1940 Act File No. 811-09189
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Zazove Convertible Securities Fund, Inc.
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(Exact Name of Registrant as Specified in Charter)
940 Southwood Boulevard, Suite 200
Incline Village, Nevada 89451
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(Address of Principal Executive Offices) (Zip Code)
(702) 832-6250
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(Registrant's Telephone Number, Including Area Code)
Gene T. Pretti
Zazove Convertible Securities Fund, Inc.
940 Southwood Boulevard, Suite 200
Incline Village, Nevada 89451
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(Name and Address of Agent for Service)
Copies of communications to:
Harold W. Nations
Holleb & Coff
55 East Monroe Street, Suite 4100
Chicago, Illinois 60603
March 15, 1999
This Statement of Additional Information is not a prospectus.
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
TABLE OF CONTENTS
CROSS REFERENCE SHEET. . . . . . . . . . . . . . . . . . . . . . . ii
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies. . . . . . . . . . . . . . . . . 1
Description of Shares. . . . . . . . . . . . . . . . . . . . . . . 6
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . 7
Reliance on Adviser. . . . . . . . . . . . . . . . . . . . . . . . 8
Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
No Right to Manage . . . . . . . . . . . . . . . . . . . . . . . . 8
Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . 8
Diversification. . . . . . . . . . . . . . . . . . . . . . . . . . 9
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . 10
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Advisory and Other Services . . . . . . . . . . . . . . 11
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
BROKERAGE ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . 13
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . 14
PART C-OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 15
Item 24. Financial Statements and Exhibits. . . . . . . . . . . . 15
Item 25. Marketing Agreements . . . . . . . . . . . . . . . . . . 15
Item 26. Other Expenses of Issuance and Distribution. . . . . . . 15
Item 27. Persons Controlled by or Under Common Control
with Registrant. . . . . . . . . . . . . . . . . . . . . 15
Item 28. Number of Holders of Securities. . . . . . . . . . . . . 15
Item 29. Indemnification. . . . . . . . . . . . . . . . . . . . . 15
Item 30. Business and Other Connections of the Adviser. . . . . . 17
Item 31. Location of Accounts and Records . . . . . . . . . . . . 17
Item 32. Management Services. . . . . . . . . . . . . . . . . . . 17
Item 33. Undertakings . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
CROSS REFERENCE SHEET
Required Items in Caption in Registration
Parts A and B of Form N-2 Statement
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Item 1. Outside Front Cover Not Applicable
Item 2. Inside Front Cover and Not Applicable
Outside Back Cover Page
Item 3. Fee Table and Synopsis Not Applicable
Item 4. Financial Highlights Not Applicable
Item 5. Plan of Distribution Not Applicable
Item 6. Selling Shareholders Not Applicable
Item 7. Use of Proceeds Not Applicable
Item 8. General Description of GENERAL; THE
Registrant
FUND-Investment
Objective and Policies;
RISK FACTORS
Item 9. Management MANAGEMENT OF THE FUND
Item 10. Capital Stock, Long-Term THE FUND-Description
Debt, and Other Securities
of Shares
Item 11. Defaults and Arrears on Not Applicable
Senior Securities
Item 12. Legal Proceedings LEGAL PROCEEDINGS
Item 13. Table of Contents of the TABLE OF CONTENTS
Statement of Additional
Information
Item 14. Cover Page Cover Page
Item 15. Table of Contents TABLE OF CONTENTS
Item 16. General Information GENERAL
and History
Item 17. Investment Objective THE FUND-Investment
and Policies
<PAGE>
Item 18. Management MANAGEMENT OF THE
FUND-Board of Directors
Item 19. Control Persons and THE FUND-Shareholders;
Principal Holders MANAGEMENT OF THE
of Securities FUND - Board of Directors
Item 20. Investment Advisory and MANAGEMENT OF THE
Other Services FUND - Investment Advisory
and Other Services
Item 21. Brokerage Allocation and BROKERAGE ALLOCATION
Other Practices
Item 22. Tax Status TAX STATUS
Item 23. Financial Statements Item 24 of Part C;
FINANCIAL STATEMENTS
PART C - OTHER INFORMATION
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Items 24-33 of this Registration Statement are
answered in Part C-Other Information.
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
GENERAL
Zazove Convertible Securities Fund, Inc. (the "Fund") is a Maryland
corporation organized on November 9, 1998. The business of the Fund is
that of an investment company; the Fund will operate as a non-diversified,
management investment company and a closed-end interval fund under Rule
23c-3 of the Investment Company Act of 1940, as amended (the "Investment
Company Act"). Shares of the Fund's common stock, par value $.01 per share
(the "Shares"), will be offered pursuant to a private offering memorandum
in accordance with Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and exemptions available under
applicable state securities laws only to certain persons who qualify as
"accredited investors" as defined in Regulation D under the Securities Act
(the "Offering"). Accordingly, the Shares have not been registered under
the Securities Act or the securities laws of any state and this
Registration Statement is being filed only under the Investment Company
Act.
Pursuant to an investment advisory agreement (the "Investment
Advisory Agreement"), the Fund's investment adviser is Zazove Associates,
L.L.C., a Delaware limited liability company (the "Adviser"). The Adviser
is registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940 (the "Advisers Act"). The Fund is managed
by its Board of Directors (the "Board"), currently consisting of five
members: Gene T. Pretti, Steven M. Kleiman, Andrew J. Goodwin, III,
Jack L. Hansen, and Peter A. Lechman. Gene T. Pretti, as President, and
Steven M. Kleiman, as Secretary and Treasurer, are the principal officers
of the Fund and are responsible for supervision of the Fund's day to day
operations.
The Fund's and the Adviser's principal offices are located at
940 Southwood Boulevard, Suite 200, Incline Village, Nevada 89451. Its
telephone number is (702) 832-6250. The Adviser maintains an
administrative office at 4801 West Peterson Avenue, Suite 615, Chicago,
Illinois 60646. Its telephone number is (773) 283-8822.
THE FUND
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
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The investment objective of the Fund is to realize long-term growth,
current income and the preservation of capital primarily by the investment
of its assets in a portfolio of convertible securities. The Fund's
investment objective is a fundamental policy and cannot be changed without
the affirmative vote of the holders of a majority of the Fund's outstanding
voting securities, as determined under the Investment Company Act (a
"Majority in Interest").
<PAGE>
OPERATING POWER
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Subject to the Investment Company Act and the investment restrictions
described below, the Board has the exclusive management power over the
business and affairs of the Fund and has the authority to do or cause the
Fund to do, through the delegation of duties or otherwise, all things
deemed by it to be necessary and appropriate in connection with, or to
conduct the business of, the Fund including, but not limited to, the
authority and power.
(i) to invest and trade (taking either long or short positions or
both) in equity, debt, options and other securities of any kind or nature,
including mutual funds and money market instruments (all such items are
referred to as "securities");
(ii) to enter into and perform all contracts and engage in all
activities and transactions that are deemed necessary and appropriate to
carry out the above mentioned investment objective and purposes, including
but not limited to the following:
(1) to purchase, transfer and pledge, and otherwise acquire
and exercise all rights and privileges of ownership with respect to,
securities;
(2) to maintain positions in securities, notwithstanding
fluctuations in market conditions or substantial changes in price, and make
purchases or sales increasing, decreasing or liquidating such positions
without any limitation as to frequency or size; and
(3) to open, maintain and close bank accounts and transfer
funds between any of these accounts by checks or other orders for payment;
(iii) to acquire, hold and dispose of interests in securities of
every kind and description;
(iv) to establish such other methods for determining the net asset
value as it deems necessary and appropriate to enable the Fund to comply
with the Investment Company Act and the regulations thereunder;
(v) to maintain for the conduct of Fund affairs one or more offices
and do such acts as the Board may deem necessary and appropriate in
connection with the maintenance and administration of such office or
offices;
(vi) to engage one or more investment advisers and/or other advisers
to assist in the management of the assets of the Fund;
(vii) to engage on behalf of the Fund attorneys, accountants or
other persons as the Board may deem necessary and appropriate (including
attorneys, accountants and other persons who may also represent, advise,
act on behalf of or otherwise provide services to the Board itself); and
(viii) to enter into contracts, agreements or other instruments,
including but not limited to, contracts with administrators for the
provision of services to the Fund including the execution of portfolio
transactions and the provision of any or all administrative functions.
<PAGE>
INVESTMENT RESTRICTIONS
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The Board may not act with respect to the following matters, which
are fundamental policies of the Fund, without the approval of a Majority in
Interest:
(i) change the Fund's subclassification as a "closed-end company"
within the meaning of the Investment Company Act;
(ii) change the nature of the Fund's business so as to cease to be
an "investment company" within the meaning of the Investment Company Act;
(iii) change the investment objective of the Fund as set forth
above;
(iv) enter into or terminate the Investment Advisory Agreement with
the Adviser or any other investment advisory contract, provided, however,
that such approval is not required to extend or renew any investment
advisory contracts; and
(v) any other matters that require such approval in order to comply
with the Investment Company Act and any regulations issued thereunder.
Additionally,
(i) the Fund will not lend money to other persons, except that the
Fund may purchase debt securities, lend portfolio securities or enter into
repurchase agreements in a manner consistent with the Fund's investment
objective and investment policies;
(ii) the Fund will not underwrite securities of other issuers,
except insofar as the Fund may be deemed an underwriter under the
Securities Act by virtue of disposing of its portfolio securities;
(iii) the Fund will not purchase real estate or interests in real
estate, except that the Fund may purchase and sell securities that are
secured by real estate or interests therein and may purchase securities
issued by companies that invest or deal in real estate;
(iv) the Fund will not purchase or sell commodities or commodity
contracts, except that the Fund may engage in transactions to hedge
interest rate or foreign currency risks, including, without limitation,
investing in exchange traded or over-the-counter options or foreign
currency futures contracts;
(v) the Fund will not issue senior securities, as that term is
defined in the Investment Company Act, except in connection with the
borrowings described in subparagraph (vi) below or transactions involving
short sales or options;
(vi) the Fund will not borrow money, except that the Fund may borrow
from banks and other persons to purchase portfolio securities if, after
giving effect to any such borrowing, the ratio that (x) the value of the
Fund's total assets, less all liabilities and indebtedness not represented
by senior securities, bears to (y) the aggregated amount of senior
securities representing indebtedness of the Fund, is at least 300%. In
addition, to the extent permitted under the Investment Company Act, the
Fund may purchase any security on margin; and
<PAGE>
(vii) the Fund will not mortgage, pledge, hypothecate or otherwise
encumber any of its portfolio securities, except as may be necessary or
appropriate in connection with borrowings described in subparagraph (vi)
above.
REPURCHASE OFFER POLICIES
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The Fund, as a closed-end interval fund, has adopted certain
repurchase policies that cannot be changed without the vote of the holders
of a Majority in Interest. The Fund's repurchase policies are as follows:
(i) Once each quarter, the Fund shall offer to repurchase (a
"Repurchase Offer") not less than 5% or more than 25% of its outstanding
Shares. The Repurchase Pricing Date (as defined below) shall be within 14
days after the applicable Repurchase Request Deadline (as defined below) or
the next business day if such day is not a business day.
(ii) A holder of Shares ("Shareholder") that desires to have Shares
redeemed must submit a written request to the Board. The form of such
written request shall be the "Request for Repurchase of Shares in Zazove
Convertible Securities Fund, Inc." as from time to time prescribed by the
Board. The form will be included with the notice to the Shareholders
provided for in section (iv) below. In order for a repurchase request to
be effective, it must be received by the Board before the close of business
on the 17th day of March, June, September or December, as applicable, or
the next business day if such day is not a business day (the "Repurchase
Request Deadline"). The first Repurchase Request Deadline shall be March
17, 1999. A Shareholder may withdraw or modify any repurchase request at
any time prior to the end of business on the Repurchase Request Deadline,
but not thereafter.
(iii) Shares repurchased shall be repurchased at the current net
asset value at the close of business on the last business day of March,
June September and December, as applicable. Each such day is referred to
as a "Repurchase Pricing Date." Payment for Shares so repurchased shall be
made in cash within seven days thereafter; provided, however, that the Fund
may suspend or postpone a repurchase of Shares if the requirements of
Regulation Section 270.23c-3(b)(3)(i) under the Investment Company Act are
satisfied and:
(1) the New York Stock Exchange or any other market in which
the securities owned by the Fund are principally traded is closed, other
than customary weekend and holiday closing, or trading in such market is
restricted;
(2) an emergency exists as a result of which either
(i) disposal by the Fund of its securities is not reasonably practicable;
or (ii) determination of the current net asset value is not reasonably
practicable; or
<PAGE>
(3) an order of the Securities and Exchange Commission for
the protection of security holders of the Fund permits such suspension or
postponement.
(iv) No less than 21 and no more than 42 days before each Repurchase
Request Deadline, the Fund shall send a notification to each Shareholder
that provides information regarding the Repurchase Offer. The notification
shall include the information required under Regulation Section
270.23c-3(b)(4)(i) under the Investment Company Act. The Fund shall file
three copies of the notification with the Securities and Exchange
Commission within three business days after the notification is sent to the
Shareholders in accordance with the requirements of Regulation Section
270.23c-3(b)(4)(ii) under the Investment Company Act.
(v) If the number of Shares requested to be repurchased in any
Repurchase Offer is in excess of the number of Shares in the Repurchase
Offer, then the Board may cause the Fund to repurchase an additional 2% of
Shares outstanding on the Repurchase Request Deadline. If the Board
determines not to repurchase additional Shares, or if the number of Shares
requested to be repurchased is in excess of the Shares in the Repurchase
Offer plus such additional Shares, then the Fund shall repurchase Shares on
a pro rata basis; provided, however, that the Board may, in its sole
discretion, prior to prorating tendered Shares, accept all Shares tendered
by Shareholders who hold fewer than 100 Shares and who tender all of their
Shares.
(vi) In the event that a Shareholder requests the repurchase of
Shares that had been acquired within 12 months of the Repurchase Request
Deadline, the Board may require payment of a redemption fee payable to the
Fund in an amount equal to 2% of the repurchase price for such Shares,
which fee is intended to compensate the Fund for expenses related to such
redemption. Shares shall be deemed repurchased by treating the Shares
first acquired by a Shareholder as being repurchased prior to Shares
acquired by such Shareholder thereafter.
(vii) In accordance with Regulation Section 270.23c-3(b)(10) under
the Investment Company Act, the Board shall cause the Fund to adopt written
procedures reasonably designed, taking into account current market
conditions and the Fund's investment objective, to ensure that the Fund's
portfolio is sufficiently liquid so that the Fund can comply with its
policy on repurchases of Shares. The Board shall review and make changes
to such procedures as it deems necessary and appropriate.
(viii) In addition to the foregoing policies the Board may establish
such other policies relating to the Fund's repurchase of Shares; provided
that such policies are in compliance with the Investment Company Act and
any regulations issued thereunder.
(ix) The foregoing repurchase policies may not be amended without
the approval of a Majority in Interest.
MANDATORY REPURCHASE OF SHARES
- ------------------------------
The Board may, in its sole discretion, elect to repurchase all of a
Shareholder's Shares if:
<PAGE>
(i) the Shareholder ceases to own Shares with an aggregate value of
at least $10,000 or would cease to own such Shares if all Shares submitted
for repurchase by that Shareholder were repurchased;
(ii) the Board determines that the continued participation of the
Shareholder might cause the Fund or any Shareholder to violate any law,
rule or regulation;
(iii) litigation shall be commenced or threatened against the Fund or
any Shareholder, arising out of, or relating to, the participation of that
Shareholder; or
(iv) the Shareholder ceases to qualify as a "United States Person"
as defined in the Internal Revenue Code.
ADDITIONAL SALES OF SHARES
- --------------------------
The Board has the right, but not the obligation, to cause the Fund to
sell additional Shares on the first business day of any month. Sales of
additional Shares may be made to Shareholders and to accredited investors
approved by the Board who are not currently Shareholders. The purchase
price for any such Shares shall be the net asset value on the date of
purchase.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize 25,000,000 shares of
common stock, par value of one cent ($0.01) per share, which may be issued
by the Board on a fractional basis. Shareholders are entitled to one vote
per Share, and a fractional vote for each fractional Share. Each Share has
identical rights to dividends, distributions of capital gains and
distributions upon dissolution.
The following table depicts the Fund's outstanding securities as of
January 1, 1999:
Amount Held by Amount Outstanding
Amount Registrant or for Exclusive of Amount
Title of Class Authorized its Account Shown Under (3)
- -------------- ---------- ---------------- -------------------
Common Stock,
par value $.01 25,000,000 N/A 2,006,891.807
per share shares Shares
The Fund's Articles of Incorporation, which confers certain rights on
Shareholders, may be amended by the Fund, acting through the Board, in a
fashion that modifies the rights conferred upon the Shareholders. The
Board may also amend, alter or repeal certain Bylaws, subject to the
requirements of the Investment Company Act.
It is anticipated that the Fund will declare and pay dividends
annually in December. Dividends and capital gains are automatically
reinvested in Shares at the then prevailing net asset value unless a
Shareholder requests in writing that dividends or capital gains, or both,
be paid in cash. Written requests to receive cash dividends and additional
information regarding the automatic dividend reinvestment plan can be made
by contacting the Fund's administrative office at 4801 W. Peterson Avenue,
Suite 615, Chicago, Illinois 60646, telephone (773) 283-8822.
<PAGE>
The Fund will distribute all of its net investment income and gains
to Shareholders. These distributions are taxable as ordinary income or
capital gains. Shareholders may be proportionately liable for taxes on
income and gains of the Fund, but Shareholders not subject to tax on their
income will not be required to pay tax on amounts distributed to them. The
Fund will inform Shareholders of the amount and nature of the income or
gains.
SHAREHOLDERS
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As of January 1, 1999, the Fund had 212 Shareholders. The Fund
acquired Zazove Convertible Fund, L.P. through a merger effective on
January 1, 1999. Unless required by law, the Fund does not intend to hold
regular annual meetings of Shareholders. Shareholders will not elect the
Directors of the Fund. The Shareholders will not be liable for, and their
private property will not be subject to, any claims, levies or other
encumbrances on account of debts or liabilities of the Fund, to any extent
whatsoever.
RISK FACTORS
The Fund is designed for investors who can accept a high degree of
risk in their investments. The following sets forth the material risks
associated with an investment in the Fund.
INVESTMENT RISKS
The securities market is generally affected by real and perceived
economic conditions, business trends, world affairs and other factors
outside the control of the Fund. The success of the Fund will depend, in
part, on the ability of the Adviser to understand and react appropriately
to changing markets. All investments in securities involve a risk of loss
of capital, and no guaranty or representation can be made that the Fund's
activities will result in profits or that capital invested may not be lost.
Recent years have evidenced periods of significant volatility in the
securities markets. Increased volatility in the future could increase the
risk of loss in value of securities as compared to the risk of loss in more
stable market conditions.
Convertible securities investing is extremely competitive. The Fund
will compete with a large number of firms, many of which have substantially
greater financial resources, larger research staffs and more securities
traders that are available to the Fund.
The Fund may invest a portion of its assets on a global basis. In
doing so, the Fund will be subject to, among other risks: (i) currency
exchange risk; (ii) the possible imposition of withholding, income or
excise taxes; (iii) the absence of uniform accounting, auditing and
financial reporting standards and practices, less rigorous disclosure
requirements and little or potentially biased government supervision and
regulation; and (iv) economic and political risks, including expropriation,
<PAGE>
exchange controls and restrictions on foreign investment and repatriation
of capital. Any currency hedging will likely be implemented through
currency forward contracts which are traded on a principal-to-principal
basis and thus are subject to illiquidity risk and the risk of counter-
party default (i.e., the other party with which the Fund enters into the
forward contracts).
RELIANCE ON ADVISER
The operations of the Fund are substantially dependent upon the
skill, judgement and expertise of certain key officers and employees of the
Adviser. In the event of the death, disability or other unavailability of
such personnel, the Corporation could be materially adversely affected.
LIQUIDITY
There is no market for the Shares and it is unlikely that a market
will develop. The Fund's Bylaws provide that a Shareholder may not
transfer any Shares without the prior written consent of the Fund. In
addition, the Shares have not been registered under the Securities Act and,
therefore, cannot be sold unless they are subsequently registered or an
exemption from registration is available.
The Fund will offer to purchase not less than 5% nor more than 25% of
the outstanding Shares on a quarterly basis at the then net asset value.
Adequate notice must be given by a Shareholder to the Fund to participate
in any such repurchase. In the event of an oversubscription, Shareholders
may be only able to liquidate a portion of the Shares submitted for
repurchase on a particular quarterly repurchase date.
The Fund is required to meet certain liquidity standards imposed
under the Investment Company Act in connection with its obligation to
repurchase Shares on a quarterly basis. As a result, the Fund may be
required to dispose of investments before it would otherwise have chosen to
do so in order to meet such liquidity standards and obtain sufficient cash
for the repurchase of Shares. This disposition or liquidation may be at a
time which the Adviser believes the investments liquidated are trading for
less than their fair value due to adverse market conditions. In such
event, the Fund's overall rate of return on its investments may be
adversely affected.
NO RIGHT TO MANAGE
Shareholders are unable to exercise any management functions.
Management of the Fund is vested exclusively in the Directors. There will
not be any Shareholder vote unless required by the Investment Company Act.
CONFLICTS OF INTEREST
Gene T. Pretti and Steven M. Kleiman are Directors and officers of
the Fund and are also principal officers of the Adviser. The Adviser
currently manages investments for various other accounts and investments
partnerships. The Adviser engages in the practice of placing aggregate
orders for the purchase or sale of securities on behalf of its clients,
which could include the Fund. It is often the case that larger principal
transactions can be executed at more favorable prices than multiple smaller
<PAGE>
orders. In addition, larger broker transactions may often be executed at
lower commission costs on a per-dollar basis than multiple small orders.
In all cases in which an aggregate order to purchase or sell securities is
placed by the Adviser, each account that participates in the aggregate
order will participate at the average price and all transaction costs will
be shared pro rata. The Adviser will act in good faith in the allocation
of an aggregated order among accounts (including the Fund) such that no
account is favored over any other account. The Adviser may have financial
or other incentives to favor certain other accounts over the Fund (e.g.,
another account pays higher fees), but the Adviser intends to treat all
accounts, including the Fund, in a fair, reasonable and equitable manner.
The relationship between the Adviser and the Fund is governed by the
Investment Advisory Agreement.
Subject to any policies established by the Board, the Adviser is
responsible for selecting brokers, dealers and banks (collectively,
"Brokers") for the Fund's portfolio transactions. In selecting Brokers,
the Adviser will seek the best overall terms available. The Adviser may
take into consideration a number of factors, including the breadth of the
market in the security, the price of the security, the reliability,
financial condition and execution capability of the Broker, research
services, reasonableness of the commission and such other factors as the
Adviser deems necessary. The Adviser may execute brokerage transactions
for the Fund through Brokers who also provide the Adviser with "research
services," as defined in Section 28(e)(3) of the U.S. Securities Exchange
Act of 1934, as amended. Commissions paid to such Brokers may be in excess
of the amount of commissions another Broker would charge for the same
transaction. Before effecting any such transaction, the Adviser will
determine in good faith that the amount of such commission is reasonable in
relation to the value of the brokerage and research services provided by
such Broker, viewed in terms of either that particular transaction or the
Adviser's overall responsibilities to all of its clients. The research
services may include, among other things, research reports on companies,
industries or securities; economic and financial data; financial
publications; research oriented computer hardware, software and services;
and quotation terminals and related services. Research furnished by
Brokers may benefit all or only some of the Adviser's clients, including
the Fund, and could be used in connection with accounts other than those
that generated the commission to the Brokers providing the services.
DIVERSIFICATION
- ---------------
Unlike a diversified investment company, the Fund, which will be
classified as a non-diversified investment company under the Investment
Company Act, is not restricted in the amount of assets that it may invest
in a single issuer. Although there is no formal procedure, the Fund
presently intends to diversify its portfolio of investments in a variety of
issuers and industries to the extent that it can practicably do so. If the
Fund's investments were to become concentrated in a small number of issuers
or industries, the Fund would be exposed to the risk of adverse
developments in or affecting a single issuer or industry to a greater
extent than if its investments were diversified over a larger number of
issuers and industries.
<PAGE>
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The overall responsibility for the management and operation of the
Fund will be vested in the Board.
MR. ANDREW J. GOODWIN III
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Mr. Goodwin, age 55, is an Investment Adviser in the investment
management firm of Graver, Bokhof, Goodwin & Sullivan, L.P., located at 100
S. Wacker Drive, Suite 320, Chicago, Illinois 60606. Prior to joining
Graver, Bokhof, Goodwin & Sullivan, L.P. in 1990, Mr. Goodwin worked for
approximately ten years as an institutional securities salesman at the
First Boston Corporation. Mr. Goodwin has served as a Director General
Partner of Zazove Convertible Fund, L.P. since 1994. Mr. Goodwin has
served as a member of the Board since the Fund's organization.
MR. JACK L. HANSEN
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Mr. Hansen, age 37, is a principal with the investment management
firm The Clifton Group and serves as Director of Equity Investments. The
Clifton Group is located at 309 Clifton Avenue, Minneapolis, Minnesota
55403. Since joining the Clifton Group in 1985, Mr. Hansen has played a
leading role in the research and development of their indexed equity
products. He is a Chartered Financial Analyst and a member of the Twin
Cities Society of Security Analysts. Mr. Hansen has served as a Director
General Partner of Zazove Convertible Fund, L.P. since January 1, 1996.
Mr. Hansen has served as a member of the Board since the Fund's
organization.
MR. STEVEN M. KLEIMAN
- ---------------------
Mr. Kleiman, age 37, serves as Treasurer and Secretary of the Fund.
In addition, Mr. Kleiman is Chief Operating Officer and General Counsel of
the Adviser. Prior to joining the Adviser in March of 1994, Mr. Kleiman
was a partner with the law firm of McDermott, Will & Emery. Mr. Kleiman
practiced law with the law firm of Skadden, Arps, Slate, Meagher & Flom
prior to becoming a member of McDermott, Will & Emery. He received
certification as a CPA in 1983. Mr. Kleiman has served as a Director
General Partner of Zazove Convertible Fund, L.P. since January 1, 1996.
Mr. Kleiman has served as a member of the Board since the Fund's
organization.
DR. PETER A. LECHMAN
- --------------------
Dr. Lechman, age 35, is currently a pediatrician with the Glen Ellyn
& Wheaton Medical Clinic. Prior to practicing medicine, Dr. Lechman earned
an MBA degree from the Kellogg School of Management and was employed for
approximately two years as a consultant with the Boston Consulting Group,
which provides strategic consulting services for Fortune 500 companies.
Dr. Lechman has served as a Director General Partner of Zazove Convertible
Fund, L.P. since 1994. Dr. Lechman has served as a member of the Board
since the Fund's organization.
<PAGE>
MR. GENE T. PRETTI
- ------------------
Mr. Pretti, age 37, serves as President and Chairman of the Board of
the Fund. In addition, Mr. Pretti serves as Chief Executive Officer and
Senior Portfolio Manager of the Adviser, of which he is the controlling
equity holder. Prior to joining the Adviser in 1989, Mr. Pretti worked in
the Chicago and New York offices of the First Boston Corporation for
approximately four years where he specialized in institutional equity
sales. He also has served as an analyst with CUNA Mutual Insurance Co. and
Robert W. Baird & Co. Mr. Pretti has served as a Director General Partner
of Zazove Convertible Fund, L.P. since 1994. Mr. Pretti has served as a
member of the Board since the Fund's organization.
COMPENSATION AND ELECTION OF DIRECTORS
- --------------------------------------
The Fund may pay reasonable compensation to Directors for their
services as Directors of the Fund. The Fund will reimburse Directors for
reasonable out-of-pocket expenses incurred in performing their duties to
the Fund.
Each Director will serve until a successor is elected unless he
withdraws, resigns, is removed or otherwise terminates his status as a
Director. If, at any time, the number of Directors not affiliated with the
Fund (except by virtue of being a director) or the Advisor (the
"Independent Directors") is less than a majority of the Board, the
remaining Independent Directors shall, subject to the Investment Company
Act, designate one or more additional or successor Independent Directors to
cause the number of Independent Directors to be a majority of the Board.
Currently, Mr. Goodwin, Mr. Hansen and Dr. Lechman are Independent
Directors.
INVESTMENT ADVISORY AND OTHER SERVICES
THE ADVISER
- -----------
The Adviser, located at 940 Southwood Boulevard, Suite 200, Incline
Village, Nevada 89451, will serve as the investment adviser of the Fund and
as such will be primarily responsible for the selection of the Fund's
portfolio investments and the selection of brokers and dealers through
which portfolio transactions are executed and will perform such other
services as delineated in the form of Investment Advisory Agreement annexed
as Exhibit G and incorporated herein by reference.
The Adviser is registered as an investment adviser under the Advisers
Act. The Adviser is the successor to Zazove Associates, Inc., which was
formed as an Illinois corporation on February 9, 1989, to carry on the
investment management business that Earl Zazove began in 1971. The Adviser
has served as investment adviser to the Fund since the Fund's inception.
The Adviser manages investment portfolios for insurance companies,
investment partnerships, individuals, corporate trusts, foundations,
pensions and others. The Adviser is an independent adviser and is not
affiliated with any brokerage firm or other financial institution.
Mr. Pretti is the Chief Executive Officer and majority equity owner
of the Adviser. Mr. Pretti's business background is set forth above under
"--Board of Directors."
<PAGE>
In consideration for services provided, the fund will pay the Adviser
a monthly fee on the first business day of each month in an amount equal to
the sum of:
(i) one-twelfth of 2% of the first $20 million of the Fund's net
asset value at the opening of business on such day;
(ii) one-twelfth of 1.5% of the Fund's net asset value in excess of
$20 million and up to $70 million at the opening of business on such day;
and
(iii) one-twelfth of 1% of the Fund's net asset value in excess of
$70 million at the opening of business on such day.
The fee is computed and paid on a monthly basis and in accordance with the
requirements of rules promulgated under the Advisers Act.
THE CUSTODIAN
- -------------
The Fund's custodian is UMB Bank, N.A., P.O. Box 419226, Kansas City,
Missouri 64141. The Fund's custodian will generally have custody of the
assets of the Fund and will perform such other Acts as are required by the
Investment Company Act, although certain assets may be held by other
custodians or brokers.
TRANSFER AGENT
- --------------
The Fund's transfer agent is Sunstone Financial Group, Inc. 207 East
Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202. The transfer agent's
primary responsibilities include maintaining the Shareholder registrar,
processing Shareholder subscriptions and redemptions in accordance with
instructions received from the Fund, and generating transaction
confirmations and account statements. The transfer agent will also prepare
and distribute Forms 1099-DIV and 1099-R to the Shareholders and the
Internal Revenue Service.
INDEPENDENT PUBLIC ACCOUNT
- --------------------------
Arthur Anderson LLP, 33 West Monroe Street, Chicago, Illinois 60603,
will serve as the Fund's independent auditors, providing audit services,
including an audit of the annual financial statements of the Fund.
EXPENSES
The Fund will bear all normal costs and expenses attributable to the
Fund's activities, including, but not limited to, legal, auditing and
accounting expenses; expenses associated with the preparation, printing and
mailing of the Fund's financial statements, books, records and reports, tax
returns and Form 1099s, expenses associated with the acquisition, holding
and disposition of securities and other assets, including, but not limited
to, brokerage commissions, spreads, discounts, interest expense, commitment
fees, due diligence expenses, valuation fees, insurance costs, taxes and
all charges of depositories, custodians and other agencies for the
safekeeping and servicing of securities and other assets; governmental and
filing fees; any extraordinary expenses of the Fund (e.g., litigation
expenses); and the Fund's organizational and initial offering costs. The
Advisor and its affiliates are entitled to reimbursement from the Fund for
all amounts expended by any of them for Fund expenses.
<PAGE>
The Fund will not reimburse the Advisor or its affiliates for any
general overhead expenses, including, but not limited to, rent, salaries of
personnel and related expenses. Expenses incurred in connection with the
ongoing offering of Shares in the Fund will be borne by the Advisor
(initial offering costs being part of the Fund's organization costs).
BROKERAGE ARRANGEMENTS
The Fund has no obligation to deal with any broker or group of
brokers in executing transactions in portfolio securities. The Fund will
not engage affiliates of the Adviser or of any Director to act as a broker
or dealer in connection with the execution of the Fund's portfolio
transactions.
TAX STATUS
The Fund intends to elect to be treated and to qualify each year as a
"regulated investment company" under Subchapter M of the Code, and therefor
will not generally be liable for federal income taxes to the extent
earnings are distributed on a timely basis.
For federal income tax purposes, all dividends paid by the Fund and
net realized short-term capital gains are taxable as ordinary income,
whether received in cash or reinvested in additional Shares, unless a
Shareholder is exempt from taxation or entitled to a tax deferral.
Distributions paid by the Fund from net long-term capital gains, whether
received in cash or reinvested in additional Shares, are generally taxable
as a long-term capital gain. For purposes of determining whether capital
gains recognized by the Fund are long-term or short-term, the capital gain
holding period is determined by the length of time the Fund has held the
security and not the length of time a Shareholder has held Shares in the
Fund. Shareholders are informed within 30 days after the close of each
year as to the amount and nature of all dividends and capital gains paid
during the prior year. Such capital gains and dividends may also be
subject to state or local taxes.
The Fund anticipates distributing dividends and capital gains
annually in December. When a dividend or capital gain is distributed, the
Fund's net asset value decreases by the amount of the payment. If a
Shareholder purchases Shares shortly before a distribution, it will be
subject to income taxes on the distribution, even though the value of its
investment (plus cash received, if any) remains the same. This result is
often referred to as "buying a dividend". All dividends and capital gain
distributions will automatically be reinvested in Shares at the then
prevailing net asset value unless an investor specifically requests in
writing that dividends or capital gains or both be paid in cash.
If a Shareholder does not furnish the Fund with its correct social security
number or taxpayer identification number, or if otherwise required pursuant
to the Code, the Fund is required to withhold federal income tax from such
distributions and redemption proceeds at a rate of 31%.
This section is not intended to be a full discussion of federal
income tax laws and the effect of such laws on each Shareholder. There may
<PAGE>
be other federal, state or local tax considerations applicable to a
particular investor. Each Shareholder is urged to consult his own tax
adviser.
LEGAL PROCEEDINGS
The Fund, the Adviser and the Directors may be subject to litigation
in the ordinary course of business. No such legal proceedings are
currently pending.
<PAGE>
PART C-OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements of the Fund
(a) Report of Independent Public Accountants
(b) Balance Sheet as of January 1, 1999
(c) Schedule of Investments as of January 1, 1999
(d) Notes to Financial Statements
2. Exhibits
The exhibits to this Registration Statement are listed in the Exhibit
Index on page 20.
Item 25. Marketing Agreements
Not Applicable
Item 26. Other Expenses of Issuance and Distribution
The following are estimates of the fees and expenses to be
incurred by the Fund in connection with this registration:
Legal Fees and Disbursements $32,500
Miscellaneous Costs $ 7,500
-------
Total $40,000
=======
Item 27. Persons Controlled by or Under Common Control with Registrant
The Fund is not controlled by or under common control with any
person other than as described in "MANAGEMENT OF THE FUND."
Item 28. Number of Holders of Securities
See "THE FUND--Shareholders."
Item 29. Indemnification
Pursuant to the Fund's Articles of Incorporation, the Fund,
including its successors and assigns, shall indemnify its
Directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance
with the procedures required, by the General Laws of the
State of Maryland and the Investment Company Act. The Bylaws
<PAGE>
may provide that the Fund shall indemnify its employees and/or agents in
any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which
any Director, officer, employee or agent may otherwise be entitled. The
Fund may purchase and maintain insurance on behalf of any person who is or
was a Director, officer, employee or agent of the Fund or is or was serving
at the request of the Fund as a Director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise or employee benefit plan, against
any liability (including, with respect to employee benefit plans, excise
taxes) asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Fund would have
had the power to indemnify against such liability. The rights provided to
any person by Article 7.4 shall be enforceable against the Fund by such
person who shall be presumed to have relied upon such rights in serving or
continuing to serve in the capacities indicated herein. No amendment of
the Articles of Incorporation shall impair the rights of any person arising
at any time with respect to events occurring prior to such amendment.
Pursuant to the Fund's Bylaws, the Fund shall indemnify: (a)
its Directors and officers, whether serving the Fund or at its request any
other entity, to the full extent required or permitted by: (i) Maryland
law now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law; and (ii) the Investment
Company Act; and (b) other employees and agents to such extent as shall be
authorized by the Board and be permitted by law, except with respect to any
matter as to which such person shall have been finally adjudicated in a
decision on the merits in any such action, suit, or other proceeding to be
liable to the Fund or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of duties in the
performance of such duties. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification
may be entitled. The Board of Directors may take such action as is
necessary to carry out these indemnification provisions and is expressly
empowered to adopt, approve and amend from time to time such resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law.
Pursuant to the terms of the Investment Advisory Agreement, the
Fund shall indemnify and hold harmless the Adviser, its affiliates, and the
partners, shareholders, members, officers, directors, agents and employees
of any of them from and against any loss, expense, damage or injury
suffered or sustained by any of them by reason of any acts, omissions or
alleged acts or omissions arising out of any of their activities on behalf
of the Fund, in furtherance of the interests of the Fund, or in connection
with the issuance and sale of interest in the Fund, including but not
limited to any judgment, award, settlement, reasonable attorney's fees and
other costs or expenses incurred in connection with the investigation,
defense or settlement of any actual or threatened action, proceeding or
claim is based were done in good faith and in a manner reasonably believed
to be in, or not opposed to, the best interests of the Fund and did not
constitute gross negligence, willful misconduct or material breach of the
Investment Advisory Agreement or any fiduciary obligation to the Fund. The
termination of any action, proceeding or claim by settlement shall not, in
itself, create a presumption that the conduct in question was not
undertaken in good faith and in a manner reasonably believed to be in, or
not opposed to, the best interests of the Fund. Any such indemnification,
however, shall only be from the assets of the Fund.
<PAGE>
The indemnification provided for in the Investment Advisory
Agreement shall be in addition to, and shall in no respect limit or
restrict, any other remedies which may be available to an indemnified
party. The indemnity provision shall not increase the liability of any
Shareholder of the Fund beyond the amount of such Shareholder's capital and
profits (exclusive of distributions or other returns of capital, including
redemptions).
Insofar as indemnification for liability arising under the
federal securities acts may be permitted to covered persons and controlling
persons of the Fund pursuant to the foregoing provisions, or otherwise, the
Fund has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy and is, therefore,
unenforceable.
Item 30. Business and Other Connections of the Adviser
See "MANAGEMENT OF THE FUND--Investment Advisory and Other
Services" and MANAGEMENT OF THE FUND--Board of Directors."
Item 31. Location of Accounts and Records
Accounts, books and other records required to be maintained by
Section 31 (a) of the Investment Company Act and the rules promulgated
thereunder, will be maintained and kept at the offices of the Adviser at
4801 West Peterson Avenue, Suite 615, Chicago, Illinois 60646.
Item 32. Management Services
Except as described in Part B of this Registration Statement on
Form N-2, the Fund is not a party to any material management-related
service contract.
Item 33. Undertakings
Not Applicable
<PAGE>
Pursuant to the requirements of the Investment Company Act of 1940,
the Fund has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, and State of Illinois, on this 15th day of March, 1999.
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
By: /s/ Gene T. Pretti
------------------------------
Gene T. Pretti,
President
<PAGE>
Zazove Convertible Securities Fund, Inc.
Financial Statements
as of January 1, 1999
Together With Auditors' Report
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
January 1, 1999
I N D E X
Page
----
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS 1
BALANCE SHEET 2
SCHEDULE OF INVESTMENTS 3-4
NOTES TO THE FINANCIAL STATEMENTS 5-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Zazove Convertible Securities Fund, Inc.:
We have audited the accompanying balance sheet of ZAZOVE CONVERTIBLE
SECURITIES FUND, INC. (a Maryland corporation), including the schedule of
invesments, as of January 1, 1999. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet and schedule of
investments are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the balance sheet and schedule of investments. Our procedures included
confirmation of securities owned as of January 1, 1999, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Zazove Convertible
Securities Fund, Inc. as of January 1, 1999, in conformity with generally
accepted accounting principles.
Chicago, Illinois
February 12, 1999
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
BALANCE SHEET
As of January 1, 1999
ASSETS
Investment securities, at market value--
cost $40,149,306 (Note 1). . . . . . . . . . . . . . . . $ 35,875,364
Cash and cash equivalents. . . . . . . . . . . . . . . . . 446
Receivables-
Dividends. . . . . . . . . . . . . . . . . . . . . . . . 56,596
Interest . . . . . . . . . . . . . . . . . . . . . . . . 353,801
Securities sold, not settled . . . . . . . . . . . . . . 1,427,878
Due from shareholders. . . . . . . . . . . . . . . . . . 334,179
Organizational costs (Note 1). . . . . . . . . . . . . . . 4,113
-----------
Total assets . . . . . . . . . . . . . . . . . . $38,052,377
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Payables-
Due to shareholders. . . . . . . . . . . . . . . . . . . $ 5,670,148
Margin account due to brokers. . . . . . . . . . . . . . 1,244,800
Accounting fees. . . . . . . . . . . . . . . . . . . . . 22,000
Management fee . . . . . . . . . . . . . . . . . . . . . 54,384
Payable to advisor . . . . . . . . . . . . . . . . . . . 6,926
Other broker payable . . . . . . . . . . . . . . . . . . 6,534
-----------
Total liabilities. . . . . . . . . . . . . . . . 7,004,792
Stockholders' Equity (Note 3)-
Common stock ($.01 par value; 25,000,000 shares
authorized; 2,006,892 shares issued and
outstanding) . . . . . . . . . . . . . . . . . . . . . 20,069
Paid in surplus. . . . . . . . . . . . . . . . . . . . . 35,301,458
Accumulated net realized gain on investments . . . . . . --
Undistributed net investment income. . . . . . . . . . . --
Net unrealized depreciation on investments . . . . . . . (4,273,942)
-----------
Total stockholders' equity (net assets) . . . . 31,047,585
-----------
Total liabilities and shareholders' equity . . . $38,052,377
===========
Net asset value per share (based on
2,006,892 shares outstanding). . . . . . . . . . . . . . $ 15.47
===========
The accompanying notes to financial statements
are an integral part of this balance sheet.
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS
January 1, 1999
Principal/ Market
Shares Value
----------- ----------
CONVERTIBLE PREFERRED STOCK B 25%
** BTI Capital Trust, $3.25 30,000 $ 735,000
Elsag Bailey Financial Trust, $2.75 20,000 1,217,500
Fleetwood Capital Trust, $3.00 13,000 612,625
Freeport McMoran (Class A), $1.75 13,400 199,325
Frontier Financing Trust, $3.125 30,000 1,228,125
General Datacomm Industries, $2.25 25,000 287,500
Hybridon Inc., $6.50 5,177 258,850
Lab Corp of America (Class B), $4.250 39,842 1,643,482
Metromedia Int'l Group, Inc., $3.625 45,000 1,192,500
Treev, $0.84 163,800 1,197,788
Walden Residential Properties, Inc.
(Class B), $2.29 24,400 561,200
-----------
Total convertible preferred stock
(cost--$11,017,773) 9,133,895
CONVERTIBLE BONDS B 62%
** APP Finance VII Mauritius, 3.500%
Due 04-30-03 $ 2,120,000 1,192,500
Altos Hornos De Mexico, 5.500%
Due 12-15-01 500,000 220,000
Amkor Technology, Inc., 5.750%
Due 05-01-03 1,000,000 996,250
+** Aspect Telecommunications, 0.000%
Due 08-10-18 3,500,000 840,000
BankAtlantic Bancorp Inc., 6.750%
Due 07-01-06 670,000 730,300
BankAtlantic Bancorp Inc., 5.625%
Due 12-01-07 900,000 693,000
Berkshire Hathaway (Citigroup), 1.000%
Due 12-02-01 1,200,000 1,867,500
* Boston Chicken Inc., 7.750%, Due 05-01-04 170,000 6,800
** China Petrochemcial Dev Corp, 1.000%
Due 05-08-08 1,500,000 1,020,000
Chock Full O'Nuts, 7.000% Due 04-01-12 120,000 112,800
Complete Management Inc. (old), 8.000%
Due 08-15-03 960,000 211,200
DRS Technologies, Inc., 9.000%
Due 10-01-03 140,000 177,800
+** Elan Corp., 0.000% Due 12-14-18 3,000,000 1,704,375
Fuisz Technologies Ltd., 7.000% Due 10-15-04 250,000 270,000
General DataComm Industries Inc., 7.750%
Due 09-30-02 1,000,000 620,000
Intevac Inc., 6.500% Due 03-01-04 500,000 305,000
** Inversiones y Representaciones SA,
4.500% Due 08-02-03 200,000 200,000
Liberty Media Group, 4.500% Due 02-15-06 1,200,000 1,290,000
Mail Well Inc., 5.000% Due 11-01-02 400,000 360,000
** New World Infrastructure, 1.000% Due 04-15-03 500,000 423,750
** New World Infrastructure, 5.000% Due 07-15-01 95,000 83,363
North American Vaccine, Inc. 6.500%
Due 05-01-03 640,000 324,800
Paliburg Int'l (Regal Hotel) (Euro), 3.500%
Due 02-06-01 1,050,000 635,250
Phoenix Investment Partners Ltd.,
6.000% Due 11-01-15 414,500 460,095
<PAGE>
Principal/ Market
Shares Value
----------- ----------
Pier 1 Imports, 5.750% Due 10-01-03 $ 1,150,000 $ 1,488,531
Reno Air, 9.000% Due 09-30-02 815,000 847,600
SpaceHab Inc., 8.000% Due 10-15-07 250,000 232,500
+** Sunbeam Corporation, 0.000% Due 03-25-18 3,000,000 360,000
** Thermo Fibertek Inc., 4.500% Due 07-15-04 1,250,000 1,070,313
** Tingyi Holding Corp, 1.625% Due 07-17-02 250,000 153,750
** Total Renal Care Holdings, 7.000% Due 05-15-09 220,000 244,200
+ Triarc Companies, 0.000% Due 02-09-18 7,000,000 1,487,500
U.S. Diagnostic Labs Inc., 9.000% Due 03-31-031,505,000 880,425
** U.S. Diagnostic Labs Inc., 6.500%, Due 06-30-01 630,000 393,750
* Westbridge Capital Corp., 7.500%, Due 05-01-04 625,000 140,625
World Airways, Inc., 8.000% Due 08-26-04 1,355,000 399,725
-----------
Total convertible bonds
(cost--$27,478,308) 22,443,702
OTHER B 12%
Alliance Capital Management L.P. 28,000 721,000
Audiovox Wts. 16,800 28,325
Hybridon Class A Wts 29,671 5,563
Pimco Advisors Holdings L.P. 34,050 1,059,806
Treev Inc. 5,520 9,142
Viacom Class E Wts. 216,300 2,473,931
-----------
Total other (cost--$1,653,225) 4,297,767
-----------
Total investment securities
(cost--$40,149,306) 35,875,364
Other assets less liabilities B 1% 508,192
-----------
Total partners' capital B 100% $36,383,556
===========
The above percentages were computed as a percentage of partners'
capital.
+ Nonincome producing
* This security is currently in default and interest is not being
accrued on the position.
** These securities are subject to contractual or legal restrictions
on their sale. At December 31, 1998, the value of these securities was
$8,421,000, representing 23.5% of investment securities at market value.
The accompanying notes to financial statements
are an integral part of this schedule.
<PAGE>
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
Zazove Convertible Securities Fund, Inc., a Maryland corporation (the
"Fund") is registered under the Investment Company Act of l940 as a non-
diversified management investment company that operates as a closed-end
interval fund. The Fund's investment objective is to realize long-term
growth, current income and the preservation of capital. The Fund will
pursue this objective primarily through investing in a portfolio of
convertible securities. The convertible strategy will focus primarily on
opportunities in the United States, although the Fund may invest abroad.
Zazove Associates, LLC, is the Fund's Investment Advisor. The Fund
initially acquired its portfolio pursuant to a merger whereby the Zazove
Convertible Fund, L.P., a Delaware limited partnership, was merged into the
Fund on January 1, 1999.
The following is a summary of significant accounting policies:
SECURITY VALUATIONS
Securities traded on national securities exchanges are valued
at the last reported sales price or, if there are no sales, at the mean
between the bid and ask prices. Securities traded over the counter are
valued at the average of the highest current independent bid and lowest
current independent offer reported upon the close of trading on that day.
If the market for a security exists predominantly through a limited number
of market makers, the security is valued by attaining an independent bid
and offer by at least two market makers in the security and valuing the
security at the mid-point of the quote that, under the circumstances and in
the good faith judgment of the General Partner, represents the fair value
of the security. Securities for which market quotations are not available
are valued at a fair value as determined in good faith by the General
Partner.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and money market
investments.
OTHER POLICIES
The accounts of the Fund are kept on the accrual basis of
accounting. Security transactions are recorded on the trade date.
Realized gains or losses from sales of securities are determined on the
first-in, first-out ("FIFO") cost basis. Dividend income is recognized on
the ex-dividend date. Interest income and expense are recognized on the
accrual basis.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
2. DIRECTORS AND OFFICERS
The overall responsibility for the management and operation of the
Fund is vested in the Directors. The Board consists of five directors:
Gene T. Pretti, Steven M. Kleiman, Andrew J. Goodwin III, Jack L. Hansen,
and Peter A. Lechman. Each of the three Directors who are not affiliated
with the Investment Advisor will receive $2,000 annually for their service
to the Fund.
Gene T. Pretti, President and Steven M. Kleiman, Secretary and
Treasurer, are the principal officers of the Fund and are responsible for
the day to day supervision of the business and affairs of the Fund. Except
for certain actions requiring the approval of the Shareholders or the
Directors, the principal officers of the Fund have the power and authority
to take all actions deemed necessary and appropriate to pursue the Fund's
objective.
Shareholders in the Fund will be unable to exercise any management
functions. Management of the Fund is vested exclusively in the Directors.
There will not be any Shareholder vote unless required by the Investment
Company Act of 1940.
3. SHARES
The Fund is authorized to issue up to 25,000,000 shares of common
stock, $0.01 par value. Shareholders are entitled to one vote per Share on
all corporate issues put to vote of the Shareholders, although the Fund
does not contemplate holding annual meetings to elect directors or for any
other purpose.
Shares may be purchased as of the first business day of each month
upon approval of the Directors at the then net asset value per Share. All
subscription funds received after the first business day of the month will
be added to the general funds of the Fund at the beginning of the following
month.
On a quarterly basis, the Fund will offer to repurchase no less than
5% and no more than 25% of the Fund's outstanding Shares at the then net
asset value per Share. Notice of the terms and conditions of each
quarterly repurchase offer are sent to the Shareholders in advance of the
offer.
<PAGE>
The Fund may impose a 2% fee on the repurchase of Shares held for
less than one year, which fee is intended to compensate the Fund for
expenses related to such redemption. Shares are deemed repurchased by
treating the Shares first acquired by a Shareholder as being repurchased
prior to Shares acquired by such Shareholder thereafter.
In the case of the termination of the Fund, distributions to the
Shareholders will be made in proportion to their respective Share ownership
after the payment of all Fund creditors.
4. MANAGEMENT ARRANGEMENTS
Zazove Associates, LLC has been engaged as the Fund's Investment
Adviser pursuant to the terms of an Investment Advisory Agreement. As
Investment Advisor to the Fund, Zazove Associates, LLC will receive
management fees based on the following management fee schedule. Management
fees are computed and paid on a monthly basis.
Capital
in excess of
First $20,000,000 Capital in
Fund $20,000,000 up to excess of
Capital in capital $70,000,000 $70,000,000
- ------- ----------- ------------ -----------
Annual
Management
Fee Rate 2.00% 1.50% 1.00%
5. EXPENSES
The Fund bears all normal costs and expenses of its operations
including: management fees, brokerage commissions; custody fees; transfer
agency fees; legal, audit, accounting and tax preparation expenses;
applicable state taxes and other operating expenses such as regulatory
filing fees and costs for communications with shareholders. The Fund will
not incur costs and expenses associated with offering Shares in the Fund.
No portion of the Investment Advisor's or its affiliate's general overhead
costs will be allocated to the Fund.
6. INCOME TAXES
The Fund intends to elect to be treated and to qualify each year as a
"regulated investment Company" under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and therefore will not generally be
liable for Federal income taxes to the extent earnings are distributed on a
timely basis.
7. OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Fund may engage in the short sale of securities. Securities sold
short, not yet purchased, represent obligations of the Fund that result in
off-balance-sheet risk as the ultimate obligation may exceed the amount
shown in the accompanying financial statements due to increases in the
market values of these securities. At January 1, 1999, the Fund did not
carry any short positions.
<PAGE>
At January 1, 1999, the three largest industry concentrations were as
follows (as a percentage of investment securities at market value):
Broadcasting/Cable T.V. 10.49%
Medical Services 8.81%
Drugs 7.15%
Since the Fund does not clear its own investment transactions, it has
established an account with a third party custodian (UMB Bank, N.A.) for
this purpose. The resulting concentration of credit risk is mitigated by
the custodian's obligation to comply with the rules and regulations of the
Securities and Exchange Act of 1934. In addition, the Fund has established
an account with a brokerage firm (Bear Stearns Securities Corp.) for the
purpose of purchasing securities on margin. At January 1, 1999, the Fund
owed the brokerage firm $1,244,800 for securities purchased on margin. The
Fund held cash and cash equivalents of $446 and had a receivable from
securities sold, but not settled of $1,427,878 which could be used to
effectively offset this margin balance. The Fund pays interest on any
margin balance which is calculated as the daily margin account balance
times the broker's margin interest rate.
<PAGE>
As filed with the Securities and Exchange Commission
on March 15, 1999
------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
EXHIBITS
To
Form N-2
Registration Statement
Under
The Investment Company Act of 1940
--------------------
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- -------
(a) Articles of Incorporation of Zazove
Convertible Securities Fund, Inc.
(b) Bylaws of Zazove Convertible Securities Fund, Inc.
(c) Not applicable.
(d) See Exhibits (a) and (b).
(e) Not applicable.
(f) Not applicable.
(g) Investment Advisory Agreement
between Zazove Convertible Securities Fund, Inc.
and Zazove Associates, L.L.C.
(h) Not applicable.
(i) Not applicable.
(j) Custody Agreement between Zazove
Convertible Securities Fund, Inc. and UMB Bank, N.A.
(k) Transfer Agency Agreement between Zazove
Convertible Securities Fund, Inc. and Sunstone
Financial Group, Inc.
(l) Not applicable.
(m) Not applicable.
(n) Not applicable.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
(r) Not applicable.
EXHIBIT 99.2(a)
- ---------------
[ARTICLES OF INCORPORATION]
ARTICLES OF INCORPORATION
OF
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
ARTICLE I
INCORPORATOR
------------
THE UNDERSIGNED, Harold W. Nations, whose post office address is
Holleb & Coff, 55 E. Monroe, Suite 4100, Chicago, Illinois 60603, being at
least eighteen (18) years of age, does hereby act as incorporator to form a
corporation under and by virtue of the Maryland General Corporation Law.
ARTICLE II
NAME
----
2.1. NAME. The name of the corporation is Zazove Convertible
Securities Fund, Inc. (the "Corporation").
ARTICLE III
CORPORATE PURPOSES AND POWERS
-----------------------------
The purpose or purposes for which the Corporation is formed is to act
as an investment company under the federal Investment Company Act of 1940,
and to exercise and enjoy all the powers, rights and privileges granted to,
or conferred upon, corporations by the General Laws of the State of
Maryland. The Corporation shall exercise and enjoy all such powers, rights
and privileges to the extent not inconsistent with these Articles of
Incorporation.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation in
the State of Maryland is CSC-Lawyers Incorporating Service Company, 11 E.
Chase Street, Baltimore, Maryland 21202. The name of the Corporation's
resident agent in the State of Maryland is The CSC-Lawyers Incorporating
Service Company, a corporation of the State of Maryland, and the post
office address of the resident agent is 11 E. Chase Street, Baltimore
Maryland 21202.
<PAGE>
ARTICLE V
CAPITAL STOCK
-------------
5.1. AUTHORIZED SHARES. The total number of shares of capital stock
which the Corporation shall have authority to issue is Twenty-Five Million
(25,000,000) shares of the par value of one cent ($0.01) per share and of
the aggregate par value of Two Hundred Fifty Thousand Dollars ($250,000),
all of which shares are designated Common Stock.
5.2. AUTHORIZATION OF STOCK ISSUANCE. The Board of Directors may
authorize the issuance and sale of capital stock of the Corporation from
time to time in such amounts and on such terms and conditions, for such
purposes and for such amount or kind of consideration as the Board of
Directors shall determine, subject to any limits required by then
applicable law. All shares shall be issued on a fully paid and non-
assessable basis.
5.3 FRACTIONAL SHARES. The Corporation may issue fractional shares.
Any fractional share shall carry proportionately the rights of a whole
share, excepting the right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and
the right to receive dividends.
5.4 DIVIDENDS AND DISTRIBUTIONS. The holders of capital stock of
record as of a date determined by the Board of Directors from time to time
shall be entitled, from funds or other assets legally available therefor,
to dividends and distributions, including distributions of capital gains,
in such amounts and at such times as may be determined by the Board of
Directors. Any such dividends or distributions may be declared payable in
cash, property or shares of the capital stock, as determined by the Board
of Directors or pursuant to a standing resolution or program adopted or
approved by the Board of Directors. Dividends and distributions may be
declared with such frequency, including daily, as the Board of Directors
may determine and in any reasonable manner, including by standing
resolution, by resolutions adopted only once or with such frequency as the
Board of Directors may determine, or by formula or other similar method of
determination, whether or not the amount of the dividend or distribution so
declared can be calculated at the time of such declaration. The Board of
Directors may establish payment dates for such dividends and distributions
on any basis, including payment that is less frequent than the
effectiveness of such declarations. The Board of Directors shall have the
discretion to designate for such dividends and distributions amounts
sufficient to enable the Corporation to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986 or any successor or
comparable statute, and regulations promulgated thereunder (collectively,
the "IRC"), and to avoid liability of the Corporation or any class or
series for Federal income tax in respect of a given year and to make other
appropriate adjustments in connection therewith. Nothing in the foregoing
sentence shall limit the authority of the Board of Directors to designate
greater or lesser amounts for such dividends or distributions.
5.5 TAX ELECTIONS. The Board of Directors shall have the power, in
its discretion, to make such elections as to the tax status of the
Corporation as may be permitted or required by the IRC without the vote of
stockholders of the Corporation.
<PAGE>
5.6 LIQUIDATION. At any time there are no shares outstanding the
Board of Directors may liquidate the Corporation in accordance with
applicable law. In the event of the liquidation or dissolution of the
Corporation when there are shares outstanding of the Corporation the
stockholders shall be entitled to receive, when and as declared by the
Board of Directors, the excess of the assets over the liabilities of the
Corporation. Any such excess amounts will be distributed to each
stockholder in proportion to the number of outstanding shares held by that
stockholder and recorded on the books of the Corporation.
5.7 VOTING RIGHTS. On each matter submitted to a vote of
stockholders, each holder of a share of capital stock of the Corporation
shall be entitled to one vote for each full share, and a fractional vote
for each fractional share of stock standing in such holder's name on the
books of the Corporation and all shares shall vote together as a single
class.
5.8 QUORUM. The presence in person or by proxy of the holders of
one-third of the shares of stock of the Corporation entitled to vote
thereat shall constitute a quorum at any meeting of the stockholders. If
at any meeting of the stockholders there shall be less than a quorum
present, the stockholders present at such meeting may, without further
notice, adjourn the same from time to time until a quorum shall be present.
5.9 AUTHORIZING VOTE. Notwithstanding any provision of the General
Laws of the State of Maryland requiring for any purpose a proportion
greater than a majority of the votes of all classes or series, the
affirmative vote of the holders of a majority of the total number of shares
of the Corporation outstanding and entitled to vote under such
circumstances pursuant to these Articles of Incorporation and the By-Laws
of the Corporation shall be effective for such purpose, except to the
extent otherwise required by the Investment Company Act of 1940 and rules
thereunder; provided that, to the extent consistent with the General Laws
of the State of Maryland and other applicable law, the By-Laws may provide
for authorization to be by the vote of a proportion less than a majority of
the votes of the Corporation.
5.10 PREEMPTIVE RIGHTS. No stockholder of the Corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any
shares of any classes or series, or any other securities of the Corporation
which the Corporation proposes to issue or sell, and any or all of such
shares or securities of the Corporation, whether now or hereafter
authorized or created, may be issued, or may be reissued or transferred if
the same have been reacquired, and sold to such persons, firms,
corporations and associations, and for such lawful consideration, and on
such terms as the Board of Directors in its discretion may determine,
without first offering the same, or any thereof, to any said stockholder.
5.11 REDEMPTION.
(a) The Board of Directors shall authorize the Corporation, to the
extent it has funds or other property legally available therefor and
subject to such reasonable conditions as the directors may determine, to
permit not less than 5% nor more than 25% of the outstanding stock upon
such terms and conditions as provided in this Section 5.11.
(b) A stockholder that desires to have shares redeemed pursuant to
this Section 5.11 must submit a written request to the Corporation. The
form of such written request shall be the "Request for Repurchase
<PAGE>
of Shares of Zazove Convertible Securities Fund, Inc." as from time
to time prescribed by the Board of Directors. Such form will be included
with the notice to the stockholders as provided in Section 5.11(d). In
order for a request under this Section 5.11(b) to be effective, it must be
received by the Corporation before the close of business on the seventeenth
day of March, June, September or December, as applicable, or the next
business day if such day is not a business day (the "Repurchase Request
Deadline"). The first Repurchase Request Deadline shall be March 17, 1999.
A stockholder may withdraw or modify any request under this Section 5.11(b)
at any time prior to the close of business on the Repurchase Request
Deadline, but not thereafter.
(c) Shares repurchased pursuant to this Section 5.11 shall be
repurchased at the Current Net Asset Value Per share at the close of
business on the last day of March, June, September or December, as
applicable. Each such day is referred to as a "Repurchase Pricing Date."
Payment for shares shall be made in cash within seven days thereafter;
provided, however, that the Corporation may suspend or postpone a
repurchase of shares under this Section 5.11 if the requirements of
Regulation Section 270.23c-3(b)(3)(i) are satisfied and (i) The New York
Stock Exchange or any other market in which the securities owned by the
Corporation are principally traded is closed, other than customary weekend
and holiday closings, or trading in such market is restricted, (ii) an
emergency exists as a result of which either disposal by the Corporation of
its securities is not reasonably practicable, or it is not reasonably
practicable to fairly determine the Current Net Asset Value Per share or
(iii) as permitted by the Securities and Exchange Commission by order to
protect the security holders of this Corporation.
(d) No less than twenty-one and no more than forty-two days before
each Repurchase Request Deadline, the Corporation shall send a notification
to each stockholder that provides information regarding the Repurchase
Offer. The notification shall include such information as is required
under Regulation Section 270.23c-3(b)(4)(i). The Corporation shall file
three copies of the notification with the Securities and Exchange
Commission within three business days after such notification is sent to
the stockholders in accordance with the requirements of Regulation Section
270.23c-3(b)(4)(ii).
(e) If the number of shares requested to be repurchased in any
Repurchase Offer is in excess of the number of shares in the Repurchase
Offer, then the Board of Directors may cause the Corporation to repurchase
an additional 2% of shares outstanding on the Repurchase Request Deadline.
If the Board of Directors determines not to repurchase additional Shares,
or if the number of shares requested to be repurchased is in excess of the
shares in the Repurchase Offer plus such additional shares, then the
Corporation shall repurchase shares on a pro rata basis; provided, however,
that the Board of Directors may, in its sole discretion, prior to prorating
tendered shares, accept all shares tendered by stockholders who hold fewer
than 100 shares and who tender all of their shares.
<PAGE>
(f) In the event that a stockholder requests the repurchase of
shares under this Section 5.11 that had been acquired within twelve months
of the Repurchase Request Deadline, the Board of Directors may require
payment of a redemption fee payable to the Corporation in an amount equal
to 2% of the repurchase price for such shares, which fee is intended to
compensate the Corporation for expenses related to such redemption. Shares
shall be deemed repurchased by treating the shares first acquired by a
stockholder as being repurchased prior to shares acquired by such
stockholder thereafter.
(g) In addition to the policies set forth in Section 5.11, the
Board of Directors may establish such other policies relating to the
Corporation's repurchase of shares; provided that such policies are in
compliance with the Investment Company Act of 1940 and the Regulations
therunder.
(h) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the extent
permitted by and in accordance with the conditions of applicable law, to
redeem shares of the Corporation owned by any stockholder under
circumstances deemed appropriate by the Board of Directors in its sole
discretion from time to time, such circumstances including but not limited
to (1) failure to provide the Corporation with a tax identification number
and (2) failure to maintain ownership of a specified minimum number or
value of shares of any class or series of stock of the Corporation, such
redemption to be effected at such price, at such time and subject to such
conditions as may be required or permitted by applicable law.
(i) Payment for redeemed shares shall be made in cash unless, in
the opinion of the Board of Directors, which shall be conclusive,
conditions exist which make it advisable for the Corporation to make
payment wholly or partially in securities or other property or assets of
the Corporation. Payment made wholly or partially in securities or other
property or assets may be delayed to such reasonable extent, not
inconsistent with applicable law, as is reasonably necessary under the
circumstances. No stockholder shall have the right, except as determined
by the Board of Directors, to have his shares redeemed in such securities,
property or other assets.
(j) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends with respect to such share, shall
cease on the date of redemption and the redemption price to be paid for
such shares shall be fixed in accordance with applicable law, except the
right of such stockholder to receive payment for such shares as provided
herein shall survive.
(k) Notwithstanding any other provision of this Article V, the
Board of Directors may suspend the right of stockholders of shares to
require the Corporation to redeem shares held by them for such periods and
to the extent permitted by, or in accordance with, the Investment Company
Act of 1940. The Board of Directors may, in the absence of a ruling by a
responsible regulatory official, terminate such suspension at such time as
the Board of Directors, in its discretion, shall deem reasonable, such
determination to be conclusive.
<PAGE>
(l) Shares of stock which have been redeemed shall have the status
of authorized but unissued shares.
5.12 REPURCHASE OF SHARES. The Board of Directors may by resolution
from time to time authorize the Corporation to purchase or otherwise
acquire, directly or through an agent, shares of its outstanding stock upon
such terms and conditions and for such consideration as permitted by
applicable law and determined to be reasonable by the Board of Directors
and to take all other steps deemed necessary in connection therewith.
Shares so purchased or acquired shall have the status of authorized but
unissued shares.
5.13 VALUATION. Subject to the requirements of applicable law, the
Board of Directors may, in its absolute discretion, establish the basis or
method, timing and frequency for determining the net asset value of each
share of the Corporation for purposes of sales, redemptions, repurchases or
otherwise.
5.14 CERTIFICATES. Subject to the requirements of the Maryland
General Corporation Law, the Board of Directors may authorize the issuance
of some or all of the shares without certificates and may establish such
conditions as it may determine in connection with the issuance of
certificates.
5.15 SHARES SUBJECT TO ARTICLES AND BY-LAWS. All persons who shall
acquire shares of capital stock in the Corporation shall acquire the same
subject to the provisions of these Articles of Incorporation and the By-
Laws of the Corporation, as each may be amended, supplemented and/or
restated from time to time.
ARTICLE VI
BOARD OF DIRECTORS
------------------
6.1 NUMBER OF DIRECTORS. The number of directors of the Corporation
shall be as provided in the By-Laws and subject to the limitations of the
Maryland General Corporation Law, may fix a different number of directors
and may authorize a majority of the directors to increase or decrease the
number of directors set by these Articles or the By-Laws within limits set
by the By-Laws and to fill vacancies created by an increase in the number
of directors. Unless otherwise provided by the By-Laws, the directors of
the Corporation need not be stockholders of the Corporation. The names of
the directors who will serve until their successors are elected and qualify
are:
Gene T. Pretti
Steven M. Kleiman
Andrew J. Goodwin III
Jack L. Hansen
Peter A. Lechman
6.2 REMOVAL OF DIRECTORS. Subject to the limits of the Investment
Company Act of 1940 and unless otherwise provided by the By-Laws, a
director may be removed, with or without cause, by the affirmative vote of,
<PAGE>
(a) a majority of the Board of Directors, (b) a committee of the Board of
Directors appointed for such purpose, or (c) the stockholders by vote of a
majority of the outstanding shares of the Corporation.
6.3 LIABILITY OF DIRECTORS AND OFFICERS.
(a) To the fullest extent permitted by the Maryland General
Corporation Law and the Investment Company Act of 1940, no director or
officer of the Corporation shall be liable to the Corporation or to its
stockholders for money damages. No amendment to these Articles of
Incorporation or repeal of any of its provisions shall limit or eliminate
the benefits provided to directors and officers under this provision with
respect to any act or omission which occurred prior to such amendment or
repeal.
(b) In performance of his duties, a director is entitled to
rely on any information, opinion, report, or statement, including any
financial statement or other financial data, prepared by others, to the
extent not inconsistent with the General Laws of the State of Maryland. A
person who performs his duties in accordance with the standards of Article
2-405.1 of the Maryland General Corporation Law or otherwise in accordance
with applicable law shall have no liability by reason of being or having
been a director of the Corporation.
6.4 POWERS OF DIRECTORS. In addition to any powers conferred herein
or in the By-Laws, the Board of Directors may, subject to any express
limitations contained in these Articles of Incorporation or in the By-Laws,
exercise the full extent of powers conferred by the General Laws of the
State of Maryland or other applicable law upon corporations or directors
thereof and the enumeration and definition of particular powers herein or
in the By-Laws shall in no way be deemed to restrict or otherwise limit
those lawfully conferred powers. In furtherance and without limitation of
the foregoing, the Board of Directors shall have power:
(a) to make, alter, amend or repeal from time to time the By-
Laws of the Corporation except as otherwise provided by the By-Laws;
(b) subject to requirements of the Investment Company Act of
1940 and the General Laws of the State of Maryland, to authorize the
Corporation to enter into contracts with any person, including any firm,
corporation, trust or association in which a director, officer, employee or
stockholder of the Corporation may be interested. Such contracts may be
for any lawful purpose, whether or not such purpose involves delegating
functions normally performed by the Board of Directors or officers of a
corporation, including, but not limited to, the provision of investment
management for the Corporation's investment portfolio, the distribution of
securities issued by the Corporation, the administration of the
Corporation's affairs, the provision of transfer agent services with
respect to the Corporation's shares of capital stock, and the custody of
the Corporation's assets. Any person (including its affiliates) may be
retained in multiple capacities pursuant to one or more contracts and may
also perform services, including similar or identical services, for others,
including other investment companies. Subject to the requirements of
applicable law, such contracts may provide for compensation to be paid by
the Corporation in such amounts, including payments of multiple amounts for
persons (including their affiliates) acting in multiple capacities, as the
Board of Directors shall determine in its discretion to be proper and
reasonable.
<PAGE>
(c) to authorize from time to time the payment of
compensation to the directors for services to the Corporation, including
fees for attendance at meetings of the Board of Directors and committees
thereof.
6.5 DETERMINATIONS BY BOARD OF DIRECTORS. Any determination made by
or pursuant to the direction of the Board of Directors and in accordance
with the standards set by the General Laws of the State of Maryland shall
be final and conclusive and shall be binding upon the Corporation and upon
all stockholders, past, present and future, of each class and series.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
THE POWERS OF THE CORPORATION AND THE DIRECTORS
AND STOCKHOLDERS
------------------------------------------------
7.1 LOCATION OF MEETINGS, OFFICES AND BOOKS. Both directors and
stockholders may hold meetings within or without the State of Maryland and
abroad, and the Corporation may have one or more offices and may keep its
books within or without the State of Maryland and abroad at such places as
the directors shall determine.
7.2 MEETINGS OF STOCKHOLDERS. Except as otherwise provided in the
By-Laws, in accordance with applicable law, the Corporation shall not be
required to hold an annual meeting of stockholders in any year unless
required by applicable law. Election of directors, whether by the
directors or by stockholders, need not be by ballot unless the By-Laws so
provide.
7.3 INSPECTION OF RECORDS. Stockholders of the Corporation shall
have only such rights to inspect and copy the records, documents, accounts
and books of the Corporation and to request statements regarding its
affairs as are provided by the Maryland General Corporation Law, subject to
such reasonable regulations, not contrary to the General Laws of the State
of Maryland, as the Board of Directors may from time to time adopt
regarding the conditions and limits of such rights.
7.4 INDEMNIFICATION. The Corporation, including its successors and
assigns, shall indemnify its directors and officers and make advance
payment of related expenses to the fullest extent permitted, and in
accordance with the procedures required, by the General Laws of the State
of Maryland and the Investment company Act of 1940. The By-Laws may
provide that the Corporation shall indemnify its employees and/or agents in
<PAGE>
any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which
any director, officer, employee or agent may otherwise be entitled. The
Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or
employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position,
whether or not the Corporation would have had the power to indemnify
against such liability. The rights provided to any person by this Article
7.4 shall be enforceable against the Corporation by such person who shall
be presumed to have relied upon such rights in serving or continuing to
serve in the capacities indicated herein. No amendment of these Articles
of Incorporation shall impair the rights of any person arising at any time
with respect to events occurring prior to such amendment.
7.5 AMENDMENTS. The Corporation reserves the right to amend, alter,
change or repeal any provision of these Articles of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
7.6 REFERENCES TO STATUTES, ARTICLES AND BY-LAWS. All references
herein to statutes, to these Articles of Incorporation or to the By-Laws
shall be deemed to refer to those statutes, Articles or By-Laws as they are
amended and in effect from time to time.
7.7 SPECIFIC POWERS AND PURPOSES. Without limiting the foregoing,
the Corporation shall have the following specific powers:
(a) To hold, invest and reinvest its funds, and in connection
therewith, to hold part or all of its funds in cash, and to purchase,
subscribe for or otherwise acquire, hold for investment or otherwise, to
trade and deal in, write, sell, assign, negotiate, transfer, exchange,
lend, pledge or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall, for the purposes of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any stocks, shares, bonds, debentures, bills, notes,
mortgages or other obligations or evidences of indebtedness, and any
options, certificates, receipts, warrants, futures contracts or other
instruments representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests therein,
or in any property or assets; and any negotiable or non-negotiable
instruments and money market instruments, including bank certificates of
deposit, finance paper, commercial paper, bankers' acceptances and all
kinds of repurchase and reverse repurchase agreements) created or issued by
any United States or foreign issuer (which term "issuer" shall, for the
purpose of these Articles of Incorporation, without limiting the generality
thereof, be deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combinations, organizations,
governments or subdivisions, agencies or instrumentalities of any
government); and to exercise, as owner or holder of any securities, all
rights, powers and privileges in respect thereof, including the right to
vote thereon and otherwise act with respect thereto and to do any and all
acts and things for the preservation, protection, improvement and
enhancement in value of any and all such securities.
(b) To issue and sell shares of its own capital stock in such
amounts and on such terms and conditions, for such purposes and for such
amount or kind of consideration (including, without limitation, securities)
now or hereafter permitted by the laws of the State of Maryland.
<PAGE>
(c) To the extent not inconsistent with applicable law, to
acquire all or any part of the goodwill, rights, property and business of
any person, firm, association or corporation and to hold, utilize, enjoy
and in any manner dispose of the whole or any part of the rights, property
and business so acquired, and to assume in connection therewith any
liabilities of any such person, firm, association or corporation.
(d) To acquire (by purchase, lease or otherwise) and to hold,
use, maintain, develop and dispose of (by sale or otherwise) any property,
real or personal, and any interest therein.
(e) To borrow money and, in this connection, issue notes or
other evidence of indebtedness.
(f) To buy, hold, sell, and otherwise deal in and with
foreign exchange.
(g) To apply for, obtain, purchase or otherwise acquire, any
patents, copyrights, licenses, trademarks, trade names and the like and to
use, exercise, develop, grant licenses in respect of, sell and otherwise
turn to account, the same.
(h) To aid by further investment any issuer, any obligation
of or interest in which is held by the Corporation or in the affairs of
which the Corporation has any direct or indirect interest; to do all,acts
and things designed to protect, preserve, improve or enhance the value of
such obligation or interest; to guarantee or become surety on any or all of
the contracts, stocks, bonds, notes, debentures and other obligations of
any Corporation, company, trust, association or firm.
(i) To purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock in any manner
and to the extent now or hereafter permitted by applicable law and by these
Articles of Incorporation.
(j) To carry out all or any of the foregoing objects and
purposes as principal or agent, and alone or with associates or, to the
extent now or hereafter permitted by the General Laws of the State of
Maryland, as a member of, or as the owner or holder of any security of, or
interest in, any firm, association, corporation, partnership, trust or
syndicate; and in connection therewith to make or enter into such deeds or
contracts with any persons, firms, associations, corporations,
partnerships, syndicates, governments or political subdivisions or agencies
or instrumentalities thereof and to do such acts and things and to exercise
such powers, as a natural person could lawfully make, enter into do or
exercise.
(k) In general to carry on any other business in connection
with or incidental to any of the foregoing objects and purposes; to have
and exercise all the powers conferred upon corporations by the General Laws
of the State of Maryland as in force from time to time; to do everything
necessary, suitable or proper for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power set forth herein,
either alone or in association with others; and to do every other act or
thing incidental or appurtenant to or growing out of or connected with the
aforesaid business or purposes, objects or powers.
<PAGE>
(l) To conduct and carry on its business, or any part
thereof, and to exercise and enjoy, in Maryland and anywhere else in the
world, all of the powers, rights and privileges granted to, or conferred
upon, corporations by the General Laws of the State of Maryland now or
hereafter in force and by the laws of any other such location applicable to
the Corporation, and the enumeration of the foregoing powers shall not be
deemed to exclude any powers, rights or privileges so granted or conferred.
(m) The foregoing objects and purposes shall, except as
otherwise expressly provided, be in no way limited or restricted by
reference to, or inference from, the terms of any other clause of this or
any other Article of these Articles of Incorporation, and shall each be
regarded as independent and construed as a power as well as an object and a
purpose, and the enumeration of specific purposes, objects and powers shall
not be construed to limit or restrict in any manner the meaning of general
terms or the general powers of the Corporation now or hereafter conferred
by the General Laws of the State of Maryland, nor shall the expression of
one thing be deemed to exclude another, though it be of like nature, not
expressed; provided, however, that the Corporation shall not have power to
carry on within the State of Maryland any business whatsoever the carrying
on of which would preclude it from being classified as an ordinary business
corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district
or country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
7.8 MERGER OR CONSOLIDATION. In connection with the acquisition of
all or substantially all the assets or stock of another investment company
or investment trust, the Board of Directors may issue or cause to be issued
shares of capital stock of the Corporation and accept in payment therefor,
in lieu of cash, such assets at their market value, or such stock at the
market value of the assets held by such investment company or investment
trust, either with or without adjustment for contingent costs or
liabilities, provided such assets are of the character in which the
Corporation is permitted to invest.
7.9 LIABILITY OF STOCKHOLDERS. The stockholders of the Corporation
shall not be liable for, and their private property shall not be subject
to, claim, levy or other encumbrance on account of debts or liabilities of
the Corporation, to any extent whatsoever.
7.10 OWNER OF SHARES. The Corporation shall be entitled to treat
the person in whose name any share of the capital stock of the Corporation
is registered as the owner thereof for purposes of dividends and other
distributions in the course of business or in the course of
recapitalization, consolidation, merger, reorganization, liquidation, sale
of the property and assets of the Corporation, or otherwise, and for the
purpose of votes, approvals and consents by stockholders, and for the
purpose of notices to stockholders, and for all other purposes whatever;
and the Corporation shall not be bound to recognize any equitable or other
claim to or interest in such share, on the part of any other person,
whether or not the Corporation shall have notice thereof, save as expressly
required by law.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of Zazove
Convertible Securities Fund, Inc. hereby executes the foregoing Articles of
Incorporation and acknowledges the same to be his act.
Dated this 6th day of November, 1998.
/s/ Harold W. Nations
------------------------------
Harold W. Nations
EXHIBIT 99.2(b)
- ---------------
[BYLAWS]
BY-LAWS
FOR
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
ARTICLE I
OFFICES
-------
Section 1. PRINCIPAL OFFICE. The principal office of the
Corporation in the State of Maryland shall be in the City of Baltimore.
Section 2. OTHER OFFICES. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. ANNUAL MEETING. Subject to this Article II, an annual
meeting of stockholders for the election of Directors and the transaction
of such other business as may properly come before the meeting shall be
held at such time and place as the Board of Directors shall select. The
Corporation shall not be required to hold an annual meeting of its
stockholders in any year in which the election of directors is not required
to be acted upon under the Investment Company Act of 1940.
Section 2. SPECIAL MEETINGS. Special meetings of stockholders may
be called at any time by the President, the Secretary or by a majority of
the Board of Directors and shall be held at such time and place as may be
stated in the notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary
upon receipt of written request of the holders of shares entitled to cast
not less than 25% of the votes entitled to be cast at such meeting,
provided that such request shall state the purposes of such meeting and the
matters proposed to be acted on.
Section 3. PLACE OF MEETINGS. Meetings of stockholders shall be
held at such place within the United States as the Board of Directors may
from time to time determine.
Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the
place, date and time of the holding of each stockholders' meeting and, if
the meeting is a special meeting, the purpose or purposes of the meeting,
shall be given personally or by mail, not less than 10 nor more than 90
days before the date of such meeting, to each stockholder entitled to vote
at such meeting and to each other stockholder entitled to notice of the
meeting. Notice by mail shall be deemed to be duly given when deposited in
the United States mail addressed to the stockholder at his or her address
as it appears on the records of the Corporation, with postage thereon
prepaid.
<PAGE>
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of notice
which is filed with the records of the meeting.
Sections 5. QUORUM, ADJOURNMENT OF MEETINGS. The presence at any
stockholders' meeting, in person or by proxy, of stockholders of one-third
of the shares of the stock of the Corporation thereat shall be necessary
and sufficient to constitute a quorum for the transaction of business. The
holders of a majority of shares entitled to vote at the meeting and present
in person or by proxy, whether or not sufficient to constitute a quorum,
or, any officer present entitled to preside or act as Secretary of such
meeting may adjourn the meeting without determining the date of the new
meeting or from time to time without further notice to a date not more than
120 days after the original record date. Any business that might have been
transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 6. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
or her absence or inability to act, the President, or in the absence or
inability to act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting; provided, however, that if
no such officer is present or able to act, a chairman of the meeting shall
be elected at the meeting. The secretary, or in his or her absence or
inability to act, any person appointed by the chairman of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
Section 7. ORDER OF BUSINESS. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
Section 8. VOTING. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every full share of such stock, with a
fractional vote for any fractional shares, standing in his or her name on
the record of stockholders of the Corporation as of the record date
determined pursuant to Section 9 of this Article or if such record date
shall not have been so fixed, then at the later of: (i) the close of
business on the day on which notice of the meeting is mailed; or (ii) the
30th calendar day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him or her by a proxy signed
by such stockholder or his or her attorney-in-fact. No proxy shall be
valid after the expiration of 11 months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except in those cases where such
proxy states that it is irrevocable and where the proxy is coupled with an
interest in the stock to be voted under the proxy or another general
interest in the Corporation or its assets or liabilities. Except as
otherwise provided by statute, the Articles of Incorporation or these By-
Laws, any corporate action to be taken by vote of the stockholders shall be
authorized by a majority of the total votes validly cast at a meeting of
stockholders at which a quorum is present.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by
statute or these By-Laws, or determined by the chairman of the meeting to
be advisable, such vote need not be by ballot. On a vote by ballot, each
ballot shall be signed by the stockholder voting, or by his or her proxy,
if there be such proxy, and shall state the number of shares voted.
<PAGE>
Section 9. FIXING OF RECORD DATE. The Board of Directors may fix a
time not less than 10 nor more than 90 days prior to the date of any
meeting of stockholders or prior to the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose
without a meeting, as the time as of which stockholders entitled to notice
of and to vote at such a meeting or whose consent or dissent is required or
may be expressed for any purpose, as the case may be, shall be determined;
and all persons who were holders of record of voting stock at such time and
no other shall be entitled to notice of and to vote at such meeting or to
express their consent or dissent, as the case may be. If no record date
has been fixed, the record date for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the
later of the close of business on the day on which notice of the meeting is
mailed or the 30th calendar day before the meeting, or, if notice is waived
by all stockholders, at the close of business on the 10th day next
preceding the day on which the meeting is held. The Board of Directors may
fix a record date for determining stockholders entitled to receive payment
of a dividend or distribution, but such date shall be not more than 90 days
before the date on which such payment is made. If no record date has been
fixed, the record date for determining stockholders entitled to receive
dividends or distributions shall be the close of business on the day on
which the resolution of the Board of Directors declaring the dividend or
distribution is adopted, but the payment shall not be made more than 60
days after the date on which the resolution is adopted.
Section 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which
may be taken at any meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are
filed with the records of stockholders meetings: (i) a unanimous written
consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter; and (ii) a written waiver of any right to
dissent signed by each stockholder entitled to notice of the meeting but
not entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors
and all powers of the Corporation may be exercised by or under authority of
the Board of Directors.
Section 2. NUMBER OF DIRECTORS. The number of directors shall be
fixed from time to time by resolution of the Board of Directors adopted by
a majority of the Directors then in office; provided, however, that the
number of Directors shall in no event be less than 5 nor more than 7 except
that the Corporation may have less than 5 but no less than 1 Director if
there is no stock outstanding, and may have a number of Directors no fewer
than the number of stockholders so long as there are fewer than 3
stockholders. Any vacancy created by an increase in Directors may be
filled in accordance with Section 7 of this Article III. No reduction in
the number of Directors shall have the effect of removing any Director from
office prior to the expiration of his or her term unless such Director is
specifically removed pursuant to Section 6 of this Article III at the time
of such decrease. Directors need not be stockholders.
<PAGE>
Section 3. INDEPENDENCE. In accordance with Regulation Section
270.23c-3(b)(8) of the Investment Company Act of 1940, a majority of the
Directors shall be Independent Directors, as defined in the Investment
Company Act of 1940, and the selection and nomination of those Independent
Directors shall be committed to the discretion of those Independent
Directors.
Section 4. ELECTION AND TERM OF DIRECTORS. Directors, other than
the Independent Directors, shall be elected by a majority of Directors at a
meeting held by the Board of Directors. The term of office of each
Director shall be from the time of his or her election and qualification
until the election of Directors next succeeding him or her and until his or
her successor shall have been elected and shall have qualified.
Section 5. RESIGNATION. A Director of the Corporation may resign at
any time by giving written notice of his or her resignation to the Board or
the chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately
upon its receipt; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 6. REMOVAL OF DIRECTORS. Any Director of the Corporation
may be removed by the affirmative vote of (a) a majority of the Board of
Directors; (b) a committee of the Board of Directors appointed for such
purpose; or (c) the stockholders by vote of a majority of the outstanding
shares of the Corporation.
Section 7. VACANCIES. If any vacancies shall occur in the Board of
Directors: (i) by reason of death, resignation, removal or otherwise, the
remaining Directors shall continue to act and, subject to the provisions of
the Investment Company Act of 1940, such vacancies (if not previously
filled by the stockholders) may be filled by a majority of the remaining
Directors, although less than a quorum; and (ii) by reason of an increase
in the authorized number of Directors, such vacancies (if not previously
filled by the stockholders) may be filled only by a majority vote of the
entire Board of Directors.
Section 8. PLACE OF MEETING. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation outside the
State of Maryland, and within or without the United States of America, at
any office or offices of the Corporation or at any other place as they may
from time to time by resolution determine, or in the case of meetings, as
they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 9. REGULAR MEETINGS. The Board of Directors from time to
time may provide by resolution for the holding of regular meetings and fix
their time and place as the Board of Directors may determine. Notice of
such regular meetings need not be in writing, provided that notice of any
change in the time or place of such fixed regular meetings shall be
communicated promptly to each Director not present at the meeting at which
such change was made in the manner provided in Section 9 of this Article
III for notice of special meetings. Members of the Board of Directors or
any committee designated thereby may participate in a meeting of such Board
or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting, except where meetings are
required to be held in person pursuant to the Investment Company Act of
1940.
Section 10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place and for any purpose when called
by the President, the Secretary or two or more of the Directors. Notice of
<PAGE>
special meetings, stating the time and place, shall be communicated to each
Director personally by telephone or transmitted to him or her by telegraph,
telefax, telex, cable or wireless at least 1 day before the meeting.
Section 11. WAIVER OF NOTICE. No notice of any meeting of the Board
of Directors or a committee of the Board need be given to any Director who
is present at the meeting or who waives notice of such meeting in writing
(which waiver shall be filed with the records of such meeting), either
before or after the time of the meeting.
Section 12. QUORUM AND VOTING. At all meetings of the Board of
Directors, the presence of one-third of the entire Board of Directors shall
constitute a quorum unless there are only 2 or 3 Directors, in which case 2
Directors shall constitute a quorum. If there is only 1 Director, the sole
Director shall constitute a quorum. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 13. ORGANIZATION. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his or
her absence or inability to act, another Director chosen by a majority of
the Directors present, shall act as chairman of the meeting and preside
thereat. The Secretary (or, in his or her absence or inability to act, any
person appointed by the Chairman) shall act as secretary of the meeting and
keep the minutes thereof.
Section 14. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING.
Subject to the provisions of the Investment Company Act of 1940, as
amended, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a
meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of the Board or committee.
Section 15. COMPENSATION. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise
in such manner and in such amounts as may be fixed from time to time by the
Board.
Section 16. ACTION. Pursuant to provisions of the Investment
Company Act of 1940 and Regulations, the Board of Directors shall not act
with respect to the following matters without first obtaining the approval
of stockholders holding a majority of the outstanding shares of the
Corporation:
(i) change the Corporation's subclassification as a "closed-end
company" with the meaning of the Investment Company Act of 1940;
(ii) change the nature of the Corporation's business so as to
cease to be an "investment company" within the meaning of the Investment
Company Act of 1940;
(iii) change the investment objective of the Corporation; and
(iv) any other matters that require such approval in order to
comply with the Investment Company Act of 1940 and the Regulations.
<PAGE>
ARTICLE IV
COMMITTEES
----------
Section 1. ORGANIZATION. By resolution adopted by the Board of
Directors, the Board may designate 1 or more committees, including an
Executive Committee, composed of 2 or more Directors. The Chairmen of such
committees shall be elected by the Board of Directors. The Board of
Directors shall have the power at any time to change the members of such
committees and to fill vacancies in the committees. The Board may delegate
to these committees any of its powers, except the power to authorize the
issuance of stock, declare a dividend or distribution on stock, recommend
to stockholders any action requiring stockholder approval, amend these By-
Laws, or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general
authorization for the issuance of stock, a committee of the Board, in
accordance with a general formula or method specified by the Board by
resolution or by adoption of a stock option or other plan, may fix the
terms of stock subject to classification or reclassification and the terms
on which any stock may be issued,including all terms and conditions
required or permitted to be established or authorized by the Board of
Director.
Section 2. PROCEEDINGS AND QUORUM. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules
and regulations governing its proceedings, quorum and manner of acting as
it shall deem proper and desirable. In the event any member of any
committee is absent from any meeting, the members thereof present at the
meeting, whether or not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such absent member.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
------------------------------
Section 1. GENERAL. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include 1 or more
additional Vice Presidents, Assistant Secretaries or Assistant Treasurers,
and such other officers as may be appointed in accordance with the
provisions of Section 8 of this Article.
Section 2. ELECTION, TENURE AND QUALIFICATIONS. The officers of the
Corporation, except those appointed as provided in Section 8 of this
Article V, shall be elected by the Board of Directors at its first meeting
and thereafter annually at an annual meeting. If any officers are not
chosen at any annual meeting, such officers may be chosen at any subsequent
regular or special meeting of the Board. Except as otherwise provided in
this Article V, each officer chosen by the Board of Directors shall hold
office until the next annual meeting of the Board of Directors and until
his or her successor shall have been elected and qualified. Any person may
hold one or more offices of the Corporation except the offices of President
and Vice President.
Section 3. REMOVAL AND RESIGNATION. Whenever in the judgment of the
Board of Directors the best interest of the Corporation will be served
thereby, any officer may be removed from office by the vote of a majority
of the members of the Board of Directors at any regular meeting or at a
special meeting called for such purpose. Any officer may resign his office
at any time by delivering a written resignation to the Board of Directors,
the President, the Secretary, or any Assistant Secretary. Unless otherwise
specified therein, such resignation shall take effect upon delivery.
<PAGE>
Section 4. PRESIDENT. The President shall be the chief executive
officer of the Corporation. Except as the Board of Directors may otherwise
order, he or she may sign in the name and on behalf of the Corporation all
deeds, bonds, contracts, or agreements. He or she shall exercise such
other powers and perform such other duties as from time to time may be
assigned to him or her by the Board of Directors.
Section 5. VICE PRESIDENT. The Board of Directors may from time to
time elect one or more Vice Presidents who shall have such powers and
perform such duties as from time to time may be assigned to them by the
Board of Directors or the President. At the request or in the absence or
disability of the President, the Vice President (or, if there are two or
more Vice Presidents, then the more senior of such officers present and
able to act) may perform all the duties of the President and, when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. Any Vice President may perform such duties as the
Board of Directors may assign.
Section 6. TREASURER AND ASSISTANT TREASURER. The Treasurer shall
be the principal financial and accounting officer of the Corporation and
shall have general charge of the finances and books of account of the
Corporation. Except as otherwise provided by the Board of Directors, he or
she shall have general supervision of the funds and property of the
Corporation and of the performance by the Custodian of its duties with
respect thereto. He or she shall render to the Board of Directors,
whenever directed by the Board, an account of the financial condition of
the Corporation and of all his or her transactions as Treasurer; and as
soon as possible after the close of each fiscal year he or she shall make
and submit to the Board of Directors a like report for such fiscal year.
He or she shall perform all acts incidental to the Office of Treasurer,
subject to the control of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Board of Directors may assign, and, in the absence of
the Treasurer, the Assistant Treasurer (or if there are 2 or more Assistant
Treasurers, then the more senior of such officers present and able to act)
may perform all of the duties of the Treasurer.
Section 7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend to the giving and serving of all notices of the Corporation and
shall record all proceedings of the meetings of the stockholders and
Directors in books to be kept for that purpose. He or she shall keep in
safe custody the seal of the Corporation, and shall have charge of the
records of the Corporation, including the stock books and such other books
and papers as the Board of Directors may direct and such books, reports,
certificates and other documents required by law to be kept, all of which
shall at all reasonable times be open to inspection by any Director. He or
she shall perform such other duties as appertain to his or her office or as
may be required by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as
the Secretary of the Board of Directors may assign, and, in the absence of
the Secretary, he or she may perform all the duties of the secretary.
Section 8. SUBORDINATE OFFICERS. The Board of Directors from time
to time may appoint such other officers or agents as it may deem advisable,
each of whom shall have such title, hold office for such period, have such
authority and perform such duties as the Board of Directors may determine.
The Board of Directors from time to time may delegate to one or more
officers or agents the power to appoint any such subordinate officers or
agents and to prescribe their rights, terms of office, authorities and
duties.
<PAGE>
Section 9. REMUNERATION. The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by
resolution delegate to any person or group of persons the power to fix the
salaries or other compensation of any subordinate officers or agents
appointed in accordance with the provisions of Section 8 of this Article V.
Section 10. SURETY BONDS. The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
Commission) to the Corporation in such sum and with such surety or sureties
as the Board of Directors may determine, conditioned upon the faithful
performance of his or her duties to the Corporation, including
responsibility for negligence and for the accounting of any of the
corporation's property, funds or securities that may come into his or her
hands.
ARTICLE VI
INDEMNIFICATION
---------------
The corporation shall indemnify: (a) its Directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by: (i) Maryland law now or hereafter in
force, including the advance of expenses under the procedures and to the
full extent permitted by law; and (ii) the Investment Company Act of 1940,
as amended; and (b) other employees and agents to such extent as shall be
authorized by the Board of Directors and be permitted by law, except with
respect to any matter as to which such person shall have been finally
adjudicated in a decision on the merits in any such action, suit, or other
proceeding to be liable to the Corporation or its shareholders by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
duties in the performance of such duties. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take
such action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to time
such resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law.
ARTICLE VII
CAPITAL STOCK
-------------
Section 1. STOCK CERTIFICATE. The interest of each stockholder of
the Corporation may be evidenced by certificates for shares of stock in
such form as the Board of Directors may from time to time prescribe. The
certificates representing shares of stock shall be signed by or in the name
of the Corporation by the President or a Vice President and countersigned
by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer. Certificates may be sealed with the actual corporate seal or a
facsimile of it or in any other form. Any or all of the signatures or the
seal on the certificate may be manual or a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate shall be issued, it may
<PAGE>
be issued by the Corporation with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue
unless written instructions of the Corporation to the contrary are
delivered to such officer, transfer agent or registrar.
Section 2. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of
shares held by them respectively, shall be kept at the principal offices of
the Corporation or, if the Corporation employs a transfer agent, at the
offices of the transfer agent of the Corporation.
Section 3. TRANSFERS OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by
the registered holder thereof, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary
or with a transfer agent or transfer clerk, and on surrender of the
certificate or certificates, if issued, for such shares properly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require and the payment of all
taxes thereon. Except as otherwise provided by law, the Corporation shall
be entitled to recognize the exclusive right of a person in whose name any
share or shares stand on the record of stockholders as the owner of such
share or shares for all purposes including, without limitation, the rights
to receive dividends or other distributions, and to vote as such owner, and
the Corporation shall not be bound to recognize any equitable or legal
claim to or interest in any such share or shares on the part of any other
person. The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of stock of the
Corporation.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may from time to time appoint or remove transfer agents and/or registrars
of transfers of shares of stock of the Corporation, and it may appoint the
same person as both transfer agent and registrar. Upon any such
appointment being made, all certificates representing shares of capital
stock thereafter issued shall be countersigned by one of such transfer
agents or by one of such registrars of transfers or by both and shall not
be valid unless so countersigned. If the same person shall be both
transfer agent and registrar, only one countersignature by such person
shall be required.
Section 5. LOST, DESTROYED OR MUTILATED CERTIFICATE. The holder of
any certificates representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of
stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such
owner or his or her legal representatives to give to the Corporation a bond
in such sum, limited or unlimited, and in such form and with such surety or
sureties as the Board, in its absolute discretion, shall determine to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or
issuance of a new certificate. Anything herein to the contrary
notwithstanding, the Board, in its absolute discretion, may refuse to issue
any such new certificate, except pursuant to legal proceedings under the
laws of the State of Maryland.
Section 6. DIVIDEND REINVESTMENT PLAN. All dividends or capital
gain distributions paid by the Corporation shall automatically be
reinvested in additional shares of the Corporation at the then prevailing
net asset value unless specifically requested in writing to be paid in cash
or cash and stock by a shareholder.
<PAGE>
ARTICLE VIII
SEAL
----
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of
Directors, the name of the Corporation, the year of its incorporation and
the words "Corporate Seal" and "Maryland." The form of the seal may be
altered by the Board of Directors. Said seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any other manner
reproduced. Any Officer or Director of the Corporation shall have the
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE IX
Fiscal Year
-----------
The fiscal year of the Corporation shall be determined by resolution
of the Board of Directors.
ARTICLE X
DEPOSITORIES AND CUSTODIANS
---------------------------
Section 1. DEPOSITORIES. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors
of the Corporation may from time to time determine.
Section 2. CUSTODIANS. All securities and other investments shall
be deposited in the safe keeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine.
Every arrangement entered into with any bank or other company for the safe
keeping of the securities and investments of the Corporation shall contain
provisions complying with the Investment Company Act of 1940, as amended,
and the general rules and regulations thereunder.
ARTICLE XI
EXECUTION OF INSTRUMENTS
------------------------
Section 1. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders obligations for the payment
of money shall be signed by such officer or officers or person or persons
as the Board of Directors by resolution shall from time to time designate
or as these By-Laws provide.
<PAGE>
Section 2. SALE OR TRANSFER OF SECURITIES. Stock certificates,
bonds or other securities at any time owned by the Corporation may be held
on behalf of the Corporation or sold, transferred or otherwise disposed of
subject to any limits imposed by these By-Laws and pursuant to
authorization by the Board and, when so authorized to be held on behalf of
the Corporation or sold, transferred or otherwise disposed of, may be
transferred from the name of the Corporation by the signature of the
President, any Vice President or the Treasurer or pursuant to any procedure
approved by the Board of Directors, subject to applicable law.
ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The Corporation shall employ an independent public accountant or a firm of
independent public accountants as its accountants to examine the accounts
of the Corporation and to sign and certify financial statements filed by
the Corporation.
ARTICLE XIII
AMENDMENTS
----------
These By-Laws or any of them may be amended, altered or repealed at
any regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that
notice of the proposed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be amended, altered
or repealed by the affirmative vote of a majority of the Board of Directors
at any regular or special meeting of the Board of Directors, except any
particular By-Law which is specified as not subject to alteration or repeal
by the Board of Directors, or subject to the requirements of the Investment
Company Act of 1940, as amended.
EXHIBIT 99.2(g)
- ---------------
[INVESTMENT ADVISORY AGREEMENT]
INVESTMENT ADVISORY AGREEMENT
This Agreement is entered into this 1st day of January, 1999 between Zazove
Associates, L.L.C., a Delaware limited liability company (the "Advisor")
and Zazove Convertible Securities Fund, Inc., a Maryland corporation (the
"Fund"):
1. DISCRETIONARY AUTHORITY. Advisor shall have full power to supervise
and direct the investment of the Fund's assets including decisions as to
whether, when and how to buy, sell, exchange, invest, reinvest or retain
the assets of the Fund, making and implementing investment decisions all
without prior consultation with the Fund or its directors, consistent with
the investment policies as set forth in Paragraph 2 and the investment
objectives and fundamental policies of the Fund set forth in the Fund's
Registration Statement on Form N-2 filed with the Securities and Exchange
Commission, as it may be amended from time to time. Advisor shall have
complete discretion as to the nature, amount and timing of all such
transactions.
2. INVESTMENT POLICIES. Advisor shall manage the assets of the Fund
primarily through the creation and maintenance of a portfolio of
convertible securities. Convertible securities consist of convertible
bonds and convertible preferred stocks, but may also include warrants and
similar instruments that may be exchanged at the holder's option into a
predetermined number of the issuer's or another party's shares of common
stock. Advisor is also authorized to invest assets of the Fund in other
financial instruments including common stocks, preferred stocks, bonds,
options, warrants, mutual funds, short-term money market instruments and
similar financial instruments. Securities purchased for the Fund may be
publicly or privately issued by domestic or foreign companies and may be
non-investment grade.
The Fund shall be managed in a manner consistent with the description
of the Fund's investment strategy and policies contained in the Fund's
Private Placement Memorandum and the Fund's Registration Statement on Form
N-2 filed with the Securities and Exchange Commission, as it may be amended
from time to time.
3. CUSTODY.
(a) Except in respect of assets invested in the Partnership, the
assets of the Fund shall be held by the bank, trust company, broker-dealer
or other entity appointed by the Fund as custodian of the Fund (the
"Custodian"). The Fund shall enter into an agreement with Custodian (the
"Custodial Agreement") that provides for Custodian to be responsible at all
times for the physical custody of the assets of the Fund and for the
collection of interest, dividends and other income attributable to the
assets of the Fund.
(b) The Custodial Agreement shall provide, in part, that (i)
Advisor shall have complete authority to direct the investment of the Fund,
(ii) Custodian shall supply reports to the Fund of the activity in the
account at least once each month, and (iii) Custodian shall supply reports
to Advisor of the activity in the Fund on a monthly basis. The Fund shall
instruct Custodian to deliver a copy of the Custodial Agreement to Advisor.
<PAGE>
4. BROKERAGE.
(a) Advisor may place orders for the execution of transactions with
or through such brokers, dealers, or banks (referred to collectively as
"Brokers") as Advisor may select. In selecting Brokers to execute
transactions on behalf of the Fund, Advisor will seek the best overall
terms available. In assessing the best overall terms available for any
transaction, Advisor may consider such factors as it deems relevant,
including, the breadth of the market in the security, the price of the
security, the reliability, financial condition and execution capability of
the Broker, research services, reasonableness of the commission and other
factors.
(b) The Fund understands that Advisor may execute brokerage
transactions for the Fund through Brokers who also provide Advisor with
"research services," as defined in section 28(e)(3) of the Securities
Exchange Act of 1934. The Fund understands that the commission paid to
such Brokers could, in certain cases, be in excess of the amount of
commission another Broker would charge for the same transaction. Before
effecting any such transaction, Advisor will determine in good faith that
the amount of such commission is reasonable in relation to the value of the
brokerage and research services provided by such Broker, viewed in terms of
either that particular transaction or Advisor's overall responsibilities to
all of its clients. The research services may include, among other things,
research reports on companies, industries or securities; economic and
financial data; financial publications; research oriented computer
hardware, software and services; and quotation terminals and related
services. Research furnished by Brokers may benefit all or only some of
the Advisor's clients, including the Fund, and could be used in connection
with accounts other than those that generated the commission to the Brokers
providing the services. Advisor's ability to obtain such research services
is an integral factor in the establishment of Advisor's fees hereunder.
(c) The Fund understands that Advisor engages in the practice of
placing aggregate orders for the purchase or sale of securities on behalf
of its clients, which could include the Fund. In all cases in which an
aggregate order to purchase or sell securities is placed by Advisor, each
account that participates in the aggregated order will participate at the
average price and all transactions costs will be shared on a pro-rata
basis. Advisor will act in good faith in the allocation of aggregated
orders such that no account (including the Fund's account) is favored over
any other account.
5. VOTING OF PORTFOLIO SECURITIES. Decisions on voting of proxies will
be made by Advisor. the Fund indemnifies and holds harmless Advisor and
its members, officers and employees against any and all claims relating to
the decision of Advisor on the voting of proxies, including the decision to
refrain from voting.
6. DIVIDENDS AND EARNINGS. Unless otherwise specified in writing by the
Fund, all dividends, interest and proceeds of sales with respect to Fund
assets will remain in the Fund for reinvestment.
7. CONFIDENTIAL RELATIONSHIP. All information and advice furnished by
either party to the other shall be treated as confidential and shall not be
disclosed to third parties except as otherwise agreed or as required by
law.
<PAGE>
8. NON-EXCLUSIVE CONTRACT/CONFLICT OF INTEREST. Advisor acts as Advisor
to other clients and may give advice, and take action, with respect to any
of those which may differ from the advice given, or the timing or nature of
action taken, with respect to the Fund. Advisor shall have no obligation
to purchase or sell for the Fund, or to recommend for purchase or sale by
the Fund, any security which Advisor, its members, affiliates or employees
may purchase or sell for themselves or for any other clients. The Fund
recognizes that transactions in a specific security may not be accomplished
for all of Advisor's client accounts at the same time or at the same price.
9. EXCULPATION. Except as otherwise required by applicable law, Advisor
and its officers, members, agents and employees shall not be liable for any
action or inaction taken or omitted to be taken, or for any errors of
judgment, in managing the assets of the Fund; provided, however, that such
action or inaction was taken or omitted to be taken in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests
of the Fund and did not constitute gross negligence, willful misconduct or
material breach of this Agreement or any fiduciary obligation to the Fund.
Advisor and its officers, members, agents and employees shall not be liable
for any action or inaction taken or omitted to be taken by Custodian or any
Broker or other third party. Notwithstanding the foregoing, the Federal
securities laws impose liabilities under certain circumstances on persons
who act in good faith, and, therefore, nothing herein shall in any way
constitute a waiver or limitation of any rights which the Fund may have
under any Federal securities laws.
10. INDEMNIFICATION. The Fund shall indemnify and hold harmless the
Advisor, its affiliates, and the partners, shareholders, members, officers,
directors, agents and employees of any of them from and against any loss,
expense, damage or injury suffered or sustained by any of them by reason of
any acts, omissions or alleged acts or omissions arising out of any of
their activities on behalf of the Fund, in furtherance of the interests of
the Fund, or in connection with the issuance and sale of interest in the
Fund, including but not limited to any judgment, award, settlement,
reasonable attorney's fees and other costs or expenses incurred in
connection with the investigation, defense or settlement of any actual or
threatened action, proceeding or claim; provided, that such acts, omissions
or alleged acts or omissions upon which such actual or threatened action,
proceeding or claim is based were done in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Fund and did not constitute gross negligence, willful misconduct or
material breach of this Agreement or any fiduciary obligation to the Fund.
The termination of any action, proceeding or claim by settlement shall not,
in itself, create a presumption that the conduct in question was not
undertaken in good faith and in a manner reasonably believed to be in, or
not opposed to, the best interests of the Fund. Any such indemnification,
however, shall only be from the assets of the Fund.
The foregoing agreement of indemnity shall be in addition to, and
shall in no respect limit or restrict, any other remedies which may be
available to an indemnified party. This foregoing indemnity provision
shall not increase the liability of any shareholder of the Fund beyond the
amount of such shareholder's capital and profits (exclusive of
distributions or other returns of capital, including redemptions).
11. AGREEMENT NOT ASSIGNABLE. No assignment (as that term is defined in
the Investment Advisers Act of 1940, as amended) of this Agreement may be
made by Advisor without the prior written consent of the Fund.
12. TERMINATION. This Agreement may be terminated at any time by either
the Fund or Advisor upon not less than sixty days prior written notice to
the other party. Fees will be prorated to the date of
<PAGE>
termination and any unearned portion of prepaid fees will be refunded
to the Fund without penalty.
13. REPRESENTATIONS.
(a) Advisor represents that it is registered as an investment
advisor under the Investment Advisers Act of 1940, as amended, and that
such registration is currently effective.
(b) The Fund understands and acknowledges that (i) engaging Advisor
to manage the Fund is appropriate for sophisticated investors who can
accept fluctuations in principal value, (ii) all investment in securities
involve a risk of loss of capital and no guaranty or representation can be
made by Advisor that the Fund will generate profits or that the Fund will
not incur loss of invested capital, and (iii) Advisor does not make any
guaranties regarding the future performance or success of the Fund.
(c) The Fund represents that entering into this Agreement,
including the granting of the right to make decisions with respect to the
voting of proxies, is (i) authorized by, has been accomplished in
accordance with, and does not violate, any documents governing the Fund and
(ii) not in violation of any law, rule, regulation, order, writ, judgment,
injunction or other decree applicable to the Fund.
14. MANAGEMENT FEES.
(a) MONTHLY MANAGEMENT FEE. In consideration for services provided
hereunder, the Fund shall pay Advisor a monthly fee in an amount equal to
the sum of:
(i) one-twelfth (1/12th) of two percent (2%) of the first
twenty (20) million dollars of Fund capital as of the opening of business
on the first business day of each month,
(ii) one-twelfth (1/12th) of one and one half percent (1-1/2%)
of the next fifty (50) million dollars of Fund capital as of the opening of
business on the first business day of each month, and
(iii) one-twelfth (1/12th) of one percent (1%) of Fund capital
in excess of seventy (70) million dollars as of the opening of business on
the first business day of each month.
The management fee shall become due and payable after the first
day of each month. The Advisor is authorized to request the payment of
management fees directly from the custodian, provided, that a copy of the
monthly invoice is also delivered to the Fund. The management fee will be
prorated in the event the Fund commences or terminates trading other than
at the beginning of a month.
15. EXPENSES. All expenses of any sort or kind relating to the Fund,
including, but not limited to, brokerage and custody fees, and other costs
of safekeeping, transport and acquisition and disposition of securities
shall be incurred by the Fund.
16. DISCLOSURE STATEMENT. The Fund acknowledges that it has received a
copy of the Advisor's Disclosure Statement that is on file with the
Securities and Exchange Commission (Part II of Form ADV). Notwithstanding
anything to the contrary in this Agreement, the Fund
<PAGE>
shall have the option to terminate this Agreement within five
business days after the date of execution of this Agreement; provided,
however, that any investment action taken by Advisor with respect to the
Fund prior to the effective date of such termination shall be at the Fund's
risk. In the event that the Fund terminates the Agreement pursuant to this
Section 17, the termination shall be effective immediately and any all
prepaid management fees shall be refunded in full.
17. INDEPENDENT CONTRACTOR. For all purposes of this Agreement, the
Advisor shall be an independent contractor and not an employee or
independent agent of the Fund; nor shall anything herein be construed as
making the Fund a partner or co-venturer with the Advisor or any of its
other clients. Except as provided in this Agreement, the Advisor shall
not have any authority to bind, obligate or represent the Fund. The Fund
shall at all times retain possession of, and all rights, title and interest
in the Account, securities and all monies generated by the trading of the
Account.
18. NOTICES.
Any communications or notices provided for in this Agreement shall be
sent to the Advisor and to the Fund in writing to the following address, or
to such other addresses as the parties may direct by written notice
hereunder.
If to the Advisor:
Zazove Associates, L.L.C.
4801 W. Peterson Ave., Suite 615
Chicago, Illinois 60646
Facsimile No.: (773) 283-7920
If to the Fund:
Zazove Convertible Securities Fund, Inc.
4801 W. Peterson Ave., Suite 615
Chicago, Illinois 60646
Facsimile No.: (773) 283-7920
All communications or notices sent to the addresses or
telecommunication numbers provided above (or as otherwise directed by the
parties by notice hereunder) shall be deemed to have been duly given upon
receipt.
19. MISCELLANEOUS.
(a) This Agreement may be modified, amended, or supplemented only
by a written instrument signed by the parties to be bound or affected by
such amendment.
(b) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Illinois.
(c) Headings and captions contained herein are for convenience only
and shall not control or affect the meaning or construction of any
provision hereof.
(d) This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, oral or written, among the parties
hereto with respect to the subject matter hereof.
<PAGE>
(e) If any provision of this Agreement, or the application of such
provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to
persons or circumstances other than those to which it is held invalid,
shall not be affected thereby.
* * * * * * * * *
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
By: /s/ Steven M. Kleiman
------------------------------
Name: Steven M. Kleiman
Title: Director
ZAZOVE ASSOCIATES, L.L.C.
By: /s/ Steven M. Kleiman
------------------------------
Name: Steven M. Kleiman
Title: Chief Operating Officer
EXHIBIT 99.2(j)
- ---------------
[CUSTODY AGREEMENT]
CUSTODY AGREEMENT
Dated January 1, 1999
Between
UMB BANK, N.A.
and
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 2
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 4
(f) Sales of Assets 5
(g) Options 5
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 6
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 6
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 7
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 8
(p) Routine Dealings 8
(q) Collections 8
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 9
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 9
(v) Books and Records 9
(w) Opinion of Fund's Independent Certified Public Accountants10
(x) Reports by Independent Certified Public Accountants 10
(y) Bills and Others Disbursements 10
5. Subcustodians 10
(a) Domestic Subcustodians 10
(b) Foreign Subcustodians 10
(c) Interim Subcustodians 11
(d) Special Subcustodians 11
(e) Termination of a Subcustodian 11
(f) Certification Regarding Foreign Subcustodians 11
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Armed Conflict, Sovereign
Risk, etc. 12
<PAGE>
(c) Liability for Past Records 12
(d) Advice of Counsel 12
(e) Advice of the Fund and Others 12
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 13
(a) Domestic Subcustodians 13
(b) Liability for Acts and Omissions of
Foreign Subcustodians 13
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and
Clearing Agencies 13
(d) Defaults or Insolvency's of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 14
9. Advances 14
10. Liens 15
11. Compensation 15
12. Powers of Attorney 15
13. Termination and Assignment 15
14. Additional Funds 15
15. Notices 16
16. Miscellaneous 16
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 1st day of January, 1999, between UMB
Bank, n.a., a national banking association with its principal place of
business located in Kansas City, Missouri (hereinafter "Custodian"), and
each of the Funds listed on Appendix B hereof, together with such
additional Funds which shall be made parties to this Agreement by the
execution of Appendix B hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as a management investment company
under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for
the custody of Assets (as hereinafter defined) owned by such Fund which
Assets are to be held in such accounts as such Fund may establish from time
to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian
of Assets belonging to each such Fund which have been or may be from time
to time deposited with the Custodian. Custodian accepts such appointment
as a custodian and agrees to perform the duties and responsibilities of
Custodian as set forth herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills,
rights, script, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other instruments or
obligations.
(b) "Assets" shall mean Securities, monies and other property held
by the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested
telex, a written (including, without limitation, facsimile transmission)
request, direction, instruction or certification signed or initialed by or
on behalf of a Fund by an Authorized Person; (ii) a telephonic or other
oral communication from a person the Custodian reasonably believes to be an
Authorized Person; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) on behalf of a Fund. Instructions in the form of
oral communications shall be confirmed by the appropriate Fund by tested
telex or in writing in the manner set forth in clause (i) above, but the
lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral Instructions prior to the Custodian's
receipt of such confirmation. Each Fund authorizes the Custodian to record
any and all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean
Instructions signed or confirmed in writing by the Treasurer or any
Assistant Treasurer of a Fund or any other person designated by the
Treasurer of such Fund in writing.
<PAGE>
(c)(3) Instructions and Special Instructions shall be delivered to
the Custodian at the address and/or telephone, facsimile transmission or
telex number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions
shall be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution
does not violate any of the provisions of its respective charter, articles
of incorporation, articles of association or bylaws and all required
corporate action to authorize the execution and delivery of this Agreement
has been taken.
Each Fund has furnished the Custodian with copies, properly certified
or authenticated, with all amendments or supplements thereto, of the
following documents:
(a) Certificate of Incorporation (or equivalent document) of the
Fund as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) With regard to a Fund the outstanding shares of which are
registered under the Securities Act of 1933, the Fund's current prospectus
and statements of additional information, and with regard to a Fund the
outstanding shares of which are not registered under the Securities Act of
1933, the Fund's current Private Placement Memorandum.
Each Fund shall promptly furnish the Custodian with copies of any
updates, amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or
Trustees and all amendments or supplements thereto, properly certified or
authenticated, designating certain officers or employees of each such Fund
who will have continuing authority to certify to the Custodian: (a) the
names, titles, signatures and scope of authority of all persons authorized
to give Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of each Fund, and (b) the names, titles
and signatures of those persons authorized to countersign or confirm
Special Instructions on behalf of each Fund (in both cases collectively,
the "Authorized Persons" and individually, an "Authorized Person"). Such
Resolutions and certificates may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth therein and shall
be considered to be in full force and effect until delivery to the
Custodian of a similar Resolution or certificate to the contrary. Upon
delivery of a certificate which deletes or does not include the name(s) of
a person previously authorized to give Instructions or to countersign or
confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or
confirm Special Instructions. Unless the certificate specifically requires
that the approval of anyone else will first have been obtained, the
Custodian will be under no obligation to inquire into the right of the
person giving such Instructions or Special Instructions to do so.
Notwithstanding any of the foregoing, no Instructions or Special
Instructions received by the Custodian from a Fund will be deemed to
authorize or permit any director, trustee, officer, employee, or agent of
such Fund to withdraw any of the Assets of such Fund upon the mere receipt
of such authorization, Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to
<PAGE>
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4. For
purposes of this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian appointed
pursuant to Section 5(a).
(a) SAFEKEEPING.
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be responsible
for any property of a Fund held or received by such Fund and not delivered
to the Custodian.
(b) MANNER OF HOLDING SECURITIES.
(1) The Custodian shall at all times hold Securities of each
Fund either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or
(ii) in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities
which have been delivered to it in physical form, by registering the same
in the name of the appropriate Fund or its nominee, or in the name of the
Custodian or its nominee, for whose actions such Fund and Custodian,
respectively, shall be fully responsible. Upon the receipt of
Instructions, the Custodian shall hold such Securities in street
certificate form, so called, with or without any indication of fiduciary
capacity. However, unless it receives Instructions to the contrary, the
Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an
account of the Custodian containing only assets of the appropriate Fund or
only assets held by the Custodian as a fiduciary, provided that the records
of the Custodian shall indicate at all times the Fund or other customer for
which such Securities are held in such accounts and the respective
interests therein.
(3) The Custodian may deposit and/or maintain domestic
Securities owned by a Fund in, and each Fund hereby approves use of: (a)
The Depository Trust Company; (b) The Participants Trust Company; and (c)
any book-entry system as provided in (i) Subpart O of Treasury Circular No.
300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series
No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal
agencies substantially in the form of 31 CFR 306.115. Upon the receipt of
Special Instructions, the Custodian may deposit and/or maintain domestic
Securities owned by a Fund in any other domestic clearing agency registered
with the Securities and Exchange Commission ("SEC") under Section 17A of
the Securities Exchange Act of 1934 (or as may otherwise be authorized by
the SEC to serve in the capacity of depository or clearing agent for the
Securities or other assets of investment companies) which acts as a
Securities depository. Each of the foregoing shall be referred to in this
Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be
in accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or
through one or more agents or Subcustodians which are also qualified to act
as custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the
Securities in a Securities System, provided that such Securities are
represented in an account ("Account") of the Custodian in the Securities
System that includes only assets held by the Custodian as a fiduciary,
custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at
all times identify those Securities belonging to any one or more Funds
which are maintained in a Securities System.
<PAGE>
(iv) The Custodian shall pay for Securities purchased
for the account of a Fund only upon (a) receipt of advice from the
Securities System that such Securities have been transferred to the Account
of the Custodian in accordance with the rules of the Securities System, and
(b) the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of such Fund. The Custodian shall
transfer Securities sold for the account of a Fund only upon (a) receipt of
advice from the Securities System that payment for such Securities has been
transferred to the Account of the Custodian in accordance with the rules of
the Securities System, and (b) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of such
Fund. Copies of all advices from the Securities System relating to
transfers of Securities for the account of a Fund shall be maintained for
such Fund by the Custodian. The Custodian shall deliver to a Fund, on the
next succeeding business day, daily transaction reports that shall include
each day's transactions in the Securities System for the account of such
Fund. Such transaction reports shall be delivered to such Fund or any
agent designated by such Fund pursuant to Instructions, by computer or in
such other manner as such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant
to Instructions, provide such Fund with reports obtained by the Custodian
or any Subcustodian with respect to a Securities System's accounting
system, internal accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian
shall terminate the use of any Securities System on behalf of a Fund as
promptly as practicable and shall take all actions reasonably practicable
to safeguard the Securities of such Fund maintained with such Securities
System.
(c) FREE DELIVERY OF ASSETS.
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions
and to transfer such Assets to such broker, dealer, Subcustodian, bank,
agent, Securities System or otherwise as specified in such Special
Instructions.
(d) EXCHANGE OF SECURITIES.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in
connection with any reorganization, recapitalization, merger,
consolidation, or conversion of convertible Securities, and will deposit
any such Securities in accordance with the terms of any reorganization or
protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form,
to surrender Securities for transfer into a name or nominee name as
permitted in Section 4(b)(2), to effect an exchange of shares in a stock
split or when the par value of the stock is changed, to sell any fractional
shares, and, upon receiving payment therefor, to surrender bonds or other
Securities held by it at maturity or call.
(e) PURCHASES OF ASSETS.
(1) SECURITIES PURCHASES. In accordance with Instructions,
the Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase
was made, but only insofar as monies are available therein for such
purpose, and receive the portfolio Securities so purchased. Unless the
Custodian has received Special Instructions to the contrary, such payment
will be made only upon receipt of Securities by the Custodian, a clearing
corporation of a national Securities exchange of which the Custodian is a
<PAGE>
member, or a Securities System in accordance with the provisions of Section
4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of
Instructions: (i) in connection with a repurchase agreement, the Custodian
may release funds to a Securities System prior to the receipt of advice
from the Securities System that the Securities underlying such repurchase
agreement have been transferred by book-entry into the Account maintained
with such Securities System by the Custodian, provided that the Custodian's
instructions to the Securities System require that the Securities System
may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest
Bearing Deposits, currency deposits, and other deposits, foreign exchange
transactions, futures contracts or options, pursuant to Sections 4(g),
4(h), 4(l), and 4(m) hereof, the Custodian may make payment therefor before
receipt of an advice of transaction; and (iii) in the case of Securities as
to which payment for the Security and receipt of the instrument evidencing
the Security are under generally accepted trade practice or the terms of
the instrument representing the Security expected to take place in
different locations or through separate parties, such as commercial paper
which is indexed to foreign currency exchange rates, derivatives and
similar Securities, the Custodian may make payment for such Securities
prior to delivery thereof in accordance with such generally accepted trade
practice or the terms of the instrument representing such Security.
(2) OTHER ASSETS PURCHASED. Upon receipt of Instructions and
except as otherwise provided herein, the Custodian shall pay for and
receive other Assets for the account of a Fund as provided in Instructions.
(f) SALES OF ASSETS.
(1) SECURITIES SOLD. In accordance with Instructions, the
Custodian will, with respect to a sale, deliver or cause to be delivered
the Securities thus designated as sold to the broker or other person
specified in the Instructions relating to such sale. Unless the Custodian
has received Special Instructions to the contrary, such delivery shall be
made only upon receipt of payment therefor in the form of: (a) cash,
certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national Securities exchange of which the Custodian is a member; or (c)
credit to the Account of the Custodian with a Securities System, in
accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding
the foregoing, Securities held in physical form may be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such Securities,
provided that the Custodian shall have taken reasonable steps to ensure
prompt collection of the payment for, or return of, such Securities by the
broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to
perform of such broker or its clearing agent or for any related loss
arising from delivery or custody of such Securities prior to receiving
payment therefor.
(2) OTHER ASSETS SOLD. Upon receipt of Instructions and except
as otherwise provided herein, the Custodian shall receive payment for and
deliver other Assets for the account of a Fund as provided in Instructions.
(g) OPTIONS.
(1) Upon receipt of Instructions relating to the purchase of
an option or sale of a covered call option, the Custodian shall: (a)
receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of the option by a Fund; (b) if the transaction
involves the sale of a covered call option, deposit and maintain in a
segregated account the Securities (either physically or by book-entry in a
Securities System) subject to the covered call option written on behalf of
such Fund; and (c) pay, release and/or transfer such Securities, cash or
<PAGE>
other Assets in accordance with any notices or other communications
evidencing the expiration, termination or exercise of such options which
are furnished to the Custodian by the Options Clearing Corporation (the
"OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a
naked option (including stock index and commodity options), the Custodian,
the appropriate Fund and the broker-dealer shall enter into an agreement to
comply with the rules of the OCC or of any registered national securities
exchange or similar organizations(s). Pursuant to that agreement and such
Fund's Instructions, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the writing of the
option; (b) deposit and maintain in a segregated account, Securities
(either physically or by book-entry in a Securities System), cash and/or
other Assets; and (c) pay, release and/or transfer such Securities, cash or
other Assets in accordance with any such agreement and with any notices or
other communications evidencing the expiration, termination or exercise of
such option which are furnished to the Custodian by the OCC, the securities
or options exchanges on which such options were traded, or such other
organization as may be responsible for handling such option transactions.
The appropriate Fund and the broker-dealer shall be responsible for
determining the quality and quantity of assets held in any segregated
account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) FUTURES CONTRACTS.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin procedural agreement among the appropriate Fund, the
Custodian and the designated futures commission merchant (a "Procedural
Agreement"). Under the Procedural Agreement the Custodian shall: (a)
receive and retain confirmations, if any, evidencing the purchase or sale
of a futures contract or an option on a futures contract by such Fund; (b)
deposit and maintain in a segregated account cash, Securities and/or other
Assets designated as initial, maintenance or variation "margin" deposits
intended to secure such Fund's performance of its obligations under any
futures contracts purchased or sold, or any options on futures contracts
written by such Fund, in accordance with the provisions of any Procedural
Agreement designed to comply with the provisions of the Commodity Futures
Trading Commission and/or any commodity exchange or contract market (such
as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets
into such margin accounts only in accordance with any such Procedural
Agreements. The appropriate Fund and such futures commission merchant
shall be responsible for determining the type and amount of Assets held in
the segregated account or paid to the broker-dealer in compliance with
applicable margin maintenance requirements and the performance of any
futures contract or option on a futures contract in accordance with its
terms.
(i) SEGREGATED ACCOUNTS.
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf of
a Fund, into which account or accounts may be transferred Assets of such
Fund, including Securities maintained by the Custodian in a Securities
System pursuant to Paragraph (b)(3) of this Section 4, said account or
accounts to be maintained (i) for the purposes set forth in Sections 4(g),
4(h) and 4(n) and (ii) for the purpose of compliance by such Fund with the
procedures required by the SEC Investment Company Act Release Number 10666
or any subsequent release or releases relating to the maintenance of
segregated accounts by registered investment companies, or (iii) for such
other purposes as may be set forth, from time to time, in Special
Instructions. The Custodian shall not be responsible for the determination
of the type or amount of Assets to be held in any segregated account
referred to in this paragraph, or for compliance by the Fund with required
procedures noted in (ii) above.
<PAGE>
(j) DEPOSITARY RECEIPTS.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered Securities to the depositary used for such Securities by
an issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter referred to, collectively, as "ADRs"), against a
written receipt therefor adequately describing such Securities and written
evidence satisfactory to the organization surrendering the same that the
depositary has acknowledged receipt of instructions to issue ADRs with
respect to such Securities in the name of the Custodian or a nominee of the
Custodian, for delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered ADRs to the issuer thereof, against a written receipt
therefor adequately describing the ADRs surrendered and written evidence
satisfactory to the organization surrendering the same that the issuer of
the ADRs has acknowledged receipt of instructions to cause its depository
to deliver the Securities underlying such ADRs in accordance with such
instructions.
(k) CORPORATE ACTIONS, PUT BONDS, CALLED BONDS, ETC.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar Securities to the issuer or
trustee thereof (or to the agent of such issuer or trustee) for the purpose
of exercise or sale, provided that the new Securities, cash or other
Assets, if any, acquired as a result of such actions are to be delivered to
the Custodian; and (b) deposit Securities upon invitations for tenders
thereof, provided that the consideration for such Securities is to be paid
or delivered to the Custodian, or the tendered Securities are to be
returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of
security ownership, and shall notify the appropriate Fund of such action in
writing by facsimile transmission or in such other manner as such Fund and
Custodian may agree in writing.
The Fund agrees that if it gives an Instruction for the performance
of an act after the deadline prescribed by the Custodian for the
performance of such act, the Custodian shall use its best efforts to
perform such act, but the Fund shall hold the Custodian harmless from any
adverse consequences in connection with any failure to effect such
Instruction. The Custodian agrees to establish reasonable deadlines by
which Instructions must be given.
(l) INTEREST BEARING DEPOSITS.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of a Fund,
the Custodian shall purchase such Interest Bearing Deposits in the name of
such Fund with such banks or trust companies, including the Custodian, any
Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter
referred to as "Banking Institutions"), and in such amounts as such Fund
may direct pursuant to Instructions. Such Interest Bearing Deposits may be
denominated in U.S. dollars or other currencies, as such Fund may determine
and direct pursuant to Instructions. The responsibilities of the Custodian
to a Fund for Interest Bearing Deposits issued by the Custodian shall be
that of a U.S. bank for a similar deposit. With respect to Interest
Bearing Deposits other than those issued by the Custodian, (a) the
Custodian shall be responsible for the collection of income and the
transmission of cash to and from such accounts; and (b) the Custodian shall
have no duty with respect to the selection of the Banking Institution or
for the failure of such Banking Institution to pay upon demand.
<PAGE>
(m) FOREIGN EXCHANGE TRANSACTIONS.
(l) Each Fund hereby appoints the Custodian as its agent in
the execution of all currency exchange transactions. The Custodian agrees
to provide exchange rate and U.S. Dollar information, in writing, to the
Funds. Such information shall be supplied by the Custodian at least by the
business day prior to the value date of the foreign exchange transaction,
provided that the Custodian receives the request for such information at
least two business days prior to the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle
foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf of and for the account of
a Fund with such currency brokers or Banking Institutions as such Fund may
determine and direct pursuant to Instructions. If, in its Instructions, a
Fund does not direct the Custodian to utilize a particular currency broker
or Banking Institution, the Custodian is authorized to select such currency
broker or Banking Institution as it deems appropriate to execute the Fund's
foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third
party foreign exchange brokers and for execution of said foreign exchange
contracts and understands that the Fund shall be responsible for any and
all costs and interest charges which may be incurred as a result of the
failure or delay of its third party broker to deliver foreign exchange.
The Custodian shall have no responsibility or liability with respect to the
selection of the currency brokers or Banking Institutions with which a Fund
deals or the performance of such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein,
upon receipt of Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form
of U.S. Dollars or foreign currency prior to receipt of confirmation of
such foreign exchange contract or confirmation that the countervalue
currency completing such contract has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made
available to a Fund its services as a principal in foreign exchange
transactions and subject to any separate agreement between the parties
relating to such transactions, the Custodian shall enter into foreign
exchange contracts or options to purchase and sell foreign currencies for
spot and future delivery on behalf of and for the account of the Fund, with
the Custodian as principal.
(n) PLEDGES OR LOANS OF SECURITIES.
(1) Upon receipt of Instructions from a Fund, the Custodian
will release or cause to be released Securities held in custody to the
pledgees designated in such Instructions by way of pledge or hypothecation
to secure loans incurred by such Fund with various lenders including but
not limited to UMB Bank, n.a.; provided, however, that the Securities shall
be released only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is required to secure
existing borrowings, further Securities may be released or delivered, or
caused to be released or delivered for that purpose upon receipt of
Instructions. Upon receipt of Instructions, the Custodian will pay, but
only from funds available for such purpose, any such loan upon re-delivery
to it of the Securities pledged or hypothecated therefor and upon surrender
of the note or notes evidencing such loan. In lieu of delivering
collateral to a pledgee, the Custodian, on the receipt of Instructions,
shall transfer the pledged Securities to a segregated account for the
benefit of the pledgee.
<PAGE>
(2) Upon receipt of Special Instructions, and execution of a
separate Securities Lending Agreement, the Custodian will release
Securities held in custody to the borrower designated in such Instructions
and may, except as otherwise provided below, deliver such Securities prior
to the receipt of collateral, if any, for such borrowing, provided that, in
case of loans of Securities held by a Securities System that are secured by
cash collateral, the Custodian's instructions to the Securities System
shall require that the Securities System deliver the Securities of the
appropriate Fund to the borrower thereof only upon receipt of the
collateral for such borrowing. The Custodian shall have no responsibility
or liability for any loss arising from the delivery of Securities prior to
the receipt of collateral. Upon receipt of Instructions and the loaned
Securities, the Custodian will release the collateral to the borrower.
(o) STOCK DIVIDENDS, RIGHTS, ETC.
The Custodian shall receive and collect all stock dividends, rights,
and other items of like nature and, upon receipt of Instructions, take
action with respect to the same as directed in such Instructions.
(p) ROUTINE DEALINGS.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with
Securities or other property of each Fund except as may be otherwise
provided in this Agreement or directed from time to time by Instructions
from any particular Fund. The Custodian may also make payments to itself
or others from the Assets for disbursements and out-of-pocket expenses
incidental to handling Securities or other similar items relating to its
duties under this Agreement, provided that all such payments shall be
accounted for to the appropriate Fund.
(q) COLLECTIONS.
The Custodian shall (a) collect amounts due and payable to each Fund
with respect to portfolio Securities and other Assets; (b) promptly credit
to the account of each Fund all income and other payments relating to
portfolio Securities and other Assets held by the Custodian hereunder upon
Custodian's receipt of such income or payments or as otherwise agreed in
writing by the Custodian and any particular Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d)
promptly execute ownership and other certificates and affidavits for all
federal, state, local and foreign tax purposes in connection with receipt
of income or other payments with respect to portfolio Securities and other
Assets, or in connection with the transfer of such Securities or other
Assets; provided, however, that with respect to portfolio Securities
registered in so-called street name, or physical Securities with variable
interest rates, the Custodian shall use its best efforts to collect amounts
due and payable to any such Fund. The Custodian shall notify a Fund in
writing by facsimile transmission or in such other manner as such Fund and
Custodian may agree in writing if any amount payable with respect to
portfolio Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of amounts
due and payable with respect to portfolio Securities or other Assets that
are in default.
(r) BANK ACCOUNTS.
Upon Instructions, the Custodian shall open and operate a bank
account or accounts on the books of the Custodian; provided that such bank
account(s) shall be in the name of the Custodian or a nominee thereof, for
the account of one or more Funds, and shall be subject only to draft or
order of the Custodian. The responsibilities of the Custodian to any one
or more such Funds for deposits accepted on the Custodian's books shall be
that of a U.S. bank for a similar deposit.
<PAGE>
(s) DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or
Securities insofar as available. In the case of cash, the Custodian shall,
upon the receipt of Instructions, transfer such funds by check or wire
transfer to any account at any bank or trust company designated by each
such Fund in such Instructions. In the case of Securities, the Custodian
shall, upon the receipt of Special Instructions, make such transfer to any
entity or account designated by each such Fund in such Special
Instructions.
(t) PROCEEDS FROM SHARES SOLD.
The Custodian shall receive funds representing cash payments received
for shares issued or sold from time to time by each Fund, and shall credit
such funds to the account of the appropriate Fund. The Custodian shall
notify the appropriate Fund of Custodian's receipt of cash in payment for
shares issued by such Fund by facsimile transmission or in such other
manner as such Fund and the Custodian shall agree. Upon receipt of
Instructions, the Custodian shall: (a) deliver all federal funds received
by the Custodian in payment for shares as may be set forth in such
Instructions and at a time agreed upon between the Custodian and such Fund;
and (b) make federal funds available to a Fund as of specified times agreed
upon from time to time by such Fund and the Custodian, in the amount of
checks received in payment for shares which are deposited to the accounts
of such Fund.
(u) PROXIES AND NOTICES; COMPLIANCE WITH THE SHAREHOLDERS
COMMUNICATION ACT OF 1985.
The Custodian shall deliver or cause to be delivered to the
appropriate Fund all forms of proxies, all notices of meetings, and any
other notices or announcements affecting or relating to Securities owned by
such Fund that are received by the Custodian, any Subcustodian, or any
nominee of either of them, and, upon receipt of Instructions, the Custodian
shall execute and deliver, or cause such Subcustodian or nominee to execute
and deliver, such proxies or other authorizations as may be required.
Except as directed pursuant to Instructions, neither the Custodian nor any
Subcustodian or nominee shall vote upon any such Securities, or execute any
proxy to vote thereon, or give any consent or take any other action with
respect thereto.
The Custodian will not release the identity of any Fund to an issuer
which requests such information pursuant to the Shareholder Communications
Act of 1985 for the specific purpose of direct communications between such
issuer and any such Fund unless a particular Fund directs the Custodian
otherwise in writing.
(v) BOOKS AND RECORDS.
The Custodian shall maintain such records relating to its activities
under this Agreement as are required to be maintained by Rule 31a-1 under
the Investment Company Act of 1940 ("the 1940 Act") and to preserve them
for the periods prescribed in Rule 31a-2 under the 1940 Act. These records
shall be open for inspection by duly authorized officers, employees or
agents (including independent public accountants) of the appropriate Fund
during normal business hours of the Custodian.
The Custodian shall provide accountings relating to its activities
under this Agreement as shall be agreed upon by each Fund and the
Custodian.
<PAGE>
(w) OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
The Custodian shall take all reasonable action as each Fund may
request to obtain from year to year favorable opinions from each such
Fund's independent certified public accountants with respect to the
Custodian's activities hereunder and in connection with the preparation of
each such Fund's periodic reports to the SEC and with respect to any other
requirements of the SEC.
(x) REPORTS BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding cash,
Securities and other Assets, including cash, Securities and other Assets
deposited and/or maintained in a Securities System or with a Subcustodian.
Such report shall be of sufficient scope and in sufficient detail as may
reasonably be required by such Fund and as may reasonably be obtained by
the Custodian.
(y) BILLS AND OTHER DISBURSEMENTS.
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians,
Foreign Subcustodians, Special Subcustodians, or Interim Subcustodians (as
each are hereinafter defined) to act on behalf of any one or more Funds. A
Domestic Subcustodian, in accordance with the provisions of this Agreement,
may also appoint a Foreign Subcustodian, Special Subcustodian, or Interim
Subcustodian to act on behalf of any one or more Funds. For purposes of
this Agreement, all Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians and Interim Subcustodians shall be referred to collectively
as "Subcustodians".
(a) DOMESTIC SUBCUSTODIANS.
The Custodian may, at any time and from time to time, appoint any
bank as defined in Section 2(a)(5) of the 1940 Act or any trust company or
other entity, any of which meet the requirements of a custodian under
Section 17(f) of the 1940 Act and the rules and regulations thereunder, to
act for the Custodian on behalf of any one or more Funds as a subcustodian
for purposes of holding Assets of such Fund(s) and performing other
functions of the Custodian within the United States (a "Domestic
Subcustodian"). Each Fund shall approve in writing the appointment of the
proposed Domestic Subcustodian; and the Custodian's appointment of any such
Domestic Subcustodian shall not be effective without such prior written
approval of the Fund(s). Each such duly approved Domestic Subcustodian
shall be listed on Appendix A attached hereto, as it may be amended, from
time to time.
(b) FOREIGN SUBCUSTODIANS.
The Custodian may at any time appoint, or cause a Domestic
Subcustodian to appoint, any bank, trust company or other entity meeting
the requirements of an "eligible foreign custodian" under Section 17(f) of
the 1940 Act and the rules and regulations thereunder to act for the
Custodian on behalf of any one or more Funds as a subcustodian or
sub-subcustodian (if appointed by a Domestic Subcustodian) for purposes of
holding Assets of the Fund(s) and performing other functions of the
Custodian in countries other than the United States of America (hereinafter
<PAGE>
referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained written confirmation from each Fund of the approval of the Board
of Directors or other governing body of each such Fund (which approval may
be withheld in the sole discretion of such Board of Directors or other
governing body or entity) with respect to (i) the identity of any proposed
Foreign Subcustodian (including branch designation), (ii) the country or
countries in which, and the securities depositories or clearing agencies
(hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, the Custodian or any proposed Foreign Subcustodian is
authorized to hold Securities and other Assets of each such Fund, and (iii)
the form and terms of the subcustodian agreement to be entered into with
such proposed Foreign Subcustodian. Each such duly approved Foreign
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold Securities and other Assets
of the Fund(s) shall be listed on Appendix A attached hereto, as it may be
amended, from time to time. Each Fund shall be responsible for informing
the Custodian sufficiently in advance of a proposed investment which is to
be held in a country in which no Foreign Subcustodian is authorized to act,
in order that there shall be sufficient time for the Custodian, or any
Domestic Subcustodian, to effect the appropriate arrangements with a
proposed Foreign Subcustodian, including obtaining approval as provided in
this Section 5(b). In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian
to, enter into a subcustodian agreement with the Foreign Subcustodian in
form and substance approved by each such Fund. The Custodian shall not
consent to the amendment of, and shall cause any Domestic Subcustodian not
to consent to the amendment of, any agreement entered into with a Foreign
Subcustodian, which materially affects any Fund's rights under such
agreement, except upon prior written approval of such Fund pursuant to
Special Instructions.
(c) INTERIM SUBCUSTODIANS.
Notwithstanding the foregoing, in the event that a Fund shall invest
in an Asset to be held in a country in which no Foreign Subcustodian is
authorized to act, the Custodian shall notify such Fund in writing by
facsimile transmission or in such other manner as such Fund and the
Custodian shall agree in writing of the unavailability of an approved
Foreign Subcustodian in such country; and upon the receipt of Special
Instructions from such Fund, the Custodian shall, or shall cause its
Domestic Subcustodian to, appoint or approve an entity (referred to herein
as an "Interim Subcustodian") designated in such Special Instructions to
hold such Security or other Asset.
(d) SPECIAL SUBCUSTODIANS.
Upon receipt of Special Instructions, the Custodian shall, on behalf
of a Fund, appoint one or more banks, trust companies or other entities
designated in such Special Instructions to act for the Custodian on behalf
of such Fund as a subcustodian for purposes of: (i) effecting third-party
repurchase transactions with banks, brokers, dealers or other entities
through the use of a common custodian or subcustodian; (ii) providing
depository and clearing agency services with respect to certain variable
rate demand note Securities, (iii) providing depository and clearing agency
services with respect to dollar denominated Securities, and (iv) effecting
any other transactions designated by such Fund in such Special
Instructions. Each such designated subcustodian (hereinafter referred to
as a "Special Subcustodian") shall be listed on Appendix A attached hereto,
as it may be amended from time to time. In connection with the appointment
of any Special Subcustodian, the Custodian shall enter into a subcustodian
agreement with the Special Subcustodian in form and substance approved by
the appropriate Fund in Special Instructions. The Custodian shall not
amend any subcustodian agreement entered into with a Special Subcustodian,
or waive any rights under such agreement, except upon prior approval
pursuant to Special Instructions.
<PAGE>
(e) TERMINATION OF A SUBCUSTODIAN.
The Custodian may, at any time in its discretion upon notification to
the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in
accordance with the termination provisions under the applicable
subcustodian agreement, and upon the receipt of Special Instructions, the
Custodian will terminate any Subcustodian in accordance with the
termination provisions under the applicable subcustodian agreement.
(f) CERTIFICATION REGARDING FOREIGN SUBCUSTODIANS.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then
acting on behalf of the Custodian; (ii) the countries in which and the
Securities Depositories and Clearing Agencies through which each such
Foreign Subcustodian is then holding cash, Securities and other Assets of
such Fund; and (iii) such other information as may be requested by such
Fund, and as the Custodian shall be reasonably able to obtain, to evidence
compliance with rules and regulations under the 1940 Act.
6. STANDARD OF CARE.
(a) GENERAL STANDARD OF CARE.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting
from the custodian's failure to act in good faith. "Good faith", for
purposes of this Agreement, shall have the meaning set forth in section
400.1-201(19) RS-Mo.
(b) ACTIONS PROHIBITED BY APPLICABLE LAW, EVENTS BEYOND CUSTODIAN'S
CONTROL, SOVEREIGN RISK, ETC.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any
act or thing which this Agreement provides shall be performed or omitted to
be performed, by reason of: (a) any provision of any present or future law
or regulation or order of the United States of America, or any state
thereof, or of any foreign country, or political subdivision thereof or of
any court of competent jurisdiction (and neither the Custodian nor any
other Person shall be obligated to take any action contrary thereto); or
(b) any event beyond the control of the Custodian or other Person such as
armed conflict, riots, strikes, lockouts, labor disputes, equipment or
transmission failures, natural disasters, or failure of the mails,
transportation, communications or power supply; or (ii) for any loss,
damage, cost or expense resulting from "Sovereign Risk." A "Sovereign
Risk" shall mean nationalization, expropriation, currency devaluation,
revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed
conflict, terrorism, insurrection or revolution; or any other act or event
beyond the Custodian's or such other Person's control.
(c) LIABILITY FOR PAST RECORDS.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund,
insofar as such loss, damage or expense arises from the performance of the
Custodian or any Domestic Subcustodian in reliance upon records that were
maintained for such Fund by entities other than the Custodian or any
Domestic Subcustodian prior to the Custodian's employment hereunder.
<PAGE>
(d) ADVICE OF COUNSEL.
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all matters.
The Custodian and all Domestic Subcustodians shall be without liability for
any actions taken or omitted in good faith pursuant to the advice of
counsel.
(e) ADVICE OF THE FUND AND OTHERS.
The Custodian and any Domestic Subcustodian may rely upon the advice
of any Fund and upon statements of such Fund's accountants and other
persons believed by it in good faith to be expert in matters upon which
they are consulted, and neither the Custodian nor any Domestic Subcustodian
shall be liable for any actions taken or omitted, in good faith, pursuant
to such advice or statements.
(f) INSTRUCTIONS APPEARING TO BE GENUINE.
The Custodian and all Domestic Subcustodians shall be fully protected
and indemnified in acting as a custodian hereunder upon any Resolutions of
the Board of Directors or Trustees, Instructions, Special Instructions,
advice, notice, request, consent, certificate, instrument or paper
appearing in its good faith judgement to be genuine and to have been
properly executed and shall, unless otherwise specifically provided herein,
be entitled to receive as conclusive proof of any fact or matter required
to be ascertained from any Fund hereunder a certificate signed by any
officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) EXCEPTIONS FROM LIABILITY.
Without limiting the generality of any other provisions hereof,
neither the Custodian nor any Domestic Subcustodian shall be under any duty
or obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by
or for any Fund, the legality of the purchase thereof or evidence of
ownership required to be received by any such Fund, or the propriety of the
decision to purchase or amount paid therefor;
(ii) the legality of the sale of any Securities by or for
any Fund, or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities,
borrowings or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust,
Partnership Agreement, Articles of Incorporation or By-Laws or votes or
proceedings of the shareholders, trustees, partners or directors of any
such Fund, or any such Fund's currently effective Registration Statement on
file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) DOMESTIC SUBCUSTODIANS
The Custodian shall be liable for the acts or omissions of any
Domestic Subcustodian to the same extent as if such actions or omissions
were performed by the Custodian itself.
<PAGE>
(b) LIABILITY FOR ACTS AND OMISSIONS OF FOREIGN SUBCUSTODIANS.
The Custodian shall be liable to a Fund for any loss or damage to
such Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the
subcustodian agreement between the Custodian or a Domestic Subcustodian and
such Foreign Subcustodian, the Foreign Subcustodian has failed to perform
in accordance with the standard of conduct imposed under such subcustodian
agreement and the Custodian or Domestic Subcustodian recovers from the
Foreign Subcustodian under the applicable subcustodian agreement.
(c) SECURITIES SYSTEMS, INTERIM SUBCUSTODIANS, SPECIAL
SUBCUSTODIANS, SECURITIES DEPOSITORIES AND CLEARING AGENCIES.
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by
the actions or omissions of a Securities System, Interim Subcustodian,
Special Subcustodian, or Securities Depository and Clearing Agency unless
such loss, damage or expense is caused by, or results from, the custodian's
failure to act in good faith.
(d) DEFAULTS OR INSOLVENCY'S OF BROKERS, BANKS, ETC.
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the
actions, omissions, neglects, defaults or insolvency of any broker, bank,
trust company or any other person with whom the Custodian may deal (other
than any of such entities acting as a Subcustodian, Securities System or
Securities Depository and Clearing Agency, for whose actions the liability
of the Custodian is set out elsewhere in this Agreement) unless such loss,
damage or expense is caused by, or results from, the custodian's failure to
act in good faith.
(e) REIMBURSEMENT OF EXPENSES.
Each Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with this
Agreement, but excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY FUND.
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from
all losses, damages and expenses (including attorneys' fees) suffered or
incurred by the Custodian or its nominee caused by or arising from actions
taken by the Custodian, its employees or agents in the performance of its
duties and obligations under this Agreement, including, but not limited to,
any indemnification obligations undertaken by the Custodian under any
relevant subcustodian agreement; provided, however, that such indemnity
shall not apply to the extent the Custodian is liable under Sections 6 or 7
hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned
to such Fund being liable for the payment of money or incurring liability
of some other form, such Fund, as a prerequisite to requiring the Custodian
to take such action, shall provide indemnity to the Custodian in an amount
and form satisfactory to it.
(b) INDEMNIFICATION BY CUSTODIAN.
Subject to the limitations set forth in this Agreement and in
addition to the obligations provided in Sections 6 and 7, the Custodian
agrees to indemnify and hold harmless each Fund from all losses, damages
and expenses suffered or incurred by each such Fund caused by the
custodian's failure to act in good faith.
<PAGE>
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing
Agency acting either directly or indirectly under agreement with the
Custodian (each of which for purposes of this Section 9 shall be referred
to as "Custodian"), makes any payment or transfer of funds on behalf of any
Fund as to which there would be, at the close of business on the date of
such payment or transfer, insufficient funds held by the Custodian on
behalf of any such Fund, the Custodian may, in its discretion without
further Instructions, provide an advance ("Advance") to any such Fund in an
amount sufficient to allow the completion of the transaction by reason of
which such payment or transfer of funds is to be made. In addition, in the
event the Custodian is directed by Instructions to make any payment or
transfer of funds on behalf of any Fund as to which it is subsequently
determined that such Fund has overdrawn its cash account with the Custodian
as of the close of business on the date of such payment or transfer, said
overdraft shall constitute an Advance. Any Advance shall be payable by the
Fund on behalf of which the Advance was made on demand by Custodian, unless
otherwise agreed by such Fund and the Custodian, and shall accrue interest
from the date of the Advance to the date of payment by such Fund to the
Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect
of which the Custodian shall have made an Advance, including but not
limited to a foreign exchange contract or transaction in respect of which
the Custodian is not acting as a principal, is for the account of and at
the risk of the Fund on behalf of which the Advance was made, and not, by
reason of such Advance, deemed to be a transaction undertaken by the
Custodian for its own account and risk. The Custodian and each of the
Funds which are parties to this Agreement acknowledge that the purpose of
Advances is to finance temporarily the purchase or sale of Securities for
prompt delivery in accordance with the settlement terms of such
transactions or to meet emergency expenses not reasonably foreseeable by a
Fund. The Custodian shall promptly notify the appropriate Fund of any
Advance. Such notification shall be sent by facsimile transmission or in
such other manner as such Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any
purpose or in the event that the Bank or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of its duties hereunder, except such as
may arise from its or its nominee's negligent action, negligent failure to
act or willful misconduct, any Property at any time held for the Custody
Account shall be security therefor and the Fund hereby grants a security
interest therein to the Bank. The Fund shall promptly reimburse the Bank
for any such advance of cash or securities or any such taxes, charges,
expenses, assessments, claims or liabilities upon request for payment, but
should the Fund fail to so reimburse the Bank, the Bank shall be entitled
to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund
with the Bank including, without limitation, the Custody Account, in
connection with any such advance and any interest on such advance as the
Bank deems reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed to
in writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such
Fund and paid in cash to the Custodian.
<PAGE>
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary
or desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return
receipt requested) to the other not less than 90 days prior to the date
upon which such termination shall take effect. Upon termination of this
Agreement, the appropriate Fund shall pay to the Custodian such fees as may
be due the Custodian hereunder as well as its reimbursable disbursements,
costs and expenses paid or incurred. Upon termination of this Agreement,
the Custodian shall deliver, at the terminating party's expense, all Assets
held by it hereunder to the appropriate Fund or as otherwise designated by
such Fund by Special Instructions. Upon such delivery, the Custodian shall
have no further obligations or liabilities under this Agreement except as
to the final resolution of matters relating to activity occurring prior to
the effective date of termination.
This Agreement may not be assigned by the Custodian or any Fund
without the respective consent of the other, duly authorized by a
resolution by its Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement
after the date hereof by an instrument in writing to such effect signed by
such Fund or Funds and the Custodian. If this Agreement is terminated as
to one or more of the Funds (but less than all of the Funds) or if an
additional Fund or Funds shall become a party to this Agreement, there
shall be delivered to each party an Appendix B or an amended Appendix B,
signed by each of the additional Funds (if any) and each of the remaining
Funds as well as the Custodian, deleting or adding such Fund or Funds, as
the case may be. The termination of this Agreement as to less than all of
the Funds shall not affect the obligations of the Custodian and the
remaining Funds hereunder as set forth on the signature page hereto and in
Appendix B as revised from time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to Zazove Convertible Securities Fund, Inc., c/o Zazove
Associates, LLC, 4801 W. Peterson, Suite 615, Chicago, IL 60646, postage
prepaid, or to such other address as any particular Fund may have
designated to the Custodian in writing, shall be deemed to have been
properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration department of the Custodian at its office at 928
Grand Blvd., 10th Floor, Attn: Ralph Santoro, Kansas City, Missouri 64106,
or mailed postage prepaid, to the Custodian's Securities Administration
department, Post Office Box 226, Attn: Ralph Santoro, Kansas City, Missouri
64141, or to such other addresses as the Custodian may have designated to
each Fund in writing, shall be deemed to have been properly delivered or
given to the Custodian hereunder; provided, however, that procedures for
the delivery of Instructions and Special Instructions shall be governed by
Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of such state.
<PAGE>
(b) All of the terms and provisions of this Agreement shall be
binding upon, and inure to the benefit of, and be enforceable by the
respective successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or
waived, in any manner except in writing, properly executed by both parties
hereto; provided, however, Appendix A may be amended from time to time as
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians, and
Securities Depositories and Clearing Agencies are approved or terminated
according to the terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution
hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections
of the Agreement:
TERM SECTION
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and
Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of
competent jurisdiction, the remaining portion or portions shall be
considered severable and shall not be affected, and the rights and
obligations of the parties shall be construed and enforced as if this
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
(i) This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof,
and accordingly supersedes, as of the effective date of this Agreement, any
custodian agreement heretofore in effect between the Fund and the
Custodian.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Custody
Agreement to be executed by their respective duly authorized officers.
ZAZOVE CONVERTIBLE SECURITIES
FUND, INC.
Attest: /s/ Judith M. Higgins By: /s/ Steven M. Kleiman
Name: Steven M. Kleiman
Title: Secretary and Director
Date: January 1, 1999
UMB BANK, N.A.
Attest: /s/ R.W. Beam By: /s/ Ralph R. Santoro
Name: Ralph R. Santoro
Title: Senior Vice President
Date: January 1, 1999
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Euroclear
ZAZOVE CONVERTIBLE SECURITIES UMB BANK, N.A.
FUND, INC.
By: /s/ Steven M. Kleiman By: /s/ Ralph S. Santoro
Name: Steven M. Kleiman Name: Ralph R. Santoro
Title: Secretary and Director Title: Senior Vice President
Date: January 1, 1999 Date: January 1, 1999
<PAGE>
APPENDIX B
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are
hereby made parties to the Custody Agreement dated January 1, 1999, with
UMB Bank, n.a. ("Custodian") and Zazove Convertible Securities Fund, Inc.,
and agree to be bound by all the terms and conditions contained in said
Agreement:
ZAZOVE CONVERTIBLE SECURITIES FUND, INC.
ZAZOVE CONVERTIBLE SECURITIES
FUND, INC.
Attest: /s/ Judith M. Higgins By: /s/ Steven M. Kleiman
Name: Steven M. Kleiman
Title: Secretary and Director
Date: January 1, 1999
UMB BANK, N.A.
Attest: /s/ R.W. Beam By: /s/ Ralph R. Santoro
Name: Ralph R. Santoro
Title: Senior Vice President
Date: January 1, 1999
EXHIBIT 99.2(k)
- ---------------
[TRANSFER AGENCY AGREEMENT]
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of the 1st day of January, 1999, by and
between Zazove Convertible Securities Fund, Inc., a Maryland corporation
(the "Fund"), and Sunstone Financial Group, Inc., a Wisconsin corporation
("Sunstone").
R E C I T A L S:
WHEREAS, the Fund is registered under the 1940 Act as a non-
diversified management investment company operating as a closed-end
interval fund; and
WHEREAS, the Fund desires to retain Sunstone to render certain
transfer agency and dividend disbursement services, and Sunstone is willing
to render such services, all in accordance with the terms of this
Agreement.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
ARTICLE I
DEFINITIONS
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In addition to any terms that are defined in the body of this
Agreement, the following capitalized terms shall have the meanings set
forth hereinafter whenever they appear in this Agreement:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"1940 Act" shall mean the Investment Company Act of 1940, as amended.
"Authorized Persons" shall mean those individuals who are authorized
to provide Sunstone with oral instructions and to sign written instructions
and requests on behalf of the Fund, whose names shall be certified to
Sunstone from time to time pursuant to Article IV, Paragraph F of this
Agreement.
"Business Day" shall mean each day on which the New York Stock
Exchange is open for trading.
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"Current NAV" shall mean the net asset value of the Shares determined
by the Fund as of each Investment Date, in accordance with the requirements
of applicable law.
"Custodian" shall mean UMB Bank, n.a. or any successor custodian
selected by the Fund.
"DDA Account" shall mean Account No. 987-096-4775 with the Custodian,
into which proceeds for redemptions, dividends and other distributions
shall be paid from time to time to permit Sunstone to perform its services
hereunder.
"Investment Date" shall mean the first Business Day of each month
during the term hereof.
"Investment Instructions" shall mean the investment instructions
provided to Sunstone by the Fund from time to time hereunder, in the form
attached hereto as Exhibit A.
"Private Placement Memorandum" shall mean the most recent Private
Placement Memorandum of the Fund received by Sunstone from time to time
during the term hereof.
"Redemption Date" shall mean the last Business Day of each March,
June, September and December during the term hereof.
"Redemption Instructions" shall mean the redemption instructions
provided to Sunstone by the Fund from time to time hereunder, in the form
attached hereto as Exhibit B.
"Repurchase Offer Notification" shall mean the notification provided
by the Fund to its shareholders in advance of each Redemption Date in
accordance with the requirements of Rule 23c-3 under the 1940 Act.
"Shares" shall mean the 25,000,000 shares of common stock, $.01 par
value, which the Fund is authorized to issue pursuant to its Articles of
Incorporation.
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
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A. APPOINTMENT.
1. The Fund hereby appoints Sunstone as transfer agent
and dividend disbursing agent of all the Shares of the Fund during the term
of this Agreement, and Sunstone hereby accepts such appointment as transfer
agent and dividend disbursing agent and agrees to perform the duties
thereof as hereinafter set forth.
2. Sunstone shall perform the transfer agent and dividend
disbursing agent services described on Schedule A hereto. To the extent
that the Fund requests Sunstone to perform any additional services,
Sunstone and the Fund shall mutually agree on the services to be
accomplished, the manner of accomplishment and the compensation to which
Sunstone shall be entitled with respect thereto.
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3. Sunstone may, in its discretion, appoint in writing other
parties qualified to perform transfer agency services reasonably acceptable
to the Fund (individually, a "Sub-transfer Agent") to carry out some or all
of its responsibilities under this Agreement; provided, however, that
unless the Fund shall enter into a written agreement with such Sub-transfer
Agent, the Sub-transfer Agent shall be the agent of Sunstone and not the
agent of the Fund and, in such event Sunstone shall be fully responsible
for the acts or omissions of such Sub-transfer Agent and shall not be
relieved of any of its responsibilities hereunder by the appointment of
such Sub-transfer Agent.
4. Sunstone shall have no duties or responsibilities
whatsoever hereunder except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation to
carry out any other duties or responsibilities shall be implied in this
Agreement against Sunstone.
B. DOCUMENTS/RECORDS/AUTHORIZATIONS.
1. In connection with Sunstone's appointment as transfer
agent and dividend disbursing agent, the Fund shall deliver or cause to be
delivered the following documents to Sunstone:
a) A copy of the Articles of Incorporation and By-laws
of the Fund and all amendments thereto, certified by the Secretary of the
Fund;
b) A certificate signed by the President and Secretary
of the Fund specifying the number of authorized Shares and the number of
such authorized Shares issued and currently outstanding, if any;
c) A certified copy of the resolutions of the Board of
Directors of the Fund appointing Sunstone as transfer agent and dividend
disbursing agent and authorizing the execution of this Transfer Agency
Agreement on behalf of the Fund; and
d) Copies of the Fund's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment
thereto, filed by the Fund with the Securities and Exchange Commission
under the 1940 Act, together with any applications filed in connection
therewith.
2. The Fund agrees to deliver or to cause to be delivered to
Sunstone in Milwaukee, Wisconsin, at the Fund's expense, all of its
shareholder account records in a format acceptable to Sunstone and all such
other documents, records and information as Sunstone may reasonably request
in order for Sunstone to perform its services hereunder.
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3. The Fund agrees to deliver or cause to be delivered to Sunstone
from time to time the certificate required by Article IV, Paragraph F of
this Agreement, signed by an officer of the Fund and designating the names
of Authorized Persons.
ARTICLE III
COMPENSATION & EXPENSES
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A. COMPENSATION. In consideration for its services hereunder as
transfer agent and dividend disbursing agent, the Fund will pay to Sunstone
the compensation set forth on Schedule B attached hereto. The Fund agrees
that Sunstone shall be entitled to receive a fee per account rather than a
flat fee in the event the Fund shall have more than three thousand
shareholders during the term of this Agreement.
B. EXPENSES. The Fund also agrees to promptly reimburse Sunstone
for all out-of-pocket expenses or disbursements incurred by Sunstone in
connection with the performance of services under this Agreement including,
but not limited to, expenses for attendance at Fund board meetings,
postage, express delivery services, freight charges, envelopes, checks,
drafts, forms (continuous or otherwise), preparation and mailing of
Repurchase Offer Notifications and other specially requested reports and
statements, bank account service fees and charges, stationery supplies,
outside printing and mailing firms, magnetic tapes, reels or cartridges (if
sent to the Fund or to a third party at the Fund's request) and magnetic
tape handling charges, on-site and off-site record storage, media for
storage of records (e.g., microfilm, microfiche, optical platters, computer
tapes and disks), and computer equipment installed at the Fund's request on
the Fund's or a third party's premises, to the extent any of the foregoing
are paid by Sunstone. If requested by Sunstone, postage and other out-of-
pocket expenses are payable in advance, and in the event requested, postage
is due at least seven days prior to the anticipated mail date. In the event
Sunstone requests advance payment, Sunstone shall not be obligated to incur
such expenses or perform the related service(s) until payment is received.
C. PAYMENT PROCEDURES. The Fund agrees to pay all amounts due
hereunder within fifteen days of the date reflected on the statement for
such services (the "Due Date"). Service fees are billed monthly, and out-
of-pocket expenses are billed as incurred (unless prepayment is requested
by Sunstone). Sunstone may, at its option, arrange to have various service
providers submit invoices directly to the Fund for payment of reimbursable
out-of-pocket expenses. The Fund is aware that its failure to remit to
Sunstone all amounts due on or before the Due Date will cause Sunstone to
incur costs not contemplated by this Agreement, including, but not limited
to carrying, processing and accounting charges. Accordingly, in the event
that any amounts due hereunder are not received by Sunstone by the Due
Date, the Fund agrees to pay a late charge on the overdue amount equal to
one and one-half percent (1.5%) per month or the maximum amount permitted
by law, whichever is less. Notwithstanding the foregoing, Sunstone shall
not be entitled to collect a late charge unless the Fund fails to remit
payment to Sunstone within three business days after receipt of written
notification from Sunstone of its failure to pay. In addition, the Fund
shall pay reasonable attorney's fees and court costs of Sunstone if any
amounts due Sunstone are collected by or through an attorney. The parties
hereby agree that such late charge represents a fair and reasonable
computation of the costs incurred by reason of the Fund's late payment.
Acceptance of such late charge shall in no event constitute a waiver of the
Fund's default by Sunstone or prevent Sunstone from exercising any other
rights and remedies available to it.
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ARTICLE IV
PROCESSING AND PROCEDURES
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A. ISSUANCE, REDEMPTION AND TRANSFER OF SHARES GENERALLY
1. The Fund shall receive and approve all purchase, transfer
and redemption requests with respect to the Shares. Sunstone's obligations
in connection with the purchase, transfer, and redemption of Shares shall
be limited to acting upon the Investment Instructions and Redemption
Instructions received from the Fund. The Fund shall bear the
responsibility and Sunstone shall assume no liability for determining that
purchases, transfers and redemptions meet the requirements established by
the Private Placement Memorandum and all applicable laws, rules and
regulations.
2. Sunstone shall send such statements as are noted on
Schedule A hereto in connection with the purchase and redemption of Shares.
It is understood that certificates for Shares will not be offered by the
Fund or available to investors.
3. Prior to the effective date of any increase or decrease
in the total number of Shares authorized to be issued, or the issuance of
any additional Shares of the Fund pursuant to stock dividends, stock
splits, recapitalizations, capital adjustments or similar transactions, the
Fund agrees to deliver to Sunstone such documents, certificates, reports
and legal opinions as Sunstone may reasonably request.
4. The Fund shall have the sole responsibility for
determining the Current NAV. The Fund shall provide Sunstone with the
Current NAV within five days after each Investment Date during the term
hereof. The Current NAV shall be transmitted in writing and shall be
certified by an officer of the Fund. To expedite the transmission of
information, the Fund may submit the Current NAV via facsimile
transmission. In such event, however, the Fund shall mail the original,
certified Current NAV to Sunstone via first class mail. The Fund
specifically assumes liability for and shall indemnify Sunstone from and
against any damages, claims, suits or actions arising out of (i) any
violations of Rule 23c-3 caused by the Fund's failure to transmit the
Current NAV within the time period required by this paragraph or (ii) any
errors in calculating the Current NAV.
B. NEW AND ADDITIONAL PURCHASES.
1. The Fund shall provide Sunstone with Investment
Instructions on or before each Investment Date during the term of this
Agreement. Within forty-eight (48) hours following receipt of the Current
NAV from the Fund, Sunstone shall cause to be issued to the accounts of
shareholders specified in the Investment Instructions for such Investment
Date, the appropriate number of full and fractional Shares based on the
Current NAV.
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2. Sunstone shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Fund in connection
with the issuance of any Shares in accordance with this Agreement.
3. Notwithstanding anything contained herein of the
contrary, Sunstone shall not be required to issue any Shares after it has
received written notification from an Authorized Person or from an
appropriate federal or state authority that the sale of Shares has been
suspended or discontinued, and Sunstone shall be entitled to rely on such
written notification.
C. REDEMPTION OF SHARES.
1. The Fund shall provide Sunstone with Redemption
Instructions on or before each Redemption Date during the term of this
Agreement. Within forty-eight (48) hours following receipt of the current
NAV from the Fund, Sunstone shall cause to be redeemed from the accounts
specified in the Redemption Instructions for such Redemption Date, the
appropriate number of full and fractional Shares based on the Current NAV
for the Investment Date which occurs immediately after the Redemption Date.
2. Upon receipt of the Current NAV, the Fund or its designee shall
cause the Custodian to deposit in the DDA Account an amount of cash
sufficient for Sunstone to make redemption payments to those shareholders
specified in the Redemption Instructions. Sunstone shall not be liable for
any improper payments made in accordance with Redemption Instructions. If
Sunstone shall not receive from the Custodian sufficient cash to make
payments of all redemptions listed in the Redemption Instructions, Sunstone
shall, upon notice to the Fund, withhold payment to all shareholders listed
in the Redemption Instructions until sufficient cash is provided to
Sunstone.
3. Upon receipt of the Redemption Instructions and monies paid to
it by the Custodian in connection with a redemption of Shares, Sunstone
shall cancel the redeemed Shares and, after making appropriate deductions
for any withholding of taxes required of it by applicable federal law, make
payment in accordance with the Redemption Instructions.
D. DIVIDENDS AND DISTRIBUTIONS.
1. The Fund shall furnish to Sunstone a copy of a resolution
of its Board of Directors, certified by an Authorized Person, either (i)
setting forth the date of the declaration of a dividend or distribution,
the date of accrual or payment, as the case may be, thereof, the record
date as of which shareholders entitled to payment, or accrual, as the case
may be, shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any, payable to Sunstone
on such payment date, or (ii) authorizing the declaration of dividends and
distributions on a periodic basis and authorizing Sunstone to rely on a
certificate of an Authorized Person setting forth the information described
in subsection (i) of this paragraph.
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2. In connection with a reinvestment of a dividend or
distribution of Shares of the Fund, Sunstone shall, as of the day a
dividend is declared, as specified in a certificate or resolution described
in paragraph 1, issue Shares of the Fund based on the most recently
determined Current NAV per Share of the Fund.
3. Upon the mail date specified in such certificate or
resolution, as the case may be, the Fund or its designee shall, in the case
of a cash dividend or distribution, cause the Custodian to deposit in the
DDA Account an amount of cash sufficient for Sunstone to make the payment,
as of the mail date, specified in such certificate or resolution, as the
case may be, to the shareholders who were of record on the record date.
Sunstone will, upon receipt of any such cash, make payment of such cash
dividends or distributions to the shareholders of record as of the record
date. Sunstone shall not be liable for any improper payments made in
accordance with a certificate or resolution described in the preceding
paragraph. If Sunstone shall not receive from the Custodian sufficient
cash to make payments of any cash dividend or distribution to all
shareholders of the Fund as of the record date, Sunstone shall, upon notice
to the Fund, withhold payment to all shareholders of record as of the
record date until sufficient cash is provided to Sunstone.
4. It is understood that Sunstone in its capacity as
transfer agent and dividend disbursing agent shall in no way be responsible
for the determination of the rate or form of dividends or capital gain
distributions due to the shareholders pursuant to the terms of this
Agreement. It is further understood that Sunstone shall file with the
Internal Revenue Service and shareholders such appropriate federal tax
forms concerning the payment of dividend and capital gain distributions but
shall in no way be responsible for the collection or withholding of taxes
due on such dividends or distributions due to shareholders except as
required by Section 3406 of the Internal Revenue Code, as amended.
E. RECORDS.
1. Sunstone shall keep such records as are specified in
Schedule C hereto in the form and manner, and for such period, as it may
deem advisable but not inconsistent with the rules and regulations of
appropriate government authorities, in particular Rules 31a-2 and 31a-3
under the 1940 Act. Sunstone may deliver to the Fund from time to time at
Sunstone's discretion, for safekeeping or disposition by the Fund in
accordance with law, such records, papers and documents accumulated in the
execution of its duties as such transfer agent, as Sunstone may deem
expedient, other than those which Sunstone is itself required to maintain
pursuant to applicable laws and regulations. The Fund shall assume all
responsibility for any failure thereafter to produce any record, paper,
canceled Share certificate, or other document so returned, if and when
required. To the extent required by Section 31 of the 1940 Act and the
rules and regulations thereunder, the records specified in Schedule C
hereto maintained by Sunstone, which have not been previously delivered to
the Fund pursuant to the foregoing provisions of this paragraph, shall be
considered to be the property of the Fund, shall be made available upon
request for inspection by the officers, employees, and auditors of the
Fund, and shall be delivered to the Fund promptly upon request and in any
event upon the date of termination of this Agreement, in the form and
manner kept by Sunstone on such date of termination or such earlier date as
may be requested by the Fund. Notwithstanding anything contained herein to
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the contrary, Sunstone shall be permitted to maintain copies of any such
records, papers and documents to the extent necessary to comply with the
recordkeeping requirements of federal and state securities laws, tax laws
and other applicable laws.
2. Sunstone agrees to keep all records and other information
relative to the Fund and its shareholders confidential. In case of any
requests or demands for the inspection of the shareholder records of the
Fund, Sunstone will endeavor to notify the Fund promptly and to secure
instructions from an Authorized Person as to such inspection. Sunstone
reserves the right, however, to exhibit the shareholder records to any
person whenever it believes there is a reasonable likelihood that Sunstone
will be held liable for the failure to exhibit the shareholder records to
such person; provided, however, that in connection with any such disclosure
Sunstone shall promptly notify the Fund that such disclosure has been made
or is to be made. Notwithstanding the foregoing, Sunstone may disclose
information when requested by a shareholder concerning an account as to
which Sunstone reasonably believes such shareholder has a legal or
beneficial interest or when requested by the Fund, the shareholder or the
dealer of record as to such account. Records and information which have
become known to the public through no wrongful act of Sunstone or any of
its employees, agents or representatives shall not be subject to this
paragraph.
F. MISCELLANEOUS. Upon the execution of this Agreement, the
Fund shall provide Sunstone with a certificate containing the names of the
initial Authorized Persons in the form attached hereto as Exhibit C. Any
officer of the Fund has the authority to appoint additional Authorized
Persons, to limit or revoke the authority of any previously designated
Authorized Person, and to certify to Sunstone the names of the Authorized
Persons from time to time. The Fund shall provide Sunstone with an updated
certificate evidencing the appointment, removal or change of authority of
any Authorized Person, it being understood Sunstone shall not be held to
have notice of any change in the authority of any Authorized Person until
receipt of written notice thereof from the Fund.
ARTICLE V
CONCERNING THE FUND
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A. REPRESENTATIONS. The Fund represents and warrants to Sunstone
that:
(a) It is a corporation duly organized and existing under the
laws of the State of Maryland, it is empowered under applicable laws and by
its Articles of Incorporation and By-laws to enter into and perform this
Agreement, and all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(b) Any officer of the Fund has the authority to appoint
additional Authorized Persons, to limit or revoke the authority of any
previously designated Authorized Person, and to certify to Sunstone the
names of the Authorized Persons.
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(c) It is a closed-end management investment company
registered under the 1940 Act that operates as an interval fund.
(c) The Shares are not required to be registered under the
1933 Act.
B. COVENANTS.
1. The Fund will provide to Sunstone copies of all
amendments to its Articles of Incorporation and By-laws made after the date
of this Agreement promptly after they are effective. If requested by
Sunstone, each copy of the Articles of Incorporation and By-laws of the
Fund and copies of all amendments thereto shall be certified by the
Secretary of the Fund.
2. The Fund shall have the ongoing obligation to deliver to
Sunstone the Fund's most recent Private Placement Memorandum as soon as it
becomes available and, for purposes of this Agreement, Sunstone shall not
be deemed to have notice of any information contained in such Private
Placement Memorandum until a reasonable time after it is actually received
by Sunstone.
3. The Fund shall, as part of its initial shareholder
registration procedures, request and obtain from each new shareholder an
original, executed Form W-9. The Fund shall promptly forward all Form W-
9's to Sunstone upon receipt.
4. All requisite steps will be taken by the Fund from time
to time when and as necessary to register the Shares for sale in all states
in which the Shares shall at the time be offered for sale and require
registration. If at any time the Fund receives notice of any stop order or
other proceeding in any such state affecting such registration or the sale
of Shares, or of any stop order or other proceeding under the federal
securities laws affecting the sale of Shares, the Fund will give prompt
notice thereof to Sunstone.
5. The Fund will comply with all applicable requirements of
the 1933 Act, the 1934 Act, the 1940 Act, blue sky laws, and any other
applicable laws, rules and regulations, including, but not limited to,
filing all notices required by Rule 23c-3 under the 1934 Act.
6. The Fund agrees that prior to effecting any change in the
Private Placement Memorandum which would increase or alter the duties and
obligations of Sunstone hereunder, it shall advise Sunstone of such
proposed change at least 30 days prior to the intended date of the change,
and shall proceed with such change only if it shall have received the
written consent of Sunstone thereto, which consent shall not be
unreasonably withheld.
ARTICLE VI
CONCERNING THE TRANSFER AGENT
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A. REPRESENTATIONS. Sunstone represents and warrants to the Fund
that:
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(a) It is a corporation duly organized and existing under the
laws of the State of Wisconsin, is empowered under applicable law and by
its Articles of Incorporation and By-laws to enter into and perform this
Agreement, and all requisite proceedings have been taken to authorize it to
enter into and perform this Agreement.
(b) It is duly registered as a transfer agent under Section
17A of the 1934 Act to the extent required.
B. LIMITATION OF LIABILITY; INDEMNIFICATION.
1. Sunstone shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, provided that Sunstone acted or omitted to act in good faith and
in the absence of willful misfeasance, negligence or reckless disregard of
its duties under this Agreement. Sunstone shall not be liable in acting
upon any writing, document or instructions reasonably believed by it to be
genuine and to have been signed or made by an Authorized Person or verbal
instructions which the individual receiving the instructions on behalf of
Sunstone reasonably believes to have been given by an Authorized Person,
and Sunstone shall not be held to have any notice of any change of
authority of any person until receipt of written notice thereof from the
Fund or such person.
2. The Fund agrees to indemnify and hold harmless Sunstone,
its employees, agents, members, officers and nominees from and against any
and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature
and character arising out of or in any way relating to Sunstone's actions
taken or nonactions with respect to the performance of services under this
Agreement or based, if applicable, upon reliance on information, records,
instructions (oral or written) or requests given or made to Sunstone by the
Fund, its officers, directors, agents or representatives; provided that
this indemnification shall not apply to actions or omissions of Sunstone in
cases of its own failure to act in good faith or as a result of its own
willful misfeasance or negligence, and further provided that prior to
confessing any claim against it which may be the subject of this
indemnification, Sunstone shall give the Fund written notice of and
reasonable opportunity to defend against said claim in its own name or in
the name of Sunstone. The indemnity and defense provisions provided
hereunder shall indefinitely survive the termination of this Agreement.
3. Sunstone assumes no responsibility hereunder, and shall
not be liable, for any damage, loss of data, errors, delay or any other
loss whatsoever caused by events beyond its reasonable control. Sunstone
will, however, take all reasonable steps to minimize service interruptions
for any period that such interruption continues beyond Sunstone's control.
4. In no event and under no circumstances shall either party
to this Agreement be liable to anyone, including, without limitation to the
other party, for consequential damages for any act or failure to act under
any provision of this Agreement even if advised of the possibility thereof.
<PAGE>
5. Notwithstanding any of the provisions of this Agreement,
Sunstone shall be under no duty or obligation under this Agreement to
inquire into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares,
the sufficiency of the amount to be received therefor, or the authority of
the Fund, as the case may be, to request such sale or issuance;
(b) The determination of whether any purchaser of the
Shares constitutes an Accredited Investor within the meaning of Rule 501(a)
under Regulation D of the 1933 Act;
(c) The legality of a transfer of Shares or of a
purchase or redemption of any Shares, the propriety of the amount to be
paid therefor, or the authority of the Fund, as the case may be, to request
such transfer or redemption, under Rule 23c-3 of the 1940 Act or under any
other applicable law or regulation;
(d) The legality of the declaration of any dividend by
the Fund, or the legality of the issue of any Shares in payment of any
stock dividend, or the legality of any recapitalization or readjustment of
Shares.
ARTICLE VII
TERM
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1. This Agreement shall remain in full force and effect
until December 31, 1999, (the "Initial Term") and thereafter shall
automatically extend for additional, successive twelve (12) month terms
unless earlier terminated as provided below.
2. Either of the parties hereto may terminate this Agreement
at any time after the Initial Term by giving to the other party a notice in
writing specifying the date of such termination, which shall be not less
than sixty (60) days after the date of receipt of such notice. In the
event such notice is given by the Fund, it shall be accompanied by a copy
of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating the successor transfer agent or transfer agents. In the
event such notice is given by Sunstone, the Fund shall on or before the
termination date, deliver to Sunstone a copy of a resolution of its Board
of Directors certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer agents. In the absence
of such designation by the Fund, the Fund shall upon the date specified in
the notice of termination of this Agreement and delivery of the records
maintained hereunder, be deemed to be its own transfer agent and Sunstone
shall thereby be relieved of all duties and responsibilities pursuant to
this Agreement. Fees and out-of-pocket expenses incurred by Sunstone, but
unpaid by the Fund upon such termination, shall be immediately due and
payable upon and notwithstanding such termination.
3. In the event this Agreement is terminated as provided
herein, Sunstone, upon the written request of the Fund, shall deliver the
records of the Fund to the Fund or its successor transfer agent in the form
maintained by Sunstone at the expense of the Fund. The Fund shall be
responsible to Sunstone for all out-of-pocket expenses and for the costs
and expenses associated with the preparation and delivery of such media,
including: (a) any custom programming requested by Fund in connection with
<PAGE>
the preparation of such media; (b) transportation of forms and other
materials used in connection with the processing of Fund transactions by
Sunstone; and (c) transportation of records and files in the possession of
Sunstone. In addition, Sunstone shall be entitled to such compensation as
the parties may mutually agree for any services requested by the Fund in
connection with the termination of this Agreement or the liquidation or
merger of the Fund. Sunstone shall not reduce the level of service
provided to the Fund following notice of termination by the Fund.
ARTICLE VIII
MISCELLANEOUS
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A. NOTICES. Any notice required or permitted by Article VII to be
given by either party to the other shall be in writing and shall be deemed
to have been given when sent by either a well-recognized overnight delivery
service or by registered or certified mail, postage prepaid, return receipt
requested, to the addresses listed below, or to such other location as
either party may from time to time designate in writing:
IF TO SUNSTONE: Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
Attention: President
IF TO THE FUND: Zazove Convertible Securities Fund, Inc.
4801 West Peterson Avenue, Suite 615
Chicago, Illinois 60646
Attention: President
B. AMENDMENTS/ASSIGNMENTS.
1. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties with the
formality of this Agreement.
2. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns. This
Agreement shall not be assignable by either party without the written
consent of the other party except that Sunstone may assign this Agreement
to an affiliate with advance written notice to the Fund.
C. WISCONSIN LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin. If any
part, term or provision of this Agreement is determined by the courts or
any regulatory authority having jurisdiction over the issue to be illegal,
in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
<PAGE>
D. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
E. NON-EXCLUSIVE; OTHER AGREEMENTS. The services of Sunstone
hereunder are not deemed exclusive and Sunstone shall be free to render
similar services to others. Except as specifically provided herein, this
Agreement does not in any way affect any other agreements entered into
among the parties hereto and any actions taken or omitted by any party
hereunder shall not affect any rights or obligations of any other party
hereunder.
F. CAPTIONS. The captions in the Agreement are included for
convenience of reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate officer, thereunto duly
authorized, as of the day and year first above written.
SUNSTONE FINANCIAL GROUP, INC. ZAZOVE CONVERTIBLE
SECURITIES FUND, INC.
By: /s/ Miriam M. Allison By: /s/ Steven M. Kleiman
(Signature) (Signature)
Miriam M. Allison Steven M. Kleiman
(Name) (Name)
President Secretary and Director
(Title) (Title)
12-23-98 12/21/98
(Date Signed) (Date Signed)
