviser monthly, on the last day of each month, and adjusted as of year-end if required.

5.     Excess Brokerage Commissions. The Adviser is hereby authorized, to the fullest extent now or hereafter permitted by law, to cause the Series to pay a member of a national securities exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of such exchange, broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to all portfolio series of the Fund and/or the Series.

6.     Limitations on the Employment of the Adviser. The services of the Adviser to the Series shall not be deemed exclusive, and the Adviser may engage in any other business or render similar or different services to others so long as its services to the Series hereunderAudit Committee are not impaired thereby, and nothing in this Agreement shall limit or restrict the right of any director, officer or employee of the Adviser to engage in any other business or to devote his time and attention in part to any other business, whether of a similar or dissimilar nature. So long as this Agreement or any extension, renewal or amendment remains in effect, the Adviser shall be the only investment adviser for the Series, subject to the Adviser’s right to enter into sub-advisory agreements. The Adviser assumes no responsibility under this Agreement other than to render the services called for hereunder, and shall not be responsible for any action of or directed by the Fund’s Trustees, or any committee thereof, unless such action has been caused by the Adviser’s gross negligence, willful malfeasance, bad faith or reckless disregard of its obligations and duties under this Agreement.

7.     Responsibility of Dual Directors, Officers and/or Employees. If any person who is a director, officer or employee of the Adviser is or becomes a Trustee, officer and/or employeeemployees of the Fund and, actsin serving on the Audit Committee, are not, and do not hold themselves out to be, acting as accountants or auditors. As such, in any businessit is not the duty or responsibility of the Audit Committee or its members to conduct “field work” or other types of auditing or accounting reviews or procedures.

In discharging their duties, the members of the Audit Committee are entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by: (1) one or more officers of the Fund pursuantwhom the Board reasonably believes to this Agreement, then such director, officer and/be reliable and competent in the matters presented; (2) legal counsel, public accountants, or employeeother persons as to matters the Board reasonably believes are within the person’s professional or expert competence; or (3) a committee of the AdviserBoard.

IV.Meetings

The Audit Committee shall be deemed to be actingmeet on a regular basis but no less frequently than annually. The Audit Committee periodically shall meet separately with the Fund’s independent accountants, Fund management, and representatives of Fund management responsible for the financial and accounting operations of the Fund. The Audit Committee may hold special meetings at such times as the Audit Committee believes necessary or appropriate. Members of the Audit Committee may participate in a meeting of the Audit Committee by means of conference call or similar communications equipment by means of which all persons participating in such capacity solelymeeting can hear each other.

V.Assistance from Fund Management; Authority to Engage Advisers; Funding

The appropriate officers of the Fund shall provide or arrange to provide such information, data and services as the Audit Committee may request. The Audit Committee shall have the power and authority to take all action it believes necessary or appropriate to discharge its responsibilities, including the power and authority to retain independent counsel and other advisers. The Fund shall provide for appropriate funding, as determined by the Audit Committee as a committee of the Board, for payment of: (i) compensation to the Fund’s independent accountants or any other accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the Fund, (ii) compensation to any advisers employed by the Audit Committee under this Section V, and not as a director, officer or employee(iii) ordinary administrative expenses of the AdviserAudit Committee that are necessary or under the control or directionappropriate in carrying out its responsibilities.


VI.Annual Performance Evaluation

The Audit Committee shall perform a review and evaluation, at least annually, of the Adviser, although paidperformance of the Audit Committee.

VII.Reporting

The Audit Committee shall report regularly to the Board. The Chairman of the Audit Committee shall report to the Board on the results of its deliberations, and make such recommendations as deemed necessary or appropriate.

VIII.Amendments

This Charter may be amended or modified from time to time by vote of the Adviser.Board.

Dated: April 11, 2000, as amended through February 27, 2019


APPENDIX A

Royce Capital Fund

Royce Global Value Trust, Inc.

Royce Micro-Cap Trust, Inc.

Royce Value Trust, Inc.

The Royce Fund


EXHIBIT D

Charter of the Nominating Committee
of the Board of Directors/Trustees for

The Royce Funds Listed in Appendix A Hereto

 

8.     Protection of the Adviser. The Adviser shall not be liable to the Fund or to any portfolio series thereof for any action taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment adviser of the Fund or such series, and the Fund or each portfolio series thereof involved, as the case may be, shall indemnify the Adviser and hold it harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Adviser in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of the Fund or any portfolio series thereof or its security holders) arising out of or otherwise based upon any action actually or allegedly taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment adviser of the Fund or such series. Notwithstanding the preceding sentence of this Paragraph 8 to the contrary, nothing contained herein shall protect or be deemed to protect the Adviser against or entitle or be deemed to entitle the Adviser to indemnification in respect of, any liability to the Fund or to any portfolio series thereof or its security holders to which the Adviser would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its duties and obligations under this Agreement.Organization

  

DeterminationsThe Nominating Committee (the “Committee”) of whether and the extent to whichBoard of Directors/Trustees for the Adviser is entitled to indemnification hereunderregistered investment companies (each, a “Fund”) listed on Exhibit A attached hereto shall be made by reasonable and fair means, including (a) a final decision on the merits by a court or other body before whom the action, suit or other proceeding was brought that the Adviser was not liable by reasoncomposed solely of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties, or (b) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the Adviser was not liable by reason of such misconduct by (i) the vote of a majority of a quorum of the Directors/Trustees of the Fund who are neithernot “interested persons” of the Fund (asas defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”), and who are “independent” as defined in the applicable listing standards of the national securities exchange or national market quotation system (each, an “Exchange”) nor partieson which a Fund is listed or quoted (the “Independent Directors”). The Board of Directors/Trustees of the Fund (the “Board”) shall appoint the members of the Committee (which may or may not be all of the Independent Directors) and shall designate the Chairman of the Committee. The Committee shall have authority to retain its own counsel and other advisers the action, suit orCommittee deems appropriate and shall have the sole authority to approve the compensation and other proceeding, or (ii) an independent legal counsel in a written opinion.terms of their retention.

 

9.     Effectiveness, Duration and TerminationResponsibilities

The Committee shall identify individuals qualified to serve as Independent Directors of Agreement. This Agreement shall become effective as of the date above written and shall replace and supersede in all respects the Investment Advisory Agreement (other than the provisions of Paragraph 8 thereof, which shall remain in full force and effect), dated as of December 1, 1996, by and between the Fund and shall recommend its nominees for consideration by the Adviser with respectfull Board.

Identification and Evaluation of Potential Nominees

In identifying and evaluating a person as a potential nominee to serve as an Independent Director of the Fund, the Committee should consider among other factors it may deem relevant:

the contribution which the person can make to the Board, with consideration being given to the person’s business and professional experience, education and such other factors as the Committee may consider relevant;

the character and integrity of the person;

whether or not the person is an “interested person” as defined in the 1940 Act and whether the person is otherwise qualified under applicable laws and regulations to serve as a Director or Independent Director of the Fund;

whether or not the person has any relationships that might impair his independence, such as any business, financial or family relationships with Fund management, the investment adviser of the Fund, Fund service providers or their affiliates;


whether or not the person is financially literate pursuant to the applicable Exchange’s audit committee membership standards;

whether or not the person serves on boards of, or is otherwise affiliated with, competing financial service organizations or their related investment company complexes;

whether or not the person is willing to serve as, and willing and able to commit the time necessary for the performance of the duties of a Director of the Fund;

whether or not the selection and nomination of the person would be consistent with the requirements of the Fund’s retirement policies.

While the Committee is solely responsible for the selection and nomination of the Fund’s Independent Directors, the Committee shall review and consider nominations for the office of Director made by management and by Fund stockholders as it deems appropriate. Stockholders who wish to recommend a nominee should send nominations to the Series, the Investment Advisory Agreement (other than the provisionsSecretary of Paragraph 8 thereof, which shall remain in full force and effect), dated as of October 1, 2001 and as amended and supplemented to date, by and between the Fund which include biographical information and set forth the qualifications of the proposed nominee.

Quorum

A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the Adviser with respect to the Series, and the Amended and Restated Investment Advisory Agreement (other than the provisions of Paragraph 8 thereof, which shall remain in full force and effect), dated as of July 1, 2016, by and between the Fund and the Adviser with respect to the Series. This Agreement shall remain in effect until June 30, 2022, and thereafter shall continue automatically for successive annual periods,providedthat such continuance is specifically approved at least annually in the manner required by the 1940 Act. This Agreement may be terminated at any time as to a Series, without the payment of any penalty, on 60 days’ written notice by the voteact of a majority of the outstanding voting securitiesmembers of the Series, or byCommittee present at any meeting at which there is quorum shall be the vote of a majorityact of the Fund’s Trustees or by the Adviser, and will automatically terminate in the event of its “assignment” (as such term is defined for purposes of Section 15(a)(4) of the 1940 Act;provided,however, that the provisions of Paragraph 8 of this Agreement shall remain in full force and effect, and the Adviser shall remain entitled to the benefits thereof, notwithstanding any such termination. The Adviser may, upon termination of this Agreement, require the Fund to refrain from using the name “Royce” in any form or combination in its name or in its business, and the Fund shall, as soon as practicable following its receipt of any such request from the Adviser, so refrain from using such name.

Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.Committee.

 

10. Shareholder Liability. Notice is hereby givenNomination ofDirectors

After a determination by the Committee that this Agreement is entered into on the Fund’s behalf bya person should be selected and nominated as an officerIndependent Director of the Fund, in his capacity as an officerthe Committee shall present its recommendation to the full Board for its consideration and, not individually, and thatif necessary, to the obligations of or arising out of this Agreement are not binding upon any of the Fund’s Trustees, officers, employees, agents or shareholders individually, but are binding only upon the assets and property of the Series.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date above written.

��

ROYCE CAPITAL FUND
By:
Name:Christopher D. Clark
Title:President

ROYCE & ASSOCIATES, LP
By:
Name:Christopher D. Clark
Title:Chief Executive Officer

APPENDIX E

INFORMATION REGARDING MEMBERS OF ROYCE’S BOARD OF MANAGERS
AND ROYCE’S PRINCIPAL EXECUTIVE OFFICERS
NamePrincipal Occupation
Charles M. RoyceChief Executive Officer (until June 2016), President (until June 2014), and Member of the Board of Managers of Royce. Member of the Board of Trustees of the Trust and The Royce Fund ("TRF"). Senior Portfolio Manager for The Royce Funds (as defined below).
Christopher D. ClarkChief Executive Officer, President, Co-Chief Investment Officer, Managing Director, and Member of the Board of Managers of Royce. President and Member of the Board of Directors/Trustees of the Trust, TRF, Royce Micro-Cap Trust, Inc. ("RMT"), Royce Global Value Trust, Inc. ("RGT"), and Royce Value Trust, Inc. ("RVT") (the Trust, TRF, RMT, RGT, and RVT are collectively referred to as "The Royce Funds").
Gunjan BanatiChief Risk Officer and Managing Director Royce.  Liquidity Risk Management Program Administrator for the Trust and TRF.
John E. DenneenGeneral Counsel, Managing Director, Chief Legal and Compliance Officer, Secretary, and Member of the Board of Managers of Royce.  Secretary and Chief Legal Officer of The Royce Funds.
Francis D. GannonCo-Chief Investment Officer and Managing Director of Royce.  Vice President of The Royce Funds.
Peter K. HoglundChief Financial Officer, Chief Administrative Officer, and Managing Director of Royce.  Treasurer of The Royce Funds.
Laura A. BoydstonMember of the Board of Managers of Royce.  Managing Director at Legg Mason
Patricia LattinMember of the Board of Managers of Royce.   Chief Human Resources Officer and Senior Managing Director at Legg Mason.
Peter H. NachtweyMember of the Board of Managers of Royce.  Chief Financial Officer of Legg Mason and Member of its Executive Committee.

INFORMATION REGARDING EACH OFFICER OF THE TRUST AND
EACH TRUSTEE OF THE TRUST WHO IS AN OFFICER, EMPLOYEE, OR DIRECTOR OF ROYCE
NameTrust Title(s)
Charles M. RoyceTrustee
Christopher D. ClarkPresident and Trustee
Gunjan BanatiLiquidity Risk Management Program Administrator
John E. DenneenSecretary and Chief Legal Officer
Francis D. GannonVice President
Peter K. HoglundTreasurer
Lisa CurcioChief Compliance Officer
Daniel A. O’ByrneVice President

APPENDIX FIndependent Directors.

 

INFORMATION REGARDING AMOUNTS AND BROKERAGE COMMISSIONS
PAID BY FUND TO ROYCE AND ITS AFFILIATESMeetings

 

The following table sets forth, forCommittee may meet either on its own or in conjunction with meetings of the fiscal year ended December 31, 2019, information relating to: (i) amounts paidBoard. Meetings of the Committee may be held in person, by each Fund to Royce and its affiliates and related waivers and (ii) brokerage commissions paidvideo conference or by each Fund to affiliated brokers.

FundInvestment Advisory Fees Paid ($)

Investment Advisory Fees Waived ($) 

Administration
Fees ($)*
Amounts Paid to RFS Under Distribution Agreements ($)**Aggregate Commissions Paid to Affiliated Brokers ($)***Percentage of Fund’s Aggregate Brokerage Commissions Paid to Affiliated Brokers***
Royce Micro-Cap Portfolio1,767,27482,461146,60343,8497,1073.29%
Royce Small-Cap Portfolio3,083,041125,89069,345375,15122,4122.70%
* Expenses directly attributable to each Fund are charged to the Fund’s operations, while expenses applicable to more than one of the Royce Funds are allocated equitably. Certain personnel, occupancy costs and other administrative expenses related to the Funds are allocated by Royce under an administration agreement and are included in administrative and office facilities and professional fees.
** Royce Fund Services, LLC serves as the distributor of the Trust’s shares.  As compensation for its services and for the expenses payable by it under the Distribution Agreement with the Trust, RFS is entitled to receive, from the assets of the Fund or share class involved, a monthly fee equal to .25% per annum for Service Class shares (consisting of an asset-based sales charge, personal service and/or account maintenance fee).  
*** Represents brokerage commissions paid by the Fund to Raymond James & Associates, Inc. (“Raymond James”) during the fiscal year ended December 31, 2019.  Raymond James became an affiliated broker of the Fund during such period due to its beneficial ownership of more than 5% of the outstanding shares of common stock of Royce Global Value Trust, Inc.

APPENDIX Gconference telephone. The Committee may take action by unanimous written consent in lieu of a meeting.

 

Amended on March 9, 2015

Adopted: February 10, 2004


INFORMATION REGARDING OTHER FUNDS ADVISED OR SUBADVISED BY ROYCEAppendix A

 

The table below sets forth certain information regarding U.S. registered investment companies, other than theRoyce Fund for which
Royce provides investment advisory or subadvisory services. All information below is provided as of December 31, 2019.Capital Fund
Royce Micro-Cap Trust, Inc.
Royce Value Trust, Inc.
Royce Global Value Trust, Inc.

 

Fund

Approximate 

Net Assets 

Contractual Investment Advisory Fee 

(as a percentage of average daily net assets) 

Royce Global Value Trust, Inc.$143 million1.00%
Royce Value Trust, Inc.$1.628 billionRanges from 0.50% to 1.50% of average net assets depending on performance compared to Standard & Poor’s SmallCap 600 Index
Royce Micro-Cap Trust, Inc.$405 millionRanges from 0.50% to 1.50% of average net assets depending on performance compared to Russell 2000 Index
Royce Dividend Value Fund$104 million0.85% of the first $2,000,000,000
0.80% of the next $1,000,000,000
0.75% of the next $1,000,000,000
0.70% of any additional average net assets*
Royce Global Financial Services Fund$37 million1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets*
Royce International Premier Fund$809 million1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets*
Royce Micro-Cap Fund$337 million1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets*
Royce Opportunity Fund$926 million1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets
Royce Pennsylvania Mutual Fund$1.949 billion1.00% of the first $50,000,000
0.875% of the next $50,000,000
0.75% of any additional average net assets
Royce Premier Fund$1.808 billion1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets
Royce Small-Cap Value Fund$171 million1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets*
Royce Smaller-Companies Growth Fund$260 million1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets*
Royce Special Equity Fund$1.092 billion1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets
Royce Total Return Fund$1.522 billion1.00% of the first $2,000,000,000
0.95% of the next $1,000,000,000
0.90% of the next $1,000,000,000
0.85% of any additional average net assets
* Royce waived a portion of its contractual investment advisory fee during the fiscal year ended December 31, 2019 pursuant to a contractual fee waiver and expense reimbursement arrangement.


Fund

Approximate 

Net Assets 

Contractual Subadvisory Fee 

(as a percentage of average daily net assets) 

Legg Mason Small-Cap Quality Value ETF$11.2 million90% of the management fee** paid to the investment manager by the fund, net of (i) all fees and expenses incurred by the investment manager under the relevant management agreement (including, without limitation, any subadvisory fee paid to another subadviser to the fund) and (ii) expense waivers and reimbursements (In no event shall the subadvisory fee be less than zero)

** The management fee for Legg Mason Small-Cap Quality Value ETF is equal to 0.60% of its average daily net assets.

EVERY SHAREHOLDER’S VOTE IS IMPORTANT

 

 EASY VOTING OPTIONS:

 

  

VOTE ON THE INTERNET

Log on to:

www.proxy-direct.com

or scan the QR code

Follow the on-screen instructions

available 24 hours

   
  

VOTE BY PHONE

Call 1-800-337-3503

Follow the recorded instructions

available 24 hours

   
  

VOTE BY MAIL

Vote, sign and date this Proxy Card
and return in the postage-paid
envelope

   
  

VOTE IN PERSON

Attend Special Shareholder Meeting

Scheduled to be Held at

745 Fifth Avenue, 23rd Floor,

New York, New York 10151

on July 14,September 24, 2020

 

 

Please detach at perforation before mailing.

PROXYROYCE CAPITAL FUND (2 SERIES) 

SPECIAL MEETING OF SHAREHOLDERS

SCHEDULED TO BE HELD ON JULY 14,SEPTEMBER 24, 2020

 

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF ROYCE CAPITAL FUND

The undersigned hereby appoints Christopher D. Clark and John E. Denneen or either of them, acting in absence of the other, as Proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse, all shares of the series of Royce Capital Fund (the “Trust”), listed on the back of this card (each a “Fund”),held of record by the undersigned on May 1,July 31, 2020 at the Special Meeting of Shareholders of the FundFunds (the “Meeting”) scheduled to be held at the offices of the Trust,Fund, 745 Fifth Avenue, 23rd Floor, New York, New York 10151, on Tuesday, July 14,Thursday, September 24, 2020 and at any postponementpostponements or adjournmentadjournments thereof.

 

This Proxy, when properly executed and received prior to the Meeting, will be voted in the manner directed by the undersigned shareholder. If no direction is made, this Proxy will be voted FOR Proposal 1.“FOR” the election of the Trustee nominees of the Trust.

 

PLEASE NOTE:Please note: We are concerned about your health and safety during the continuing COVID-19 pandemic, and we intend to monitor the recommendations of public health officials and governmental restrictions as the situation continues to evolve. If we decide to hold the Meeting at a different time, in a different location, or partially or entirely by means of remote communication (i.e., a virtual meeting), we will provide timely notice of any such change by means of a press release, which will be posted on our website (http:(http://www.royceinvest.com)www.royceinvest.com). We encourage you to check the website prior to the Meeting if you plan to attend the Meeting in person. An announcement of any change will also be filed on a timely basis with the Securities and Exchange Commission via its EDGAR system. In the event it is decided to hold a virtual meeting rather than an in-person meeting, such notice will include important information regarding the virtual meeting, including how to access, participate in, and vote at, such virtual meeting.meeting.

 

 

VOTE VIA THE INTERNET: www.proxy-direct.com

 VOTE VIA THE TELEPHONE: 1-800-337-3503
    

    

RCF_31560_080620

ROY_31318_050720

WE URGE YOU TO SIGN, DATE ON THE REVERSE SIDE AND MAIL THE ENCLOSED PROXY PROMPTLY

xxxxxxxxxxxxxxcode

 

 

 

EVERY SHAREHOLDER’S VOTE IS IMPORTANT

 

 

Important Notice Regarding the Availability of Proxy Materials for the

Special Meeting of Shareholders of the Fund Scheduled to Be Held on July 14,September 24, 2020.

 

The Proxy Statement and Proxy Card for this meetingthe Meeting are available at:

https://www.proxy-direct.com/roy-31318rcf-31560

 

IF YOU VOTE ON THE INTERNET OR BY TELEPHONE,

YOU NEED NOT RETURN THIS PROXY CARD

 

 

 

FUNDSFUNDS 
Royce Capital Fund Micro-Cap PortfolioRoyce Capital Fund Small-Cap Portfolio
 

 

 

Please detach at perforation before mailing.

 

TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK AS SHOWN IN THIS EXAMPLE:

 

A    ProposalThe Board of Trustees of the Trust recommends that you voteTHE BOARD OF TRUSTEES OF ROYCE CAPITAL FUND RECOMMENDS A VOTE “FOR” the proposal for each Fund listed below.THE PROPOSAL.

1.To approve a new investment advisory agreement with Royce & Associates, LP.

   

1.To elect seven Trustees to the Board of Trustees of Royce Capital Fund:FORAGAINSTABSTAINWITHHOLDFOR ALLAGAINSTABSTAIN
01 Royce Micro-Cap PortfolioALLALLEXCEPT
01. Christopher D. Clark02. Patricia W. Chadwick03. Christopher C. Grisanti
02 Royce Small-Cap Portfolio04. Cecile B. Harper05. Arthur S. Mehlman06. G. Peter O’Brien
07. Michael K. Shields
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark the box
“FOR ALL EXCEPT” and write the nominee’s number on the line provided below.

 

2.To transact such other business as may properly come before the Meeting or any postponement or adjournment thereof.

  

 

 

  Authorized Signatures ─ This section must be completed for your vote to be counted. ─ Sign and Date Below

 Note:NotePlease sign exactly as your name(s) appear(s) on this Proxy Card, and date it. When shares are held jointly, each holder should sign. When signing as attorney, executor, guardian, administrator, trustee, officer of a corporation or other entity or in another representative capacity, please give the full title under the signature.

Date (mm/dd/yyyy) ─ Please print date below Signature 1 ─ Please keep signature within the box Signature 2 ─ Please keep signature within the box 

/          /

    

 

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xxxxxxxxxxxxxxRCF 31560M        xxxxxxxx

EVERY CONTRACT OWNER’S VOTE IS IMPORTANT 

EASY VOTING OPTIONS:

 

VOTE ON THE INTERNET

Log on to:

www.proxy-direct.com

or scan the QR code

Follow the on-screen instructions

available 24 hours

 

VOTE BY PHONE

Call 1-866-298-8476

Follow the recorded instructions

available 24 hours

 

VOTE BY MAIL

Vote, sign and date this Voting
Instruction Card and return in the
postage-paid envelope

 

VOTE IN PERSON

Attend Special Shareholder Meeting

745 Fifth Avenue, 23rd Floor,

New York, New York 10151

on September 24, 2020

Please detach at perforation before mailing.

VOTING INSTRUCTION CARDROYCE CAPITAL FUND (2 SERIES)

SPECIAL MEETING OF SHAREHOLDERS

SCHEDULED TO BE HELD ON SEPTEMBER 24, 2020

[INSURANCE COMPANY NAME DROP-IN]

This Voting Instruction Card is solicited by the above-named insurance company seeking voting instructions with respect to shares of Royce Capital Fund (the “Trust”) for which it is the record or beneficial owner on your behalf. The undersigned contract/policy owner hereby instructs that the votes of all shares of the series of the Trust listed on the back of this card (each, a “Fund”) attributable to such undersigned contract/policy owner be cast as designated on the reverse side at the Special Meeting of Shareholders of the Funds (the “Meeting”) scheduled to be held at the offices of the Trust, 745 Fifth Avenue, 23rd Floor, New York, New York 10151, on Thursday, September 24, 2020 and at any postponements or adjournments thereof.

This Voting Instruction Card, when properly executed and received prior to the Meeting, will be voted in the manner directed by the undersigned. Unless instructions to the contrary are marked, shares represented by Voting Instruction Cards received prior to the Meeting will be voted “FOR” the election of the Trustee nominees of the Trust. Shares of a Fund for which no instructions are received will be voted in the same proportion as votes for which instructions are provided with respect to that Fund.

Please note: We are concerned about your health and safety during the continuing COVID-19 pandemic, and we intend to monitor the recommendations of public health officials and governmental restrictions as the situation continues to evolve. If we decide to hold the Meeting at a different time, in a different location, or partially or entirely by means of remote communication (i.e., a virtual meeting), we will provide timely notice of any such change by means of a press release, which will be posted on our website (http://www.royceinvest.com). We encourage you to check the website prior to the Meeting if you plan to attend the Meeting in person. An announcement of any change will also be filed on a timely basis with the Securities and Exchange Commission via its EDGAR system. In the event it is decided to hold a virtual meeting rather than an in-person meeting, such notice will include important information regarding the virtual meeting, including how to access, participate in, and vote at, such virtual meeting.

VOTE VIA THE INTERNET: www.proxy-direct.com
VOTE VIA THE TELEPHONE: 1-866-298-8476

RCF_31560_080620_VI

WE URGE YOU TO SIGN, DATE ON THE REVERSE SIDE AND MAIL THE ENCLOSED PROXY PROMPTLY 

xxxxxxxxxxxxxxcode

EVERY CONTRACT OWNER’S VOTE IS IMPORTANT

Important Notice Regarding the Availability of Proxy Materials for the

Special Meeting of Shareholders Scheduled to Be Held on September 24, 2020.

The Proxy Statement and Voting Instruction Card for the Meeting are available at:

https://www.proxy-direct.com/rcf-31560

IF YOU VOTE ON THE INTERNET OR BY TELEPHONE,

YOU NEED NOT RETURN THIS VOTING INSTRUCTION CARD

FUNDSFUNDS
Royce Capital Fund Micro-Cap PortfolioRoyce Capital Fund Small-Cap Portfolio

Please detach at perforation before mailing.

TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK AS SHOWN IN THIS EXAMPLE:

 

AProposalTHE BOARD OF TRUSTEES OF ROYCE CAPITAL FUND RECOMMENDS A VOTE “FOR” THE PROPOSAL.

1.To elect seven Trustees to the Board of Trustees of Royce Capital Fund:FORWITHHOLDFOR ALL
ALLALLEXCEPT
01. Christopher D. Clark02. Patricia W. Chadwick03. Christopher C. Grisanti
04. Cecile B. Harper05. Arthur S. Mehlman06. G. Peter O’Brien
07. Michael K. Shields
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark the box
“FOR ALL EXCEPT” and write the nominee’s number on the line provided below.

2.To transact such other business as may properly come before the Meeting or any postponement or adjournment thereof.

 B   Authorized Signatures ─ This section must be completed for your vote to be counted. ─ Sign and Date Below
Note:Please sign exactly as your name(s) appear(s) on this Voting Instruction Card, and date it. When shares are held jointly, each holder should sign. When signing as attorney, executor, guardian, administrator, trustee, officer of a corporation or other entity or in another representative capacity, please give the full title under the signature.

Date (mm/dd/yyyy) ─ Please print date belowSignature 1 ─ Please keep signature within the boxSignature 2 ─ Please keep signature within the box 

/          /

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