-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QBSrijgp+vdgvz2JMQsx/70Cw2j4PXHEoywh5/eVOW28VeEZg9Kch1i+ubqrzGK5 i3IJVqeNIjZRzQjs1IIlpA== 0000892626-99-000133.txt : 19990316 0000892626-99-000133.hdr.sgml : 19990316 ACCESSION NUMBER: 0000892626-99-000133 CONFORMED SUBMISSION TYPE: N-2 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAZOVE CONVERTIBLE SECURITIES FUND INC CENTRAL INDEX KEY: 0001076322 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FILING VALUES: FORM TYPE: N-2 SEC ACT: SEC FILE NUMBER: 811-09189 FILM NUMBER: 99564842 BUSINESS ADDRESS: STREET 1: 940 SOUTHWOOD BLVD., SUITE 200 CITY: INCLINE VILLAGE STATE: NV ZIP: 89451 BUSINESS PHONE: 7028326250 N-2 1 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. -------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 940 Southwood Boulevard, Suite 200 Incline Village, Nevada 89451 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (702) 832-6250 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Gene T. Pretti Zazove Convertible Securities Fund, Inc. 940 Southwood Boulevard, Suite 200 Incline Village, Nevada 89451 --------------------------------------- (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. 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 ZAZOVE CONVERTIBLE SECURITIES FUND, INC. CROSS REFERENCE SHEET Required Items in Caption in Registration Parts A and B of Form N-2 Statement ------------------------- ----------------------- 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 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 -------------------------- Items 24-33 of this Registration Statement are answered in Part C-Other Information. 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 - -------------------- 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"). OPERATING POWER - --------------- 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. INVESTMENT RESTRICTIONS - ----------------------- 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 (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 - ------------------------- 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 (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: (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. 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 - ------------ 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, 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 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. 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 - ------------------------- 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 - ------------------ 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. 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." 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. 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 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. 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 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. 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 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 Zazove Convertible Securities Fund, Inc. Financial Statements as of January 1, 1999 Together With Auditors' Report 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 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 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. 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 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. 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. 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. 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. 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. 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. ------------------------------------------------------------ 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. EX-99.2A 2 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. 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. 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 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. (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. (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, (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. (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 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. (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. (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. 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 EX-99.2B 3 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. 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. 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. 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 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. 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. 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. 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 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. 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. 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. EX-99.2G 4 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. 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. 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 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 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. (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 EX-99.2J 5 EXHIBIT 99.2(j) - --------------- [CUSTODY AGREEMENT] CUSTODY AGREEMENT Dated January 1, 1999 Between UMB BANK, N.A. and ZAZOVE CONVERTIBLE SECURITIES FUND, INC. 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 (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 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. (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 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. (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 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 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. (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. (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. (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. (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. (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 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. (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. (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. (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. 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. 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. (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. 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 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 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 EX-99.2K 6 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 ----------- 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. "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 ----------------------------- 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. 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. 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 ----------------------- 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. ARTICLE IV PROCESSING AND PROCEDURES ------------------------- 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. 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. 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 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 ------------------- 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. (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 ----------------------------- A. REPRESENTATIONS. Sunstone represents and warrants to the Fund that: (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. 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 ---- 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 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 ------------- 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. 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) -----END PRIVACY-ENHANCED MESSAGE-----