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October 3, 2013

VIA EDGAR

U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C.  20549

RE:      Capitala Finance Corp.
Rule 17g-1 Filing of Fidelity Bond

Dear Sir or Madam:

On behalf of Capitala Finance Corp., enclosed for filing, pursuant to Rule 17g-1 of the Investment Company Act of 1940, as amended, are the following:

1.  
Copy of the fidelity bond covering Capitala Finance Corp.;

2.  
A Certificate of the Secretary of Capitala Finance Corp. containing the resolutions of the Board of Directors approving the amount, type, form and coverage of the fidelity bond; and

3.  
Premiums have been paid for the period beginning September 20, 2013 through September 20, 2014.

If you have any questions about this filing, please contact the undersigned at 704-376-5502.

Sincerely,

/s/ John F. McGlinn

John F. McGlinn
Chief Operating Officer, Treasurer and Secretary
Capitala Finance Corp.
 
 
 
 
 
 
CERTIFICATE OF SECRETARY
 
The undersigned, John F. McGlinn, Chief Operating Officer, Treasurer and Secretary of Capitala Finance Corp., a Maryland corporation, does hereby certify that:
 
 
1.
This certificate is being delivered to the Securities and Exchange Commission (the “SEC”) in connection with the filing of Capitala Finance Corp.’s fidelity bond (the “Bond”) pursuant to Rule 17g-1 of the Investment Company Act of 1940, as amended, and the SEC is entitled to rely on this certificate for purposes of the filing.
 
 
2.
The undersigned is the duly elected, qualified and acting Secretary of Capitala Finance Corp., and has custody of the corporate records of Capitala Finance Corp. and is a proper officer to make this certification.
 
 
3.
Attached hereto as Exhibit A is a copy of the resolution approved by the Board of Directors of Capitala Finance Corp., including a majority of the Board of Directors who are not “interested persons” of Capitala Finance Corp., approving the amount, type, form and coverage of the Bond.
     

IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed this 3rd day of October, 2013.

/s/ John F. McGlinn

John F. McGlinn
Chief Operating Officer, Treasurer and Secretary
Capitala Finance Corp.
 
 
 
 
 
 
Exhibit A

Excerpt from the Minutes of the Board of
Directors’ meeting of Capitala Finance Corp.
held June 10, 2013

Approval of Fidelity Bond

Mr. Boehm informed the Board that, in order to comply with Section 17(g) of the 1940 Act, the Company must maintain a fidelity bond in a minimum amount as specified by Rule 17g-1 thereunder.  He noted that Rule 17g-1 requires that a majority of the Company’s non-interested directors approve periodically the amount and form of the bond to determine its appropriateness considering the Company’s assets.  Following further discussion, upon a motion duly made and seconded, it was unanimously resolved that, and each of the independent directors resolved that:

WHEREAS, Section 17(g) of the 1940 Act and Rule 17g-1(a) thereunder require a BDC, such as the Company, to provide and maintain a bond which has been issued by a reputable fidelity insurance company authorized to do business in the place where the bond is issued, to protect the Company against larceny and embezzlement, covering each officer and employee of the BDC who may singly, or jointly with others, have access to the securities or funds of the BDC, either directly or through authority to draw upon such funds of, or to direct generally, the disposition of such securities, unless the officer or employee has such access solely through his position as an officer or employee of a bank (each, a “covered person”); and

WHEREAS, Rule 17g-1 under the 1940 Act specifies that the bond may be in the form of (i) an individual bond for each covered person, or a schedule or blanket bond covering such persons, (ii) a blanket bond which names the Company as the only insured (a “single insured bond”), or (iii) a bond which names the Company and one or more other parties as insured’s (a “joint insured bond”), as permitted by Rule 17g-1 under the 1940 Act; and

WHEREAS, Rule 17g-1 under the 1940 Act requires that a majority of directors who are Non-Interested Directors, approve periodically (but not less than once every 12 months) the reasonableness of the form and amount of the bond, with due consideration to the value of the aggregate assets of the Company to which any covered person may have access, the type and terms of the arrangements made for the custody and safekeeping of such assets, and the nature of securities and other investments to be held by the Company, and pursuant to factors contained in Rule 17g-1 under the 1940 Act, which are described in the accompanying memorandum attached hereto; and

WHEREAS, under Rule 17g-1 under the 1940 Act, the Company is required to make certain filings with the SEC and give certain notices to each member of the Board of Directors in connection with the bond, and designate an officer who shall make such filings and give such notices;
 
 
 
 
 

 
NOW THEREFORE BE IT RESOLVED, that having considered the expected aggregate value of the securities and funds of the Company to which officers or employees of the Company may have access (either directly or through authority to draw upon such funds or to direct generally the disposition of such securities), the type and terms of the arrangements made for the custody of such securities and funds, the nature of securities and other investments to be held by the Company, the accounting procedures and controls of the Company, the nature and method of conducting the operations of the Company and the requirements of Section 17(g) of the 1940 Act and Rule 17g-1 thereunder, the Board of Directors, including a majority of the Non-Interested Directors, hereby determines that the amount, type, form, premium and coverage of the fidelity bond (the “Fidelity Bond”), covering the officers and employees of the Company and insuring the Company against loss from fraudulent or dishonest acts, including larceny and embezzlement, issued by Federal Insurance, having an aggregate coverage of $900,000, are fair and reasonable and the Fidelity Bond be, and hereby is, approved by the Board of Directors of the Company, including a majority of the Non-Interested Directors; and

FURTHER RESOLVED, that the Authorized Officers be, and each of them hereby is, authorized, empowered and directed to take all appropriate actions, with the advice of legal counsel to the Company, to provide and maintain the Fidelity Bond on behalf of the Company; and

FURTHER RESOLVED, that the Chief Compliance Officer of the Company be and hereby is, designated as the party responsible for making the necessary filings and giving the notices with respect to such bond required by paragraph (g) of Rule 17g-1 under the 1940 Act; and

FURTHER RESOLVED, that the Authorized Officers be, and each of them hereby is, authorized, empowered and directed to file a copy of the Fidelity Bond and any other related document or instrument with the SEC; and

FURTHER RESOLVED, that the Authorized Officers be, and each of them hereby is, authorized, empowered and directed, in the name and on behalf of the Company, to make or cause to be made, and to execute and deliver, all such additional agreements, documents, instruments and certifications and to take all such steps, and to make all such payments, fees and remittances, as any one or more of such officers may at any time or times deem necessary or desirable in order to effectuate the purpose and intent of the foregoing resolutions; and

FURTHER RESOLVED, that any and all actions previously taken by the Company or any of its directors, Authorized Officers or other employees in connection with the documents, and actions contemplated by the foregoing resolutions be, and they hereby are, ratified, confirmed, approved and adopted in all respects as and for the acts and deeds of the Company.
 
 
 
 
 
 
 
                     
     
Chubb Group of Insurance Companies
  
DECLARATIONS
    
           
FINANCIAL INSTITUTION
     
15 Mountain View Road, Warren, New Jersey 07059
BOND FORM B
    
 
 
NAME OF ASSURED (including its Subsidiaries):
  
Bond Number: 70437189
  
 
CAPITALA FINANCE CORP.
              
           
FEDERAL INSURANCE COMPANY
4201 CONGRESS STREET
    
Incorporated under the laws of Indiana
  
CHARLOTTE, NC 28209
    
a stock insurance company herein called the COMPANY
           
Capital Center, 251 North Illinois, Suite 1100
           
Indianapolis, IN 46204-1927
    
 
 
ITEM 1.
BOND PERIOD: from
12:01 a.m. on
September 20, 2013
        
     
to
12:01 a.m. on
September 20, 2014
        
 
ITEM 2.
AGGREGATE LIMIT OF LIABILITY: $900,000
          
 
ITEM 3.
SINGLE LOSS LIMITS OF LIABILITY - DEDUCTIBLE AMOUNTS:
        
 
 
The amounts set forth below shall be part of and not in addition to the AGGREGATE LIMIT OF LIABILITY. If
 
“Not Covered” is inserted opposite any specified INSURING CLAUSE, such INSURING CLAUSE and any
 
other reference to such INSURING CLAUSE in this Bond shall be deemed to be deleted.
 
           
SINGLE LOSS
DEDUCTIBLE
 
INSURING CLAUSE
    
LIMIT OF LIABILITY
AMOUNT
 
1
.
Dishonesty
              
     
A. Employee
    
$
  
900,000
$
0
     
B. Trade or Loan
    
$
  
900,000
$
25,000
      C. Partner    
$
   Not Covered $
N/A
 
2
.
On Premises
    
$
  
900,000
$
25,000
 
3
.
In Transit
    
$
  
900,000
$
25,000
 
4
.
Forgery or Alteration
    
$
  
900,000
$
25,000
 
5
.
Extended Forgery
    
$
  
900,000
$
25,000
 
6
.
Counterfeit Money
    
$
  
900,000
$
25,000
 
7
.
Computer System
    
$
  
900,000
$
25,000
 
8
.
Facsimile Signature
    
$
  
900,000
$
25,000
 
ITEM 4.
THE LIABILITY OF THE COMPANY IS ALSO SUBJECT TO THE TERMS OF THE FOLLOWING
 
ENDORSEMENTS EXECUTED SIMULTANEOUSLY HEREWITH:
        
     
1 – 3
              
 
ITEM 5.
ORGANIZATIONS TO BE NOTIFIED OF TERMINATION:
        
 
SEC
              
 
IN WITNESS WHEREOF, THE COMPANY has caused this Bond to be signed by its authorized officers, but it shall not
be valid unless also signed by an authorized representative of the Company.
        
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 1 of 1
 

 
 

 
           
 
The COMPANY, in consideration of payment of the required premium, and in reliance
 
on the APPLICATION and all other statements made and information furnished to the
 
COMPANY by the ASSURED, and subject to the DECLARATIONS made a part of this
 
Bond and to all other terms and conditions of this Bond, agrees to pay the ASSURED
 
for:
    
 
 
Insuring Clauses
          
 
 
Dishonesty
1
.
A.
Employee
       
Loss resulting directly from dishonest acts, other than stated in 1.B. below, of
       
any Employee, committed alone or in collusion with others except with a
       
director or trustee of the ASSURED who is not an Employee, which result in
       
improper personal financial gain to either such Employee or other natural
       
person acting in collusion with such Employee, or which acts were
       
committed with the intent to cause the ASSURED to sustain such loss.
 
     
B.
Trade or Loan
 
       
Loss resulting directly from dishonest acts of any Employee, committed
       
alone or in collusion with others except with a director or trustee of the
       
ASSURED who is not an Employee, which arises totally or partially from:
 
       
(1)
any Trade, or
 
       
(2)
any Loan,
 
       
provided, however, the ASSURED shall first establish that the loss was
       
directly caused by dishonest acts of any Employee which result in improper
       
personal financial gain to such Employee and which acts were committed
       
with the intent to cause the ASSURED to sustain such loss.
 
       
Notwithstanding the foregoing, when a loss is covered under this INSURING
       
CLAUSE and the Employee was acting in collusion with others and intended
       
to receive improper personal financial gain, but said Employee failed to
       
derive such improper personal financial gain, such loss will nevertheless be
       
covered under this INSURING CLAUSE as if the Employee had obtained
       
such improper personal financial gain provided that the ASSURED
       
establishes that the Employee intended to receive such improper personal
       
financial gain.
 
     
C.
Partner
 
       
Loss, in excess of the Financial Interest in the ASSURED of a Partner,
       
resulting directly from dishonest or fraudulent acts of such Partner,
       
committed alone or in collusion with others, which acts must be committed
       
with the intent:
 
       
(1)
to cause the ASSURED to sustain such loss, and
 
       
(2)
to obtain improper personal financial gain for such Partner and which
         
acts in fact result in such Partner obtaining such gain.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 1 of 20
 

 
 

 
           
Insuring Clauses
          
 
 
Dishonesty
    
For the purpose of this INSURING CLAUSE, improper personal financial gain shall
(continued)
    
not include salary, salary increases, commissions, fees, bonuses, promotions,
     
awards, profit sharing, incentive plans, pensions or other emoluments received by
     
a Partner or Employee.
 
 
On Premises
2
.
Loss of Property resulting directly from:
     
a.
robbery, burglary, misplacement, mysterious unexplainable disappearance,
       
damage or destruction, or
 
     
b.
false pretenses, or common law or statutory larceny, committed by a natural
       
person while on the premises of the ASSURED,
 
     
while the Property is lodged or deposited at premises located anywhere.
 
     
Those premises of depositories maintained by a stock exchange in which the
     
ASSURED is a member shall be deemed to be premises of the ASSURED but
     
only as respects loss of Certificated Securities.
 
     
Certificated Securities held by such depository shall be deemed to be Property
     
to the extent of the ASSURED'S interest therein as effected by the making of
     
appropriate entries on the books and records of such depository.
 
 
In Transit
3
.
Loss of Property resulting directly from common law or statutory larceny,
     
misplacement, mysterious unexplainable disappearance, damage or destruction,
     
while the Property is in transit anywhere:
 
     
a.
in an armored motor vehicle, including loading and unloading thereof,
 
     
b.
in the custody of a natural person acting as a messenger of the ASSURED,
       
or
  
 
     
c.
in the custody of a Transportation Company and being transported in a
       
conveyance other than an armored motor vehicle provided, however, that
       
covered Property transported in such manner is limited to the following:
 
       
(1)
written records,
 
       
(2)
Certificated Securities issued in registered form, which are not
         
endorsed or are restrictively endorsed, or
 
       
(3)
Negotiable Instruments not payable to bearer, which are not
         
endorsed or are restrictively endorsed.
 
     
Coverage under this INSURING CLAUSE begins immediately on the receipt of
     
such Property by the natural person or Transportation Company and ends
     
immediately on delivery to the premises of the addressee or to any representative
     
of the addressee located anywhere.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 2 of 20
 

 
 

 
               
Insuring Clauses
              
(continued)
              
 
 
Forgery Or Alteration
4
.
Loss resulting directly from:
     
a.
Forgery on, or fraudulent material alteration of, any Negotiable Instrument
       
(other than an Evidence of Debt), Acceptance, Withdrawal Order or
       
receipt for the withdrawal of Property, Certificate of Deposit or Letter of
       
Credit, or
  
 
     
b.
transferring, paying or delivering any funds or other Property, or establishing
       
any credit or giving any value in reliance on any written instructions to the
       
ASSURED authorizing or acknowledging the transfer, payment, delivery or
       
receipt of funds or other Property which instructions fraudulently purport to
       
bear the handwritten signature of any customer of the ASSURED, financial
       
institution, or Employee, but which instructions either bear a Forgery or
       
have been fraudulently materially altered without the knowledge and consent
       
of such customer, financial institution, or Employee.
 
     
For the purpose of this INSURING CLAUSE, a mechanically reproduced facsimile
     
signature is treated the same as a handwritten signature.
 
 
Extended Forgery
5
.
Loss resulting directly from the ASSURED having, in good faith, for its own
     
account or the account of others:
 
     
a.
acquired, sold or delivered, given value, extended credit or assumed liability,
       
in reliance on any original
 
       
(1
)
Certificated Security,
 
       
(2
)
deed, mortgage or other instrument conveying title to, or creating or
           
discharging a lien on, real property,
 
       
(3
)
Evidence of Debt,
 
       
(4
)
Instruction which
 
           
i.
bears a Forgery, or
 
           
ii.
is fraudulently materially altered, or
 
           
iii.
is lost or stolen, or
 
     
b.
guaranteed in writing or witnessed any signature on any transfer,
       
assignment, bill of sale, power of attorney, or endorsement upon or in
       
connection with any item listed in a.(1) through a.(4) above, or
 
     
c.
acquired, sold or delivered, or given value, extended credit or assumed
       
liability in reliance on any item listed in a.(1) or a.(2) above which is a
       
Counterfeit Original.
 
     
Actual physical possession, and continued actual physical possession if taken as
     
collateral, of the items listed in a.(1) through a.(4) above by the ASSURED or a
     
Federal or State chartered deposit institution of the ASSURED is a condition
     
precedent to the ASSURED having relied on such items. Release or return of such
     
collateral is an acknowledgment by the ASSURED that it no longer relies on such
     
collateral.
      
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 3 of 20
 

 
 

 
             
Insuring Clauses
            
 
 
Extended Forgery
    
For the purpose of this INSURING CLAUSE, a mechanically reproduced facsimile
(continued)
    
signature is treated the same as a handwritten signature.
 
 
Counterfeit Money
6
.
Loss resulting directly from the receipt by the ASSURED in good faith of any
     
counterfeit Money.
 
 
Computer System
7
.
Loss resulting directly from fraudulent:
     
a.
entries of data into, or
     
b.
changes of data elements or programs within,
     
a Computer System, provided the fraudulent entry or change causes:
       
(1
)
funds or other property to be transferred, paid or delivered,
       
(2
)
an account of the ASSURED or of its customer to be added, deleted,
debited or credited, or
       
(3
)
an unauthorized account or a fictitious account to be debited or
           
credited.
 
 
Facsimile Signature
8
.
Loss resulting directly from any issuer of securities, transfer agent, bank, banker or
     
trust company having received from the ASSURED or the New York Stock
     
Exchange, specimen copies of the ASSURED'S mechanically reproduced
     
facsimile signature and having acted in reliance upon any false, fraudulent or
     
unauthorized reproduction of such facsimile signature, whether such facsimile
     
signature is the facsimile signature duly adopted by the ASSURED or is one
     
resembling or purporting to be such facsimile signature, regardless of by whom or
     
by what means the same may have been imprinted, and whether or not such loss
     
is sustained by reason of the ASSURED having entered into an agreement to be
     
legally liable when such facsimile signature or one resembling or purporting to be
     
such facsimile signature is used, provided, however, that
     
a.
such facsimile signature is used
       
(1
)
as the signature to an assignment or other instrument authorizing or
           
effecting the transfer of shares of stock, or other registered securities,
           
which may now or at any time hereafter be registered in the name of
           
the ASSURED on the books of the association, company or
           
corporation issuing the same, or
       
(2
)
as the signature to a power of substitution, designating a substitute or
           
substitutes to make the actual transfer on the books of the issuer of
           
shares of stock, or other registered securities, in respect of which the
           
ASSURED may now or at any time hereafter be named as an attorney
           
to effect said transfer, whether said power of substitution is embodied
           
in an endorsement on the certificate for said shares of stock or other
           
registered security or in a separate instrument, and
     
b.
the New York Stock Exchange has not interposed any objections to the use
       
by the ASSURED of such facsimile signature and such agreement, if any,
       
was required by the said Exchange as a condition to its failing to interpose
       
any such objections, and
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 4 of 20
 

 
 

 
       
Insuring Clauses
      
 
 
Facsimile Signature
  
c.
this INSURING CLAUSE 8. shall not apply to any Certificated Security
(continued)
    
which is a Counterfeit Original.
 
 
General Agreements
      
 
 
Joint Assured
A.
Only the first named ASSURED shall be deemed to be the sole agent of the
   
others for all purposes under this Bond, including but not limited to the giving or
   
receiving of any notice or proof required to be given and for the purpose of
   
effecting or accepting any amendments to or termination of this Bond. Each and
   
every other ASSURED shall be conclusively deemed to have consented and
   
agreed that none of them shall have any direct beneficiary interest in or any right
   
of action under this Bond and neither this Bond nor any right of action shall be
   
assignable.
 
   
Knowledge possessed or discovery made by any ASSURED shall constitute
   
knowledge possessed or discovery made by all of the ASSUREDS for the
   
purposes of this Bond.
 
   
All losses and other payments, if any, payable by the COMPANY shall be payable
   
to the first named ASSURED without regard to such ASSURED'S obligations to
   
others, and the COMPANY shall not be responsible for the application by the first
   
named ASSURED of any payment made by the COMPANY. If the COMPANY
   
agrees to and makes payment to any ASSURED other than the one first named,
   
such payment shall be treated as though made to the first named ASSURED. The
   
COMPANY shall not be liable for loss sustained by one ASSURED to the
   
advantage of any other ASSURED.
 
 
Representations Made
B.
The ASSURED represents that all information it has furnished in the
By Assured
  
APPLICATION for this Bond or otherwise is complete, true and correct. Such
   
APPLICATION and other information constitute part of this Bond.
 
   
The ASSURED must promptly notify the COMPANY of any change in any fact or
   
circumstance which materially affects the risk assumed by the COMPANY under
   
this Bond.
 
   
Any intentional misrepresentation, omission, concealment or incorrect statement of
   
a material fact, in the APPLICATION or otherwise, shall be grounds for recision of
   
this Bond.
 
 
Additional Offices Or
C.
If the ASSURED, while this Bond is in force, merges or consolidates with, or
Employees - Consolidation,
  
purchases or acquires assets or liabilities of another institution, the ASSURED
Merger Or Purchase Or
  
shall not have the coverage afforded under this Bond for loss which has:
Acquisition Of Assets Or
  
(1)
occurred or will occur on premises,
Liabilities - Notice To
      
Company
  
(2)
been caused or will be caused by any employee, or
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 5 of 20
 

 
 

 
           
General Agreements
          
 
 
Additional Offices Or
  
(3
)
arisen or will arise out of the assets or liabilities,
Employees - Consolidation,
of such institution, unless the ASSURED:
Merger Or Purchase Or
          
Acquisition Of Assets Or
  
a.
  
gives the COMPANY written notice of the proposed consolidation, merger or
Liabilities - Notice To
      
purchase or acquisition of assets or liabilities prior to the proposed effective
Company
      
date of such action, and
(continued)
  
b.
  
obtains the written consent of the COMPANY to extend some or all of the
       
coverage provided by this Bond to such additional exposure, and
 
   
c.
  
on obtaining such consent, pays to the COMPANY an additional premium.
 
   
Notwithstanding anything stated above to the contrary, the COMPANY hereby
   
agrees to provide coverage which shall be effective on the date of acquisition
   
under this Bond for those acquired institutions in which the ASSURED owns
   
greater than fifty percent (50%) of the voting stock or voting rights either directly or
   
through one or more of its subsidiaries for the remainder of the BOND PERIOD,
   
with no additional premium, provided the acquired institution meets all of the
   
following conditions:
 
       
i.
the assets shall not exceed ten percent (10%) of the ASSURED'S
         
assets,
 
       
ii.
there shall be neither any paid nor pending Bond claim for the three (3)
         
year period prior to the date of acquisition, and
 
       
iii.
the ASSURED is not aware of any disciplinary action or proceeding by
         
State or Federal officials involving the acquired institution as of the
         
date of acquisition.
 
   
The COMPANY further agrees that as respects any acquisition that involves a
   
State or Federal regulatory assisted acquisition or assumption of assets and/or
   
liabilities, coverage shall be provided under this Bond for the remainder of the
   
BOND PERIOD as long as conditions i. and ii. above are met. As respects such
   
acquisition or assumption of assets and/or liabilities, coverage applies only to a
   
Single Loss fully sustained by the ASSURED on or after the date of such
   
acquisition or assumption. All of the circumstances, conditions or acts causing or
   
contributing to a Single Loss must occur on or after the date of such acquisition or
   
assumption for coverage to apply regardless of the time such loss is discovered by
   
the ASSURED.
 
 
Change Of Control -
D.
The ASSURED shall notify the COMPANY at the earliest practical moment, not to
Notice To Company
  
exceed sixty (60) days, after the ASSURED learns of a change of control.
   
There shall be no coverage under this Bond for any loss involving a Partner or a
   
stockholder or affiliated group of stockholders that acquires control if such loss
   
occurs after the date such party acquired control and if notice of such change in
   
control is not received by the COMPANY within the sixty (60) day time period.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 6 of 20
 

 
 

 
       
General Agreements
      
 
 
Change Of Control -
  
As used in this General Agreement, control means the power to determine the
Notice To Company
  
management or policy of a controlling holding company or of the ASSURED by
(continued)
  
virtue of partnership interest or voting stock ownership. A change in control, for the
   
purpose of the required notice, means:
 
   
(1)
a change of twenty-five (25%) percent in the Financial Interest in the
     
ASSURED or Partners due to a realignment of such Partners' percentage
     
interest, or
 
   
(2)
a change in ownership of voting stock or voting rights which results in direct
     
or indirect ownership by a stockholder or an affiliated group of stockholders
     
of ten (10%) percent or more of such stock or voting rights.
 
 
Notice To Company Of
E.
The ASSURED shall notify the COMPANY at the earliest practical moment, not to
Legal Proceedings Against
  
exceed sixty (60) days after the ASSURED receives notice, of any legal
Assured - Election To
  
proceeding brought to determine the ASSURED'S liability for any loss, claim or
Defend
  
damage which, if established, would constitute a collectible loss under this Bond.
   
Concurrent with such notice, and as requested thereafter, the ASSURED shall
   
furnish copies of all pleadings and pertinent papers to the COMPANY.
 
   
The COMPANY may, at it sole option, elect to conduct the defense of all or part of
   
such legal proceeding. The defense by the COMPANY shall be in the name of the
   
ASSURED through attorneys selected by the COMPANY. The ASSURED shall
   
provide all reasonable information and assistance as required by the COMPANY
   
for such defense.
 
   
If the COMPANY elects to defend all or part of any legal proceeding, the court
   
costs and attorneys' fees incurred by the COMPANY and any settlement or
   
judgment on that part defended by the COMPANY shall be a loss under the
   
applicable INSURING CLAUSE of this Bond. In addition, if the amount demanded
   
in the legal proceeding is greater than the amount recoverable under this Bond, or
   
if a DEDUCTIBLE AMOUNT is applicable, or both, the COMPANY'S liability for
   
court costs and attorney's fees incurred in defending all or part of such legal
   
proceeding is limited to the proportion of such court costs and attorneys' fees
   
incurred that the amount recoverable under this Bond bears to the total of the
amount demanded in such legal proceeding.
 
   
If the COMPANY declines to defend the ASSURED, no settlement without the
   
prior written consent of the COMPANY or judgment against the ASSURED shall
   
determine the existence, extent or amount of coverage under this Bond, and the
   
COMPANY shall not be liable for any costs, fees and expenses incurred by the
   
ASSURED.
 
 
Nominees
F.
Loss sustained by any nominee organized by the ASSURED for the purpose of
   
handling certain of the ASSURED'S business transactions and composed
   
exclusively of its Employees shall, for all purposes under this Bond and whether
   
any partner of the nominee is concerned or implicated in such loss, be deemed to
   
be loss sustained by the ASSURED.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 7 of 20
 

 
 

 
             
Conditions And
            
Limitations
            
 
 
Definitions
1
.
As used in this Bond:
     
a.
Acceptance means a draft which the drawee has, by signature written on it,
       
engaged to honor as presented.
 
     
b.
Certificate of Deposit means an acknowledgment in writing by a financial
       
institution of receipt of Money with an engagement to repay it.
 
     
c.
Certificated Security means a share, participation or other interest in
       
property of, or an enterprise of, the issuer or an obligation of the issuer,
       
which is:
 
       
(1
)
represented by an instrument issued in bearer or registered form, and
 
       
(2
)
of a type commonly dealt in on securities exchanges or markets or
           
commonly recognized in any area in which it is issued or dealt in as a
           
medium for investment, and
 
       
(3
)
either one of a class or series or by its terms divisible into a class or
           
series of shares, participations, interests or obligations.
 
     
d.
Computer System means a computer and all input, output, processing,
       
storage, off-line media libraries, and communication facilities which are
       
connected to the computer and which are under the control and supervision
       
of the operating system(s) or application(s) software used by the ASSURED.
 
     
e.
Counterfeit Original means an imitation of an actual valid original which is
       
intended to deceive and be taken as the original.
 
     
f.
Employee means:
 
       
(1
)
an officer of the ASSURED,
 
       
(2
)
a natural person while in the regular service of the ASSURED at any of
           
the ASSURED'S premises and compensated directly by the ASSURED
           
through its payroll system and subject to the United States Internal
           
Revenue Service Form W-2 or equivalent income reporting plans of
           
other countries, and whom the ASSURED has the right to control and
           
direct both as to the result to be accomplished and details and means
           
by which such result is accomplished in the performance of such
           
service,
 
       
(3
)
a guest student pursuing studies or duties in any of the ASSURED'S
           
premises,
 
       
(4
)
an attorney retained by the ASSURED and an employee of such
           
attorney while either is performing legal services for the ASSURED,
 
       
(5
)
a natural person provided by an employment contractor to perform
           
employee duties for the ASSURED under the ASSURED'S supervision
           
at any of the ASSURED'S premises,
 
       
(6
)
an employee of an institution merged or consolidated with the
           
ASSURED prior to the effective date of this Bond, or
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 8 of 20
 

 
 

 
     
Conditions And
    
Limitations
    
 
 
Definitions
  
(7) a director or trustee of the ASSURED, but only while performing acts
(continued)
  
within the scope of the customary and usual duties of any officer or
   
other employee of the ASSURED or while acting as a member of any
   
committee duly elected or appointed to examine or audit or have
   
custody of or access to Property of the ASSURED.
 
   
Each employer of persons as set forth in f.(4) or f.(5) preceding and the
   
partners, officers and other employees of such employers shall collectively
   
be deemed to be one person for the purpose of Section 1.s. below, and in
   
the event of payment under this Bond, the COMPANY shall be subrogated to
   
the ASSURED'S rights of recovery, as stated in Section 11., against any
   
such employer.
 
   
Employee does not mean any agent, broker, factor, commission merchant,
   
independent contractor not specified in f.(4) or f.(5) preceding, intermediary,
   
finder or other representative of the same general character who is not on
   
the ASSURED'S payroll system or who is not subject to the ASSURED'S
   
reporting to the United States Internal Revenue Service on a Form W-2 or
   
equivalent income reporting plans of other countries.
 
 
g.
Evidence of Debt means an instrument, including a Negotiable
   
Instrument, executed by a customer of the ASSURED and held by the
   
ASSURED, which in the regular course of business is treated as evidencing
   
the customer's debt to the ASSURED.
 
 
h.
Financial Interest in the ASSURED includes the financial interest of the
   
ASSURED'S general partner(s) or limited partner(s) included as Partner
   
under this Bond, committing dishonest acts covered by this Bond or
   
concerned or implicated in such acts, and means:
 
   
(1) as respects general partners, the value of all right, title and interest of
   
such general partner(s), determined as of the close of business on the
   
date of discovery of loss covered by this Bond, in the aggregate of:
 
   
(a) the "net worth" of the ASSURED which, for the purposes of this
   
Bond, shall be deemed to be the excess of its total assets over
   
its total liabilities, without adjustment to give effect to loss
   
covered by this Bond (except that credit balances and equities in
   
proprietary accounts of the ASSURED, which shall include
   
capital accounts of partners, investment and trading accounts of
   
the ASSURED, participations of the ASSURED in joint accounts,
   
and accounts of partners which are covered by agreements
   
providing for the inclusion of equities as partnership property,
   
shall not be considered as liabilities) with securities, spot
   
commodities, commodity future contracts in such proprietary
   
accounts and all other assets marked to market or fair value and
   
with adjustment for profits and losses at the market of contractual
   
commitments for such proprietary accounts of the ASSURED,
   
and
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 9 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
 
 
Definitions
      
(b) the value of all other Money, securities and property belonging to
(continued)
      
such general partner(s), or in which such general partner(s) have
       
pecuniary interest, held by or in the custody of and legally
       
available to the ASSURED as set-off against loss covered by this
       
Bond, provided,
 
   
however, that if such "net worth" adjusted to give effect to loss covered by
   
this Bond and such value of all other Money, securities and property as set
   
forth in h.(1)(b) preceding, plus the amount of coverage afforded by this
   
Bond on account of such loss, is not sufficient to enable the ASSURED to
   
meet its obligations, including its obligations to its partners other than to such
   
general partner(s), then the Financial Interest in the ASSURED of such
   
general partner(s) shall be reduced in an amount necessary, or eliminated if
   
need be, in order to enable the ASSURED on payment of loss under this
   
Bond to meet such obligations, to the extent that such payment will enable
   
the ASSURED to meet such obligations, without any benefit accruing to such
   
general partner(s) from such payment, and
 
   
(2
)
as respects limited partners, the value of such limited partner's(s)
       
investment in the ASSURED.
 
 
i.
Forgery means the signing of the name of another natural person with the
   
intent to deceive but does not mean a signature which consists in whole or in
   
part of one's own name, with or without authority, in any capacity for any
   
purpose.
 
 
j.
Initial Transaction Statement means the first written statement signed by
   
or on behalf of the issuer of an Uncertificated Security sent to the
   
registered owner or registered pledgee containing:
 
   
(1
)
a description of the issue of which the Uncertificated Security is a
       
part, and
 
   
(2
)
the number of shares or units transferred to the registered owner,
       
pledged by the registered owner to the registered pledgee, or released
       
from pledge by the registered pledgee, and
 
   
(3
)
the name, address and taxpayer identification number, if any, of the
       
registered owner and registered pledgee, and
 
   
(4
)
the date the transfer pledge or release was registered.
 
 
k.
Instruction means a written order to the issuer of an Uncertificated
   
Security requesting that the transfer, pledge or release from pledge of the
   
specified Uncertificated Security be registered.
 
 
l.
Letter of Credit means an engagement in writing by a bank or other person
   
made at the request of a customer that the bank or other person will honor
   
drafts or other demands for payment in compliance with the conditions
   
specified in the engagement.
 
 
m.
Loan means all extensions of credit by the ASSURED and all transactions
   
creating a creditor or lessor relationship in favor of the ASSURED, including
   
all purchase and repurchase agreements, and all transactions by which the
   
ASSURED assumes an existing creditor or lessor relationship.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 10 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
 
 
Definitions
n.
Money means a medium of exchange in current use authorized or adopted
(continued)
  
by a domestic or foreign government as part of its currency.
 
o.
Negotiable Instrument means any writing:
 
   
(1
)
signed by the maker or drawer, and
 
   
(2
)
containing an unconditional promise or order to pay a sum certain in
       
Money and no other promise, order, obligation or power given by the
maker or drawer, and
 
   
(3
)
is payable on demand or at a definite time, and
 
   
(4
)
is payable to order or bearer.
 
 
p.
Partner means any general partner of the ASSURED and any limited
   
partner of the ASSURED who is also employed by the ASSURED.
 
 
q.
Property means any Money; Certificated Security; Initial Transaction
   
Statement; Negotiable Instrument; Certificate of Deposit; Acceptance;
   
Evidence of Debt; Withdrawal Order; Letter of Credit; insurance policy;
   
abstract of title, deed and mortgage on real estate; revenue and other
   
stamps; precious metals in any form; and books of account and other
   
records recorded in writing, but not data processing records or media.
 
 
r.
Securities means either Certificated Securities or Uncertificated
   
Securities.
 
 
s.
Single Loss means all covered loss, including court costs and attorneys'
   
fees incurred by the COMPANY under General Agreement E., resulting
   
from:
    
 
   
(1
)
any one act of burglary, robbery or attempt at either, in which no
       
Partner or Employee is implicated, or
 
   
(2
)
any one act or series of related acts on the part of any natural person
       
resulting in damage, destruction, or misplacement of Property, or
 
   
(3
)
all acts other than those specified in s.(1) and s.(2), caused by any
       
natural person or in which such person is implicated, or
 
   
(4
)
any one event not specified in s.(1), s.(2) or s.(3).
 
 
t.
Subsidiary means any organization that, at the inception date of this Bond,
   
is named in the APPLICATION or is created during the BOND PERIOD and
   
of which more than fifty percent (50%) of the outstanding securities or voting
   
rights representing the present right to vote for election of directors is owned
   
or controlled by the ASSURED either directly or through one or more of its
   
subsidiaries.
 
 
u.
Trade means any purchase, exchange, or sale transaction, with or without
   
knowledge of the ASSURED, whether or not represented by any
   
indebtedness or balance shown to be due the ASSURED on any customer
   
account, actual or fictitious.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 11 of 20
 

 
 

 
             
Conditions And
            
Limitations
            
 
 
Definitions
    
v.
Transportation Company means any organization which provides its own
(continued)
      
or its leased vehicles for transportation or which provides freight forwarding
       
or air express services.
 
     
w.
Uncertificated Security means a share, participation or other interest in
       
property of or an enterprise of the issuer or an obligation of the issuer, which
       
is:
    
 
       
(1
)
not represented by an instrument and the transfer of which is
           
registered on books maintained for that purpose by or on behalf of the
           
issuer, and
 
       
(2
)
of a type commonly dealt in on securities exchanges or markets, and
 
       
(3
)
either one of a class or series or by its terms divisible into a class or
           
series of shares, participations, interests or obligations.
 
     
x.
Withdrawal Order means a non-negotiable instrument, other than an
       
instruction, signed by a customer of the ASSURED authorizing the
       
ASSURED to debit the customer's account in the amount of funds stated
       
therein.
 
     
For the purposes of these definitions, the singular includes the plural and the
     
plural includes the singular, unless otherwise indicated.
 
 
General Exclusions -
2
.
This Bond does not directly or indirectly cover:
Applicable To All Insuring
    
a.
loss not reported to the COMPANY in writing within sixty (60) days after
Clauses
      
termination of this Bond as an entirety;
 
     
b.
loss due to riot or civil commotion outside the United States of America and
       
Canada, or any loss due to military, naval or usurped power, war or
       
insurrection. This Section 2.b., however, shall not apply to loss which occurs
       
in transit in the circumstances recited in INSURING CLAUSE 3., provided
       
that when such transit was initiated there was no knowledge on the part of
       
any person acting for the ASSURED of such riot, civil commotion, military,
       
naval or usurped power, war or insurrection;
 
     
c.
loss resulting from the effects of nuclear fission or fusion or radioactivity;
 
     
d.
loss of potential income including, but not limited to, interest and dividends
       
not realized by the ASSURED or by any customer of the ASSURED;
 
     
e.
damages of any type for which the ASSURED is legally liable, except
       
compensatory damages, but not multiples thereof, arising from a loss
       
covered under this Bond;
 
     
f.
any costs, fees and expenses incurred by the ASSURED:
 
       
(1
)
in establishing the existence of or amount of loss covered under this
           
Bond, or
 
       
(2
)
as a party to any legal proceeding, even if such legal proceeding
           
results in a loss covered by this Bond;
 
     
g.
loss resulting from indirect or consequential loss of any nature;
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 12 of 20
 

 
 

 
                       
Conditions And
                      
Limitations
                      
 
General Exclusions -
    
h.
loss resulting from dishonest acts of any member of the Board of Directors or
Applicable To All Insuring
      
Board of Trustees of the ASSURED who is not an Employee, acting alone
Clauses
      
or in collusion with others;
      
(continued)
    
i.
loss, or that part of any loss, resulting solely from any violation by the
       
ASSURED or by any Partner or Employee:
    
       
(1
)
of any law regulating:
    
           
a.
the issuance, purchase or sale of securities,
  
           
b.
securities transactions on security or commodity exchanges or
             
the over the counter market,
    
           
c.
investment companies,
    
           
d.
investment advisors, or
    
       
(2
)
of any rule or regulation made pursuant to any such law;
     
j.
loss of confidential information, material or data;
  
     
k.
loss resulting from any actual or alleged:
    
       
(1
)
representation or advice, or
    
       
(2
)
warranty or guarantee as to the performance of any investment;
     
l.
loss due to liability resulting from disclosure of or acting on material
       
nonpublic information;
      
     
m.
loss resulting from transactions in a customer's account, whether authorized
       
or unauthorized, except loss resulting from the unlawful withdrawal and
       
conversion of Money, Securities or precious metals directly from a
       
customer's account and provided such unlawful withdrawal and conversion is
       
covered under INSURING CLAUSE 1; or
    
     
n.
loss caused by any natural person, partnership or corporation engaged by
       
the ASSURED to perform data processing services.
  
 
Specific Exclusions -
3
.
This Bond does not directly or indirectly cover:
  
Applicable To All Insuring
    
a.
loss caused by a Partner or Employee provided, however, this Section 3.a.
Clauses Except Insuring
      
shall not apply to loss covered under INSURING CLAUSE 2. or 3. which
Clause 1.
       results directly from misplacement, mysterious unexplainable
       
disappearance, or damage or destruction of Property;
  
     
b.
loss through the surrender of property away from premises of the ASSURED
       
as a result of a threat:
      
       
(1
)
to do bodily harm to any person, except loss of Property in transit in
           
the custody of any natural person acting as messenger of the
           
ASSURED, provided that when such transit was initiated there was no
           
knowledge by the ASSURED of any such threat, or
  
       
(2
)
to do damage to the premises or Property of the ASSURED;
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 13 of 20
 

 
 

 
     
Conditions And
    
Limitations
    
 
 
Specific Exclusions -
c.
loss resulting from payments made or withdrawals from any account
Applicable To All Insuring
  
involving erroneous credits to such account, unless such payments or
Clauses Except Insuring
  
withdrawals are physically received by such depositor or representative of
Clause 1.
  
such depositor who is within the office of the ASSURED at the time of such
(continued)
  
payment or withdrawal, or except when covered under INSURING CLAUSE
   
1.;
 
 
d.
loss involving any Uncertificated Security provided, however, this Section
   
3.d. shall not apply to INSURING CLAUSE 7.;
 
 
e.
loss of property while in the mail;
 
 
f.
damages resulting from any civil, criminal or other legal proceeding in which
   
the ASSURED is adjudicated to have engaged in racketeering activity. For
   
the purposes of this Section 3.f., "racketeering activity" is defined in 18
   
United State Code 1961 et seq., as amended;
 
 
g.
loss resulting from the failure for any reason of a financial or depository
   
institution, its receiver or other liquidator to pay or deliver funds or Property
   
to the ASSURED provided, however, this Section 3.g. shall not apply to
   
Securities covered under INSURING CLAUSE 2.a.;
 
 
h.
loss of Property while in the custody of a Transportation Company
   
provided, however, this Section 3.h. shall not apply to INSURING CLAUSE
   
3.;
 
 
i.
loss resulting from entries or changes made by a natural person with
   
authorized access to a Computer System who acts in good faith on
   
instructions, unless such instructions are given to that person by a software
   
contractor or its partner, officer, or employee authorized by the ASSURED to
   
design, develop, prepare, supply, service, write or implement programs for
   
the ASSURED'S Computer System;
 
j.
loss resulting directly or indirectly from the input of data into a Computer
   
System terminal device, either on the premises of a customer of the
   
ASSURED or under the control of such a customer, by a customer or other
   
person who had authorized access to the customer's authentication
   
mechanism;
 
k.
loss resulting from the use of credit, debit, charge, access, convenience,
   
identification, cash management or other cards whether such cards were
   
issued, or purport to have been issued, by the ASSURED or by anyone other
   
than the ASSURED;
 
l.
loss involving items of deposit which are not finally paid for any reason
   
including, but not limited to, forgery or any other fraud;
 
m.
loss caused by any agent, broker, factor, commission merchant,
   
independent contractor, intermediary, finder or other representative of the
   
same general character of the ASSURED; or
 
n.
loss caused by any employee, agent, broker, factor, commission merchant,
   
independent contractor, intermediary, finder or other representative of the
   
same general character of any third party, while conducting business with
   
the ASSURED on behalf of such third party.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 14 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
(continued)
        
 
 
Specific Exclusions -
4
.
This Bond does not directly or indirectly cover:
Applicable To All Insuring
    
a.
loss resulting from the complete or partial non-payment of or default on any
Clauses Except Insuring
      
Loan whether such Loan was procured in good faith or through trick, artifice,
Clauses 1., 4., And 5.
      
fraud or false pretenses provided, however, this Section 4.a. shall not apply
       
to INSURING CLAUSE 7;
 
     
b.
loss resulting from forgery or any alteration;
 
     
c.
loss involving a counterfeit provided, however, this Section 4.c. shall not
apply to INSURING CLAUSE 6; or
 
     
d.
loss resulting from any Trade provided, however, this Section 4.d. shall not
       
apply to INSURING CLAUSE 7.
 
 
Limit Of Liability
5
.
The COMPANY’S total cumulative liability for all Single Loss of all ASSUREDS
     
discovered during the BOND PERIOD shall not exceed the AGGREGATE LIMIT
     
OF LIABILITY as stated in ITEM 2. of the DECLARATIONS. Each payment made
Aggregate Limit Of
    
under the terms of this Bond shall reduce the unpaid portion of the AGGREGATE
Liability
    
LIMIT OF LIABILITY until it is exhausted.
 
     
On exhausting the AGGREGATE LIMIT OF LIABILITY by such payments:
 
     
a.
the COMPANY shall have no further liability for loss or losses regardless of
       
when discovered and whether or not previously reported to the COMPANY,
       
and
 
     
b.
the COMPANY shall have no obligation under General Agreement E. to
       
continue the defense of the ASSURED, and on notice by the COMPANY to
       
the ASSURED that the AGGREGATE LIMIT OF LIABILITY has been
       
exhausted, the ASSURED shall assume all responsibility for its defense at
       
its own cost.
 
     
The unpaid portion of the AGGREGATE LIMIT OF LIABILITY shall not be
     
increased or reinstated by any recovery made and applied in accordance with
     
Section 11. In the event that a loss of Property is settled by indemnity in lieu of
     
payment, then such loss shall not reduce the unpaid portion of the AGGREGATE
     
LIMIT OF LIABILITY.
 
Single Loss Limit Of
    
The COMPANY'S liability for each Single Loss shall not exceed the applicable
Liability
    
SINGLE LOSS LIMIT OF LIABILITY as stated in ITEM 3. of the DECLARATIONS
     
or the unpaid portion of the AGGREGATE LIMIT OF LIABILITY, whichever is less.
     
If a Single Loss is covered under more than one INSURING CLAUSE, the
     
maximum payable shall not exceed the largest applicable SINGLE LOSS LIMIT
     
OF LIABILITY.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 15 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
(continued)
        
 
 
Discovery
6
.
This Bond applies only to loss first discovered by an officer of the ASSURED
     
during the BOND PERIOD. Discovery occurs at the earlier of an officer of the
     
ASSURED being aware of:
 
     
a.
facts which may subsequently result in a loss of a type covered by this Bond,
       
or
 
     
b.
an actual or potential claim in which it is alleged that the ASSURED is liable
       
to a third party,
 
     
regardless of when the act or acts causing or contributing to such loss occurred,
     
even though the amount of loss does not exceed the applicable DEDUCTIBLE
     
AMOUNT or the Financial Interest in the ASSURED, or the exact amount or
     
details of loss may not then be known.
 
 
Notice To Company -
7
.
a.
The ASSURED shall give the COMPANY notice at the earliest practicable
Proof - Legal Proceedings
      
moment, not to exceed sixty (60) days after discovery of a loss, in an amount
Against Company
      
that is in excess of 50% of the applicable DEDUCTIBLE AMOUNT, as stated
in ITEM 3. of the DECLARATIONS.
 
     
b.
The ASSURED shall furnish to the COMPANY proof of loss, duly sworn to,
       
with full particulars, within six (6) months after such discovery.
 
     
c.
Certificated Securities listed in a proof of loss shall be identified by
       
certificate or bond numbers, if issued with them.
 
     
d.
Legal proceedings for the recovery of any loss under this Bond shall not be
       
brought prior to the expiration of sixty (60) days after the proof of loss is filed
       
with the COMPANY or after the expiration of twenty-four (24) months from
       
the discovery of such loss.
 
     
e.
This Bond affords coverage only in favor of the ASSURED. No claim, suit,
       
action or legal proceeding shall be brought under this Bond by anyone other
       
than the ASSURED.
 
 
Deductible Amount
8
.
The COMPANY shall be liable under this Bond only for the amount by which any
     
Single Loss is greater than the applicable DEDUCTIBLE AMOUNT as stated in
     
ITEM 3. of the DECLARATIONS, and is equal to or less than the applicable
     
SINGLE LOSS LIMIT OF LIABILITY. The DEDUCTIBLE AMOUNT is in addition to
     
the Financial Interest in the ASSURED as stated in Section 1.h.
 
 
Valuation
9
.
The value of any loss of Property consisting of books of account or other records
     
used by the ASSURED in the conduct of its business shall be the amount paid by
     
the ASSURED for blank books, blank pages, or other materials which replace the
Books Of Account Or
    
lost books of account or other records, plus the cost of labor paid by the
Other Records
    
ASSURED for the actual transcription or copying of data to reproduce such books
     
of account or other records.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 16 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
(continued)
        
 
 
Loan
    
The value of any loss or that portion of any loss resulting from a Loan shall be the
     
amount actually disbursed by the ASSURED to a borrower under such Loan
     
reduced by all amounts including, but not limited to, interest and fees received by
     
the ASSURED under all Loans to such borrower, whether or not part of any claim
     
under this Bond.
 
Money
    
Any loss of Money, or loss payable in Money, shall be paid in the Money of the
     
United States of America or the dollar equivalent of it, determined by the free
     
market rate of exchange in effect at the time of discovery of such loss.
 
Other Property
    
The value of any loss of Property, other than as stated above, shall be the actual
     
cash value or the cost of repairing or replacing such Property with property of like
     
quality and value, whichever is less.
 
Securities
    
The value of any loss of Securities shall be the average market value of such
     
Securities on the business day immediately preceding discovery of such loss
     
provided, however, that the value of any Securities replaced by the ASSURED,
     
with the consent of the COMPANY and prior to the settlement of any claim for
     
them, shall be the actual market value at the time of replacement. In the case of a
     
loss of interim certificates, warrants, rights or other Securities, the production of
     
which is necessary to the exercise of subscription, conversion, redemption or
     
deposit privileges, the value of them shall be the market value of such privileges
     
immediately preceding their expiration if said loss is not discovered until after their
     
expiration. If no market price is quoted for such Securities or for such privileges,
     
the value shall be fixed by agreement of the parties.
 
Set-Off
    
Any loss covered under INSURING CLAUSE 1.A. shall be reduced by a set-off
     
consisting of the amount owed to the Employee causing the loss, whether or not
     
assigned to another.
 
Trade
    
The value of any loss or that portion of any loss resulting from a Trade shall be
     
reduced by the amount of commission and other amounts received by the
     
ASSURED as a result of such Trade.
 
 
Securities Settlement
10
.
In the event of a loss of Securities covered under this Bond, the COMPANY may,
     
at its sole discretion, purchase replacement Securities, tender the value of the
     
Securities in Money, or issue its indemnity to effect replacement Securities.
 
     
The indemnity required from the ASSURED under the terms of this Section
     
against all loss, cost or expense arising from the replacement of Securities by the
     
COMPANY'S indemnity shall be:
 
     
a.
for Securities having a value less than or equal to the applicable
       
DEDUCTIBLE AMOUNT - one hundred (100%) percent;
 
     
b.
for Securities having a value in excess of the applicable DEDUCTIBLE
       
AMOUNT but within the SINGLE LOSS LIMIT OF LIABILITY - the
       
percentage that the DEDUCTIBLE AMOUNT bears to the value of the
       
Securities;
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 17 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
 
 
Securities Settlement
    
c.
for Securities having a value greater than the applicable SINGLE LOSS
(continued)
      
LIMIT OF LIABILITY - the percentage that the DEDUCTIBLE AMOUNT and
       
portion in excess of the SINGLE LOSS LIMIT OF LIABILITY bears to the
       
value of the Securities.
 
     
The value referred to in Sections 10.a., b., and c. is the value in accordance with
     
Section 9., Valuation, regardless of the value of such Securities at the time the
     
loss under the COMPANY'S indemnity is sustained.
 
     
The COMPANY is not required to issue its indemnity for any portion of a loss of
     
Securities which is not covered by this Bond, however, the COMPANY may do so
     
as a courtesy to the ASSURED and at its sole discretion.
 
     
The ASSURED shall pay the proportion of the COMPANY'S premium charge for
     
the COMPANY'S indemnity as set forth in Sections 10.a., b., and c. No portion of
     
the SINGLE LOSS LIMIT OF LIABILITY shall be used as payment of premium for
     
any indemnity purchased by the ASSURED to obtain replacement Securities.
 
 
Subrogation -
11
.
In the event of a payment under this Bond, the COMPANY shall be subrogated to
Assignment - Recovery
    
all of the ASSURED'S rights of recovery against any person or entity to the extent
     
of such payment. On request, the ASSURED shall deliver to the COMPANY an
     
assignment of the ASSURED'S rights, title and interest and causes of action
     
against any person or entity to the extent of such payment.
 
     
Recoveries, whether effected by the COMPANY or by the ASSURED, shall be
     
applied net of the expense of such recovery, in the following order:
 
     
a.
first, to the satisfaction of the ASSURED'S covered loss which would
       
otherwise have been paid but for the fact that it is in excess of either the
       
SINGLE LOSS LIMIT OF LIABILITY or AGGREGATE LIMIT OF LIABILITY,
 
     
b.
second, to the COMPANY in satisfaction of amounts paid in settlement of
       
the ASSURED'S claim,
 
     
c.
third, to the ASSURED in satisfaction of the applicable DEDUCTIBLE
       
AMOUNT, and
 
     
d.
fourth, to the ASSURED in satisfaction of any loss suffered by the
       
ASSURED which was not covered under this Bond.
 
     
Recovery from reinsurance or indemnity of the COMPANY shall not be deemed a
     
recovery under this Section.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 18 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
 
 
Subrogation -
    
This Bond does not afford coverage in favor of any Depository, and, in the event of
Assignment – Recovery
    
a payment under this Bond, the COMPANY shall be subrogated to the
(continued)
    
ASSURED'S rights of recovery against any Depository.
     
To the extent that, under the rules of a Depository, the ASSURED is liable to such
     
Depository for a portion of the recovery received by the COMPANY, the
     
COMPANY will reimburse the ASSURED for the ASSURED'S liability for its
     
portion of such recovery up to, but not exceeding, the amount of the loss payment
     
by the COMPANY.
 
 
Cooperation Of Assured
12
.
At the COMPANY'S request and at reasonable times and places designated by
     
the COMPANY, the ASSURED shall:
     
a.
submit to examination by the COMPANY and subscribe to the same under
       
oath, and
     
b.
produce for the COMPANY'S examination all pertinent records, and
     
c.
cooperate with the COMPANY in all matters pertaining to the loss.
     
The ASSURED shall execute all papers and render assistance to secure to the
     
COMPANY the rights and causes of action provided for under this Bond. The
     
ASSURED shall do nothing after loss to prejudice such rights or causes of action.
 
 
Termination
13
.
This Bond terminates as an entirety on the earliest occurrence of any of the
     
following:
     
a.
immediately on the receipt by the COMPANY of a written notice from the
       
ASSURED of its decision to terminate this Bond, or
     
b.
immediately on the appointment of a trustee, receiver or liquidator to act on
       
behalf of the ASSURED, or the taking over of the ASSURED by State or
       
Federal officials, or
     
c.
immediately on the dissolution of the ASSURED, or
     
d.
immediately on the taking over of the ASSURED by another entity, or
     
e.
immediately on exhausting the AGGREGATE LIMIT OF LIABILITY, or
     
f.
immediately on expiration of the BOND PERIOD.
     
This Bond terminates as to any Partner or Employee:
       
(1) immediately on the ASSURED, or any of its Partners, directors,
       
trustees or officers not acting in collusion with such Partner or
       
Employee, learning of any dishonest act committed by such Partner
       
or Employee at any time, whether in the employment of the ASSURED
       
or otherwise, whether or not such act is of the type covered under this
       
Bond, and whether against the ASSURED or any other person or
       
entity, or
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 19 of 20
 

 
 

 
         
Conditions And
        
Limitations
        
 
 
Termination
      
(2) fifteen (15) days after the receipt by the ASSURED of a written notice
(continued)
      
from the COMPANY of its decision to terminate this Bond as to any
Partner or Employee.
 
       
Termination as to any Partner or Employee shall not apply if the dishonest
       
act occurred prior to the employment with the ASSURED and involved less
       
than $10,000.
 
       
Such termination, however, is without prejudice to the loss of any Property
       
then in transit in the custody of such Partner or Employee.
 
     
The COMPANY will mark its records to indicate that the organizations named in
     
ITEM 5. of the DECLARATIONS are to be notified promptly concerning termination
     
or substantial modification of this Bond as an entirety or as to any Partner or
     
Employee, whether such termination is effected by notice from the ASSURED or
     
by the COMPANY. The COMPANY will use its best efforts to so notify said
     
organizations, but failure to so notify shall not impair or delay the effectiveness of
     
any such termination.
 
 
Other Insurance
14
.
Coverage under this Bond shall apply only as excess over any other valid and
     
collectible insurance, indemnity or suretyship obtained by or on behalf of:
 
     
a.
the ASSURED, or
 
     
b.
a Transportation Company, or
 
     
c.
another entity on whose premises the loss occurred or which employed the
       
person causing the loss or engaged the messenger conveying the Property
       
involved.
 
 
Employee Benefit Plans
15
.
All of the ASSURED'S employee benefit plans that qualify under Section 412 of
     
the Employee Retirement Income Security Act of 1974 (ERISA), are provided
     
bonding protection under INSURING CLAUSE 1., DISHONESTY, as required
     
under ERISA.
 
 
Conformity
16
.
If any limitation within this Bond is prohibited by any law controlling this Bond's
     
construction, such limitation shall be deemed to be amended so as to equal the
     
minimum period of limitation provided by such law.
 
 
Change Or Modification
17
.
This Bond or any instrument amending or affecting this Bond may not be changed
     
or modified orally. No change in or modification of this Bond shall be effective
     
except when made by written endorsement to this Bond signed by an authorized
     
representative of the COMPANY.
 

 
   
Form B-2 (12-97)
  
Form 17-02-1371 (Ed. 12-97)
Page 20 of 20
 

 
 

 
         
     
FEDERAL INSURANCE COMPANY
      Endorsement No: 1
      Bond Number: 70437189
NAME OF ASSURED: CAPITALA FINANCE CORP.
  
 
PREMIUM ENDORSEMENT
It is agreed that:
    
1
.
The premium for this Bond for the period
September 20, 2013 to September 20, 2014 is:
   
Premium: Three thousand seven hundred fifty ($3,750.00)
  
2
.
It is further agreed that this premium is subject to change during this period if amendments are made to
   
this Bond at the request of the ASSURED.
    
 
This Endorsement applies to loss discovered after 12:01 a.m. on September 20, 2013.
ALL OTHER TERMS AND CONDITIONS OF THIS BOND REMAIN UNCHANGED.
 
 
Date: September 26, 2013
 
 
B-2 Bond
 
 
Form 17-02-0735 (Rev. 1-97)
 
 

 
 

 
     
  ENDORSEMENT/RIDER
Effective date of
    
this endorsement/rider: September 20, 2013
FEDERAL INSURANCE COMPANY
  Endorsement/Rider No. 2
 
To be attached to and
  
  form a part of Bond No. 70437189
 
Issued to: CAPITALA FINANCE CORP.
    
COMPLIANCE WITH APPLICABLE TRADE SANCTION LAWS
It is agreed that this insurance does not apply to the extent that trade or economic sanctions or other
similar laws or regulations prohibit the coverage provided by this insurance.
  
 
 
 
The title and any headings in this endorsement/rider are solely for convenience and form no part of the
terms and conditions of coverage.
    
All other terms, conditions and limitations of this Bond shall remain unchanged.
  
 
 
14-02-9228 (02/2010)
 
Page 1
 
 

 
   
FEDERAL INSURANCE COMPANY
Endorsement No. 3
Bond Number: 70437189
NAME OF ASSURED: CAPITALA FINANCE CORP.
  
 
NORTH CAROLINA AMENDATORY ENDORSEMENT
It is agreed that this Bond is amended by deleting paragraph d. in its entirety from Section 7., Notice to
Company-Proof-Legal Proceedings Against Company, and substituting the following:
"d. Legal proceedings for the recovery of any loss under this Bond shall not be brought prior to the
expiration of sixty (60) days after the proof of loss is filed with the COMPANY or after the expiration of
thirty-six (36) months from the discovery of such loss."
  
 
 
 
 
This Endorsement applies to loss discovered after 12:01 a.m. on September 20, 2013.
 
 
ALL OTHER TERMS AND CONDITIONS OF THIS BOND REMAIN UNCHANGED.
 
 
Date: September 26, 2013
 
 
State Amendatory-General Use Form 17-02-1453 (Ed. 1-97)
 
 
 
 
 
 
 
Premiums have been paid for the period beginning September 20, 2013 through September 20, 2014.