Exhibit 10.3


CUSTODY AGREEMENT


AGREEMENT, dated as of May 5, 2006 between Gladstone
Capital Corporation, a corporation existing under the laws of the State of
Maryland having its principal office and place of business at 1521 Westbranch
Drive, Suite 200, McLean, Virginia  22102
(the “Corporation”) and The Bank of New York, a New York corporation authorized
to do a banking business having its principal office and place of business at
One Wall Street, New York, New York 10286 (“Custodian”).


W I T N E
S S E T H:


that for and in
consideration of the mutual promises hereinafter set forth the Corporation and
Custodian agree as follows:


ARTICLE I

DEFINITIONS


Whenever used in this Agreement, the following words
shall have the meanings set forth below:


1.     “Authorized Person” shall be any person,
whether or not an officer or employee of the Corporation, duly authorized by
the Corporation’s board to execute any Certificate or to give any Oral
Instruction with respect to one or more Accounts, such persons to be designated
in a Certificate annexed hereto as Schedule I hereto or such other Certificate
as may be received by Custodian from time to time.


2.     “Custodian Affiliate” shall mean any
office, branch or subsidiary of The Bank of New York Company, Inc.


3.     “Book-Entry System” shall mean the
Federal Reserve/Treasury book-entry system for receiving and delivering
securities, its successors and nominees.


4.     “Business Day” shall mean any day on which
Custodian and relevant Depositories are open for business.


5.     “Certificate” shall mean any notice,
instruction, or other instrument in writing, authorized or required by this
Agreement to be given to Custodian, which is actually received by Custodian by
letter or facsimile transmission and signed on behalf of the Corporation by an
Authorized Person or a person reasonably believed by Custodian to be an
Authorized Person.


6.     “Composite Currency Unit” shall mean the
Euro or any other composite currency unit consisting of the aggregate of
specified amounts of specified currencies, as such unit may be constituted from
time to time.


7.     “Depository” shall include (a) the
Book-Entry System, (b) the Depository Trust Company, (c) any other clearing
agency or securities depository registered with the Securities and 



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Exchange Commission identified to the Corporation from time to time,
and (d) the respective successors and nominees of the foregoing.


8.     “Foreign Depository” shall mean (a)
Euroclear, (b) Clearstream Banking, societe anonyme, (c) each Eligible
Securities Depository as defined in Rule 17f-7 under the Investment
Company Act of 1940, as amended, identified to the Corporation from time to
time, and (d) the respective
successors and nominees of the foregoing.


9.     “Instructions” shall mean communications
actually received by Custodian by S.W.I.F.T., tested telex, letter, facsimile
transmission, or other method or system specified by Custodian as available for
use in connection with the services hereunder.


10.   “Oral Instructions” shall mean verbal
instructions received by Custodian from an Authorized Person or from a person
reasonably believed by Custodian to be an Authorized Person.


11.   “Series” shall mean the various portfolios,
if any, of the Corporation listed on Schedule II hereto, and if none are listed
references to Series shall be references to the Corporation.


12.   “Securities” shall include, without
limitation, any common stock and other equity securities, bonds, debentures and
other debt securities, notes, mortgages or other obligations, and any
instruments representing rights to receive, purchase, or subscribe for the
same, or representing any other rights or interests therein (whether
represented by a certificate or held in a Depository or by a Subcustodian).


13.   “Subcustodian” shall mean a bank (including
any branch thereof) or other financial institution (other than a Foreign
Depository) located outside the U.S. which is utilized by Custodian in
connection with the purchase, sale or custody of Securities hereunder and
identified to the Corporation from time to time, and their respective
successors and nominees.


ARTICLE II

APPOINTMENT OF CUSTODIAN; ACCOUNTS;

REPRESENTATIONS, WARRANTIES, AND COVENANTS


1.     (a)   The Corporation hereby appoints Custodian as
custodian of all Securities and cash at any time delivered to Custodian during
the term of this Agreement, and authorizes Custodian to hold Securities in
registered form in its name or the name of its nominees.  Custodian hereby accepts such appointment and
agrees to establish and maintain one or more securities accounts and cash
accounts for each Series in which Custodian will hold Securities and cash as
provided herein.  Custodian shall
maintain books and records segregating the assets of each Series from the
assets of any other Series.  Such
accounts (each, an “Account”; collectively, the “Accounts”) shall be in the
name of the Corporation.


(b)   Custodian
may from time to time establish on its books and records such sub-accounts
within each Account as the Corporation and Custodian may agree upon (each a “Special




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Account”), and Custodian shall reflect therein such assets as the
Corporation may specify in a Certificate or Instructions.


(c)   Custodian
may from time to time establish pursuant to a written agreement with and for
the benefit of a broker, dealer, future commission merchant or other third
party identified in a Certificate or Instructions such accounts on such terms
and conditions as the Corporation and Custodian shall agree, and Custodian
shall transfer to such account such Securities and money as the Corporation may
specify in a Certificate or Instructions.


2.     The
Corporation hereby represents and warrants, which representations and
warranties shall be continuing and shall be deemed to be reaffirmed upon each
delivery of a Certificate or each giving of Oral Instructions or Instructions
by the Corporation, that:


(a)   It
is duly organized and existing under the laws of the jurisdiction of its
organization, with full power to carry on its business as now conducted, to
enter into this Agreement, and to perform its obligations hereunder;


(b)   This
Agreement has been duly authorized, executed and delivered by the Corporation,
approved by a resolution of its board, constitutes a valid and legally binding
obligation of the Corporation, enforceable in accordance with its terms, and
there is no statute, regulation, rule, order or judgment binding on it, and no
provision of its charter or by-laws, nor of any mortgage, indenture, credit
agreement or other contract binding on it or affecting its property, which
would prohibit its execution or performance of this Agreement;


(c)   It
is conducting its business in substantial compliance with all applicable laws
and requirements, both state and federal, and has obtained all regulatory
licenses, approvals and consents necessary to carry on its business as now
conducted;


(d)   It
will not use the services provided by Custodian hereunder in any manner that
is, or will result in, a violation of any law, rule or regulation applicable to
the Corporation;


(e)   Its
board or its foreign custody manager, as defined in Rule 17f-5 under the
Investment Company Act of 1940, as amended (the “‘40 Act”), has determined that
use of each Subcustodian (including any Replacement Custodian) which Custodian
is authorized to utilize in accordance with Section 1(a) of Article III hereof
satisfies the applicable requirements of the ‘40 Act and Rule 17f-5
thereunder;


(f)    The
Corporation or its investment adviser has determined that the custody
arrangements of each Foreign Depository provide reasonable safeguards against
the custody risks associated with maintaining assets with such Foreign
Depository within the meaning of Rule 17f-7 under the ‘40 Act;


(g)   It
is fully informed of the protections and risks associated with various methods
of transmitting Instructions and Oral Instructions and delivering Certificates
to Custodian, shall, and shall cause each Authorized Person, to safeguard and
treat with extreme care any user and authorization codes, passwords and/or
authentication keys, understands that there may be more secure methods of transmitting
or delivering the same than the methods 



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selected by it, agrees that the security procedures (if any) to be
followed in connection therewith provide a commercially reasonable degree of
protection in light of its particular needs and circumstances, and acknowledges
and agrees that Instructions need not be reviewed by Custodian, may
conclusively be presumed by Custodian to have been given by person(s) duly
authorized,  and may be acted upon as
given;


(h)   It
shall manage its borrowings, including, without limitation, any advance or
overdraft (including any day-light overdraft) in the Accounts, so that the
aggregate of its total borrowings for each Series does not exceed the amount
such Series is permitted to borrow under the ‘40 Act;


(i)    Its
transmission or giving of, and Custodian acting upon and in reliance on,
Certificates, Instructions, or Oral Instructions pursuant to this Agreement
shall at all times comply with the ‘40 Act;


(j)    It
shall impose and maintain restrictions on the destinations to which cash may be
disbursed by Instructions to ensure that each disbursement is for a proper
purpose; and


(k)   It
has the right to make the pledge and grant the security interest and security
entitlement to Custodian contained in Section 1 of Article V hereof, free of
any right of redemption or prior claim of any other person or entity, such
pledge and such grants shall have a first priority subject to no setoffs,
counterclaims, or other liens or grants prior to or on a parity therewith, and
it shall take such additional steps as Custodian may require to assure such
priority.


3.     The
Corporation hereby covenants that it shall from time to time complete and
execute and deliver to Custodian upon Custodian’s request a Form FR U-1 (or
successor form) whenever the Corporation borrows from Custodian any money to be
used for the purchase or carrying of margin stock as defined in Federal Reserve
Regulation U.


ARTICLE III

CUSTODY AND RELATED SERVICES


1.     (a)   Subject to the terms hereof, the Corporation
hereby authorizes Custodian to hold any Securities received by it from time to
time for the Corporation’s account. 
Custodian shall be entitled to utilize, subject to subsection (c) of
this Section 1, Depositories, Subcustodians, and, subject to subsection (d) of
this Section 1, Foreign Depositories, to the extent possible in connection with
its performance hereunder.  Securities
and cash held in a Depository or Foreign Depository will be held subject to the
rules, terms and conditions of such entity. 
Securities and cash held through Subcustodians shall be held subject to
the terms and conditions of Custodian’s agreements with such
Subcustodians.  Subcustodians may be
authorized to hold Securities in Foreign Depositories in which such
Subcustodians participate.  Unless otherwise
required by local law or practice or a particular subcustodian agreement,
Securities deposited with a Subcustodian, a Depositary or a Foreign Depository
will be held in a commingled account, in the name of Custodian, holding only
Securities held by Custodian as custodian for its customers.  Custodian shall identify on its books and
records the Securities and cash belonging to the Corporation, whether held
directly or indirectly through Depositories, Foreign Depositories, or 



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Subcustodians.  Custodian shall,
directly or indirectly through Subcustodians, Depositories, or Foreign
Depositories, endeavor, to the extent feasible, to hold Securities in the
country or other jurisdiction in which the principal trading market for such
Securities is located, where such Securities are to be presented for
cancellation and/or payment and/or registration, or where such Securities are
acquired.  Custodian at any time may
cease utilizing any Subcustodian and/or may replace a Subcustodian with a
different Subcustodian (the “Replacement Subcustodian”).  In the event Custodian selects a Replacement
Subcustodian, Custodian shall not utilize such Replacement Subcustodian until
after the Corporation’s board or foreign custody manager has determined that
utilization of such Replacement Subcustodian satisfies the requirements of the ‘40
Act and Rule 17f-5 thereunder.


(b)   Unless
Custodian has received a Certificate or Instructions to the contrary, Custodian
shall hold Securities indirectly through a Subcustodian only if (i) the Securities
are not subject to any right, charge, security interest, lien or claim of any
kind in favor of such Subcustodian or its creditors or operators, including a
receiver or trustee in bankruptcy or similar authority, except for a claim of
payment for the safe custody or administration of Securities on behalf of the
Corporation by such Subcustodian, and (ii) beneficial ownership of the
Securities is freely transferable without the payment of money or value other
than for safe custody or administration.


(c)   With
respect to each Depository, Custodian (i) shall exercise due care in accordance
with reasonable commercial standards in discharging its duties as a securities
intermediary to obtain and thereafter maintain Securities or financial assets
deposited or held in such Depository, and (ii) will provide, promptly upon
request by the Corporation, such reports as are available concerning the
internal accounting controls and financial strength of Custodian.


(d)   With
respect to each Foreign Depository, Custodian shall exercise reasonable care,
prudence, and diligence (i) to provide the Corporation with an analysis of the
custody risks associated with maintaining assets with the Foreign Depository,
and (ii) to monitor such custody risks on a continuing basis and promptly
notify the Corporation of any material change in such risks.  The Corporation acknowledges and agrees that
such analysis and monitoring shall be made on the basis of, and limited by,
information gathered from Subcustodians or through publicly available
information otherwise obtained by Custodian, and shall not include any
evaluation of Country Risks.  As used
herein the term “Country Risks” shall mean with respect to any Foreign
Depository:  (a) the financial
infrastructure of the country in which it is organized, (b) such country’s
prevailing custody and settlement practices, (c) nationalization, expropriation
or other governmental actions, (d) such country’s regulation of the banking or
securities industry, (e) currency controls, restrictions, devaluations or
fluctuations, and (f) market conditions which affect the order execution of
securities transactions or affect the value of securities.


2.     Custodian
shall furnish the Corporation with an advice of daily transactions (including a
confirmation of each transfer of Securities) and a monthly summary of all
transfers to or from the Accounts.


3.     With
respect to all Securities held hereunder, Custodian shall, unless otherwise
instructed to the contrary:



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(a)   Receive
all income and other payments and advise the Corporation as promptly as
practicable of any such amounts due but not paid;


(b)   Present
for payment and receive the amount paid upon all Securities which may mature
and advise the Corporation as promptly as practicable of any such amounts due
but not paid;


(c)   Forward
to the Corporation copies of all information or documents that it may actually
receive from an issuer of Securities which, in the opinion of Custodian, are
intended for the beneficial owner of Securities;


(d)   Execute,
as custodian, any certificates of ownership, affidavits, declarations or other
certificates under any tax laws now or hereafter in effect in connection with
the collection of bond and note coupons;


(e)   Hold
directly or through a Depository, a Foreign Depository, or a Subcustodian all
rights and similar Securities issued with respect to any Securities credited to
an Account hereunder; and


(f)    Endorse
for collection checks, drafts or other negotiable instruments.


4.     (a)   Custodian shall notify the Corporation of
rights or discretionary actions with respect to Securities held hereunder, and
of the date or dates by when such rights must be exercised or such action must
be taken, provided that Custodian has actually received, from the issuer or the
relevant Depository (with respect to Securities issued in the United States) or
from the relevant Subcustodian, Foreign Depository, or a nationally or
internationally recognized bond or corporate action service to which Custodian
subscribes, timely notice of such rights or discretionary corporate action or
of the date or dates such rights must be exercised or such action must be
taken.  Absent actual receipt of such
notice, Custodian shall have no liability for failing to so notify the
Corporation.


(b)   Whenever
Securities (including, but not limited to, warrants, options, tenders, options
to tender or non-mandatory puts or calls) confer discretionary rights on
the Corporation or provide for discretionary action or alternative courses of
action by the Corporation, the Corporation shall be responsible for making any
decisions relating thereto and for directing Custodian to act.  In order for Custodian to act, it must
receive the Corporation’s Certificate or Instructions at Custodian’s offices,
addressed as Custodian may from time to time request, not later than noon (New
York time) at least two (2) Business Days prior to the last scheduled date to
act with respect to such Securities (or such earlier date or time as Custodian
may specify to the Corporation).  Absent
Custodian’s timely receipt of such Certificate or Instructions, Custodian shall
not be liable for failure to take any action relating to or to exercise any
rights conferred by such Securities.


5.     All
voting rights with respect to Securities, however registered, shall be
exercised by the Corporation or its designee. 
Custodian will make available to the Corporation proxy voting 



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services upon the request of, and for the jurisdictions selected by,
the Corporation in accordance with terms and conditions to be mutually agreed
upon by Custodian and the Corporation.


6.     Custodian
shall promptly advise the Corporation upon Custodian’s actual receipt of
notification of the partial redemption, partial payment or other action
affecting less than all Securities of the relevant class.  If Custodian, any Subcustodian, any
Depository, or any Foreign Depository holds any Securities in which the
Corporation has an interest as part of a fungible mass, Custodian, such
Subcustodian, Depository, or Foreign Depository may select the Securities to
participate in such partial redemption, partial payment or other action in any
non-discriminatory manner that it customarily uses to make such selection.


7.     Custodian
shall not under any circumstances accept bearer interest coupons which have
been stripped from United States federal, state or local government or agency
securities unless explicitly agreed to by Custodian in writing.


8.     The
Corporation shall be liable for all taxes, assessments, duties and other
governmental charges, including any interest or penalty with respect thereto (“Taxes”),
with respect to any cash or Securities held on behalf of the Corporation or any
transaction related thereto.  The
Corporation shall indemnify Custodian and each Subcustodian for the amount of
any Tax that Custodian, any such Subcustodian or any other withholding agent is
required under applicable laws (whether by assessment or otherwise) to pay on
behalf of, or in respect of income earned by or payments or distributions made
to or for the account of the Corporation (including any payment of Tax required
by reason of an earlier failure to withhold). 
Custodian shall, or shall instruct the applicable Subcustodian or other
withholding agent to, withhold the amount of any Tax which is required to be
withheld under applicable law upon collection of any dividend, interest or
other distribution made with respect to any Security and any proceeds or income
from the sale, loan or other transfer of any Security.  In the event that Custodian or any Subcustodian
is required under applicable law to pay any Tax on behalf of the Corporation,
Custodian is hereby authorized to withdraw cash from any cash account in the
amount required to pay such Tax and to use such cash, or to remit such cash to
the appropriate Subcustodian or other withholding agent, for the timely payment
of such Tax in the manner required by applicable law.  If the aggregate amount of cash in all cash
accounts is not sufficient to pay such Tax, Custodian shall promptly notify the
Corporation of the additional amount of cash (in the appropriate currency)
required, and the Corporation shall directly deposit such additional amount in
the appropriate cash account promptly after receipt of such notice, for use by
Custodian as specified herein.  In the
event that Custodian reasonably believes that Corporation is eligible, pursuant
to applicable law or to the provisions of any tax treaty, for a reduced rate
of, or exemption from, any Tax which is otherwise required to be withheld or
paid on behalf of the Corporation under any applicable law, Custodian shall, or
shall instruct the applicable Subcustodian or withholding agent to, either
withhold or pay such Tax at such reduced rate or refrain from withholding or
paying such Tax, as appropriate; provided that Custodian shall have
received from the Corporation all documentary evidence of residence or other
qualification for such reduced rate or exemption required to be received under
such applicable law or treaty.  In the
event that Custodian reasonably believes that a reduced rate of, or exemption
from, any Tax is obtainable only by means of an application for reCorporation,
Custodian and the applicable Subcustodian shall have no responsibility for the
accuracy or validity of any forms or documentation provided 



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by the Corporation to Custodian hereunder.  The Corporation hereby agrees to indemnify
and hold harmless Custodian and each Subcustodian in respect of any liability
arising from any underwithholding or underpayment of any Tax which results from
the inaccuracy or invalidity of any such forms or other documentation, and such
obligation to indemnify shall be a continuing obligation of the Corporation,
its successors and assigns notwithstanding the termination of this Agreement.


9.     (a)   For the purpose of settling Securities and
foreign exchange transactions, the Corporation shall provide Custodian with
sufficient immediately available Corporations for all transactions by such time
and date as conditions in the relevant market dictate. As used herein, “sufficient
immediately available Corporations” shall mean either (i) sufficient cash
denominated in U.S. dollars to purchase the necessary foreign currency, or (ii)
sufficient applicable foreign currency, to settle the transaction.  Custodian shall provide the Corporation with
immediately available Corporations each day which result from the actual
settlement of all sale transactions, based upon advices received by Custodian
from Subcustodians, Depositories, and Foreign Depositories.  Such Corporations shall be in U.S. dollars or
such other currency as the Corporation may specify to Custodian.


(b)   Any
foreign exchange transaction effected by Custodian in connection with this
Agreement may be entered with Custodian or a Custodian Affiliate acting as
principal or otherwise through customary banking channels.  The Corporation may issue a standing
Certificate or Instructions with respect to foreign exchange transactions, but
Custodian may establish rules or limitations concerning any foreign exchange
facility made available to the Corporation. 
The Corporation shall bear all risks of investing in Securities or
holding cash denominated in a foreign currency.


(c)   To
the extent that Custodian has agreed to provide pricing or other information
services in connection with this Agreement, Custodian is authorized to utilize
any vendor (including brokers and dealers of Securities) reasonably believed by
Custodian to be reliable to provide such information.  The Corporation understands that certain
pricing information with respect to complex financial instruments (e.g.,
derivatives) may be based on calculated amounts rather than actual market
transactions and may not reflect actual market values, and that the variance
between such calculated amounts and actual market values may or may not be
material. Where vendors do not provide information for particular Securities or
other property, an Authorized Person may advise Custodian in a Certificate
regarding the fair market value of, or provide other information with respect
to, such Securities or property as determined by it in good faith.  Custodian shall not be liable for any loss,
damage or expense incurred as a result of errors or omissions with respect to
any pricing or other information utilized by Custodian hereunder.


10.           Until such time as
Custodian receives a certificate to the contrary with respect to a particular
Security, Custodian may release the identity of the Corporation 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 shareholder.



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ARTICLE IV

PURCHASE AND SALE OF SECURITIES;

CREDITS TO ACCOUNT


1.     Promptly after each purchase or sale of Securities by the
Corporation, the Corporation shall deliver to Custodian a Certificate or Instructions,
or with respect to a purchase or sale of a Security generally required to be
settled on the same day the purchase or sale is made, Oral Instructions
specifying all information Custodian may reasonably request to settle such
purchase or sale.  Custodian shall
account for all purchases and sales of Securities on the actual settlement date
unless otherwise agreed by Custodian.


2.     The
Corporation understands that when Custodian is instructed to deliver Securities
against payment, delivery of such Securities and receipt of payment therefor
may not be completed simultaneously. 
Notwithstanding any provision in this Agreement to the contrary,
settlements, payments and deliveries of Securities may be effected by Custodian
or any Subcustodian in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction
in which the transaction occurs, including, without limitation, delivery to a
purchaser or dealer therefor (or agent) against receipt with the expectation of
receiving later payment for such Securities. 
The Corporation assumes full responsibility for all risks, including,
without limitation, credit risks, involved in connection with such deliveries
of Securities.


3.     Custodian
may, as a matter of bookkeeping convenience or by separate agreement with the
Corporation, credit the Account with the proceeds from the sale, redemption or
other disposition of Securities or interest, dividends or other distributions
payable on Securities prior to its actual receipt of final payment
therefor.  All such credits shall be
conditional until Custodian’s actual receipt of final payment and may be
reversed by Custodian to the extent that final payment is not received.  Payment with respect to a transaction will
not be “final” until Custodian shall have received immediately available
Corporations which under applicable local law, rule and/or practice are
irreversible and not subject to any security interest, levy or other
encumbrance, and which are specifically applicable to such transaction.


ARTICLE V

OVERDRAFTS OR INDEBTEDNESS


1.     If
Custodian should in its sole discretion advance Corporations on behalf of any
Series which results in an overdraft (including, without limitation, any
day-light overdraft) because the money held by Custodian in an Account for such
Series shall be insufficient to pay the total amount payable upon a purchase of
Securities specifically allocated to such Series, as set forth in a
Certificate, Instructions or Oral Instructions, or if an overdraft arises in
the separate account of a Series for some other reason, including, without
limitation, because of a reversal of a conditional credit or the purchase of
any currency, or if the Corporation is for any other reason indebted to
Custodian with respect to a Series, including any indebtedness to The Bank of
New York under the Corporation’s Cash Management and Related Services Agreement
(except a borrowing for investment or for temporary or emergency purposes using
Securities as collateral pursuant to a separate agreement and subject to the
provisions of Section 2 of this Article), such



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overdraft or indebtedness shall be deemed to be a loan made by
Custodian to the Corporation for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum ordinarily charged by
Custodian to its institutional customers, as such rate may be adjusted from
time to time.  In addition, the Corporation hereby agrees that Custodian
shall to the maximum extent permitted by law have a continuing lien, security
interest, and security entitlement in and to any property, including, without
limitation, any investment property or any financial asset, of such Series at
any time held by Custodian for the benefit of such Series or in which such
Series may have an interest which is then in Custodian’s possession or control
or in possession or control of any third party acting in Custodian’s
behalf.  The Corporation authorizes Custodian, in its sole discretion, at
any time to charge any such overdraft or indebtedness together with interest
due thereon against any balance of account standing to such Series’ credit on
Custodian’s books.


2.     If
the Corporation borrows money from any bank (including Custodian if the
borrowing is pursuant to a separate agreement) for investment or for temporary
or emergency purposes using Securities held by Custodian hereunder as
collateral for such borrowings, the Corporation shall deliver to Custodian a
Certificate specifying with respect to each such borrowing:  (a) the Series to which such borrowing
relates; (b) the name of the bank, (c) the amount of the borrowing, (d) the
time and date, if known, on which the loan is to be entered into, (e) the total
amount payable to the Corporation on the borrowing date, (f) the Securities to
be delivered as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities, and (g) a statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such loan is in
conformance with the ‘40 Act and the Corporation’s prospectus.  Custodian shall deliver on the borrowing date
specified in a Certificate the specified collateral against payment by the
lending bank of the total amount of the loan payable, provided that the same
conforms to the total amount payable as set forth in the
Certificate.   Custodian may, at the
option of the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending bank by
virtue of any promissory note or loan agreement.  Custodian shall deliver such Securities as
additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this Section.  The Corporation shall cause all Securities
released from collateral status to be returned directly to Custodian, and
Custodian shall receive from time to time such return of collateral as may be
tendered to it.   In the event that
the Corporation fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any
particular Securities to be delivered as collateral by Custodian, Custodian
shall not be under any obligation to deliver any Securities.


ARTICLE VI

SALE AND REDEMPTION OF SHARES


1.     Whenever
the Corporation shall sell any shares issued by the Corporation (“Shares”) it
shall deliver to Custodian a Certificate or Instructions specifying the amount
of money and/or Securities to be received by Custodian for the sale of such
Shares and specifically allocated to an Account for such Series.


2.     Upon
receipt of such money, Custodian shall credit such money to an Account in the
name of the Series for which such money was received.



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3.     Except
as provided hereinafter, whenever the Corporation desires Custodian to make
payment out of the money held by Custodian hereunder in connection with a
redemption of any Shares, it shall furnish to Custodian a Certificate or
Instructions specifying the total amount to be paid for such Shares.  Custodian shall make payment of such total
amount to the transfer agent specified in such Certificate or Instructions out
of the money held in an Account of the appropriate Series.


4.     Notwithstanding
the above provisions regarding the redemption of any Shares, whenever any
Shares are redeemed pursuant to any check redemption privilege which may from
time to time be offered by the Corporation, Custodian, unless otherwise
instructed by a Certificate or Instructions, shall, upon presentment of such
check, charge the amount thereof against the money held in the Account of the
Series of the Shares being redeemed, provided, that if the Corporation or its
agent timely advises Custodian that such check is not to be honored, Custodian
shall return such check unpaid.


ARTICLE VII

PAYMENT OF DIVIDENDS OR DISTRIBUTIONS


1.     Whenever
the Corporation shall determine to pay a dividend or distribution on Shares it
shall furnish to Custodian Instructions or a Certificate setting forth with
respect to the Series specified therein the date of the declaration of such
dividend or distribution, the total amount payable, and the payment date.


2.     Upon
the payment date specified in such Instructions or Certificate, Custodian shall
pay out of the money held for the account of such Series the total amount
payable to the dividend agent of the Corporation specified therein.


ARTICLE VIII

CONCERNING CUSTODIAN


1.     (a)   Except as otherwise expressly provided
herein, Custodian shall not be liable for any costs, expenses, damages,
liabilities or claims, including attorneys’ and accountants’ fees
(collectively, “Losses”), incurred by or asserted against the Corporation,
except those Losses arising out of Custodian’s own negligence or willful misconduct.  Custodian shall have no liability whatsoever
for the action or inaction of any Depositories or of any Foreign Depositories,
except in each case to the extent such action or inaction is a direct result of
the Custodian’s failure to fulfill its duties hereunder.  With respect to any Losses incurred by the
Corporation as a result of the acts or any failures to act by any Subcustodian
(other than a Custodian Affiliate), Custodian shall take appropriate action to
recover such Losses from such Subcustodian; and Custodian’s sole responsibility
and liability to the Corporation shall be limited to amounts so received from
such Subcustodian (exclusive of costs and expenses incurred by Custodian).  In no event shall Custodian be liable to the
Corporation or any third party for special, indirect or consequential damages,
or lost profits or loss of business, arising in connection with this Agreement,
nor shall Custodian or any Subcustodian be liable:  (i) for acting in accordance with any
Certificate or Oral Instructions actually received by Custodian and reasonably
believed by Custodian to be given by an Authorized Person; (ii) for
acting in accordance with Instructions 



 11
 






 



without reviewing the same; (iii) for conclusively presuming
that all Instructions are given only by person(s) duly authorized; (iv)
for conclusively presuming that all disbursements of cash directed by the
Corporation, whether by a Certificate, an Oral Instruction, or an Instruction,
are in accordance with Section 2(i) of Article II hereof; (v) for
holding property in any particular country, including, but not limited to,
Losses resulting from nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry; exchange or currency
controls or restrictions, devaluations or fluctuations; availability of cash or
Securities or market conditions which prevent the transfer of property or
execution of Securities transactions or affect the value of property; (vi)
for any Losses due to forces beyond the control of Custodian, including without
limitation strikes, work stoppages, acts of war or terrorism, insurrection,
revolution, nuclear or natural catastrophes or acts of God, or interruptions,
loss or malfunctions of utilities, communications or computer (software and
hardware) services; (vii) for the insolvency of any Subcustodian (other than a
Custodian Affiliate), any Depository, or, except to the extent such action or
inaction is a direct result of the Custodian’s failure to fulfill its duties
hereunder, any Foreign Depository; or (viii) for any Losses arising from
the applicability of any law or regulation now or hereafter in effect, or from
the occurrence of any event, including, without limitation, implementation or
adoption of any rules or procedures of a Foreign Depository, which may affect,
limit, prevent or impose costs or burdens on, the transferability,
convertibility, or availability of any currency or Composite Currency Unit in
any country or on the transfer of any Securities, and in no event shall Custodian
be obligated to substitute another currency for a currency (including a
currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected, limited, or
prevented by such law, regulation or event, and to the extent that any such
law, regulation or event imposes a cost or charge upon Custodian in relation to
the transferability, convertibility, or availability of any cash currency or
Composite Currency Unit, such cost or charge shall be for the account of the
Corporation, and Custodian may treat any account denominated in an affected
currency as a group of separate accounts denominated in the relevant component
currencies.


(b)   Custodian
may enter into subcontracts, agreements and understandings with any Custodian
Affiliate, whenever and on such terms and conditions as it deems necessary or
appropriate to perform its services hereunder. 
No such subcontract, agreement or understanding shall discharge Custodian
from its obligations hereunder.


(c)   The
Corporation agrees to indemnify Custodian and hold Custodian harmless from and
against any and all Losses sustained or incurred by or asserted against
Custodian by reason of or as a result of any action or inaction, or arising out
of Custodian’s performance hereunder, including reasonable fees and expenses of
counsel incurred by Custodian in a successful defense of claims by the
Corporation; provided however, that the Corporation shall not indemnify
Custodian for those Losses arising out of Custodian’s own negligence or willful
misconduct.  This indemnity shall be a
continuing obligation of the Corporation, its successors and assigns,
notwithstanding the termination of this Agreement.


2.     Without
limiting the generality of the foregoing, Custodian shall be under no
obligation to inquire into, and shall not be liable for:



 12
 






 



(a)   Any
Losses incurred by the Corporation or any other person as a result of the
receipt or acceptance of fraudulent, forged or invalid Securities, or
Securities which are otherwise not freely transferable or deliverable without
encumbrance in any relevant market;


(b)   The
validity of the issue of any Securities purchased, sold, or written by or for
the Corporation, the legality of the purchase, sale or writing thereof, or the
propriety of the amount paid or received therefor;


(c)   The
legality of the sale or redemption of any Shares, or the propriety of the
amount to be received or paid therefor;


(d)   The
legality of the declaration or payment of any dividend or distribution by the
Corporation;


(e)   The
legality of any borrowing by the Corporation;


(f)    The
legality of any loan of portfolio Securities, nor shall Custodian be under any
duty or obligation to see to it that any cash or collateral delivered to it by
a broker, dealer or financial institution or held by it at any time as a result
of such loan of portfolio Securities is adequate security for the Corporation
against any loss it might sustain as a result of such loan, which duty or
obligation shall be the sole responsibility of the Corporation.  In addition, Custodian shall be under no duty
or obligation to see that any broker, dealer or financial institution to which
portfolio Securities of the Corporation are lent makes payment to it of any
dividends or interest which are payable to or for the account of the
Corporation during the period of such loan or at the termination of such loan,
provided, however that Custodian shall promptly notify the Corporation in the
event that such dividends or interest are not paid and received when due;


(g)   The
sufficiency or value of any amounts of money and/or Securities held in any
Special Account in connection with transactions by the Corporation; whether any
broker, dealer, futures commission merchant or clearing member makes payment to
the Corporation of any variation margin payment or similar payment which the
Corporation may be entitled to receive from such broker, dealer, futures
commission merchant or clearing member, or whether any payment received by
Custodian from any broker, dealer, futures commission merchant or clearing
member is the amount the Corporation is entitled to receive, or to notify the
Corporation of Custodian’s receipt or non-receipt of any such payment; or


(h)   Whether
any Securities at any time delivered to, or held by it or by any Subcustodian,
for the account of the Corporation and specifically allocated to a Series are
such as properly may be held by the Corporation or such Series under the
provisions of its then current prospectus and statement of additional
information, or to ascertain whether any transactions by the Corporation,
whether or not involving Custodian, are such transactions as may properly be
engaged in by the Corporation.



 13
 






 



3.     Custodian
may, with respect to questions of law specifically regarding an Account, obtain
the advice of counsel and shall be fully protected with respect to anything
done or omitted by it in good faith in conformity with such advice.


4.     Custodian
shall be under no obligation to take action to collect any amount payable on
Securities in default, or if payment is refused after due demand and
presentment.


5.     Custodian
shall have no duty or responsibility to inquire into, make recommendations,
supervise, or determine the suitability of any transactions affecting any
Account.


6.     The
Corporation shall pay to Custodian the fees and charges as may be specifically
agreed upon from time to time and such other fees and charges at Custodian’s
standard rates for such services as may be applicable.  The Corporation shall reimburse Custodian for
all costs associated with the conversion of the Corporation’s Securities
hereunder and the transfer of Securities and records kept in connection with
this Agreement.  The Corporation shall
also reimburse Custodian for out-of-pocket expenses which are a
normal incident of the services provided hereunder.


7.     Custodian
has the right to debit any cash account for any amount payable by the
Corporation in connection with any and all obligations of the Corporation to
Custodian.  In addition to the rights of
Custodian under applicable law and other agreements, at any time when the
Corporation shall not have honored any of its obligations to Custodian,
Custodian shall have the right without notice to the Corporation to retain or
set-off, against such obligations of the Corporation, any Securities or cash
Custodian or a Custodian Affiliate may directly or indirectly hold for the
account of the Corporation, and any obligations (whether matured or unmatured)
that Custodian or a Custodian Affiliate may have to the Corporation in any currency
or Composite Currency Unit.  Any such
asset of, or obligation to, the Corporation may be transferred to Custodian and
any Custodian Affiliate in order to effect the above rights.


8.     The
Corporation agrees to forward to Custodian a Certificate or Instructions
confirming Oral Instructions by the close of business of the same day that such
Oral Instructions are given to Custodian. 
The Corporation agrees that the fact that such confirming Certificate or
Instructions are not received or that a contrary Certificate or contrary
Instructions are received by Custodian shall in no way affect the validity or
enforceability of transactions authorized by such Oral Instructions and
effected by Custodian.  If the Corporation
elects to transmit Instructions through an on-line communications system
offered by Custodian, the Corporation’s use thereof shall be subject to the
Terms and Conditions attached as Appendix I hereto.  If Custodian receives Instructions which
appear on their face to have been transmitted by an Authorized Person via (i)
computer facsimile, email, the Internet or other insecure electronic method, or
(ii) secure electronic transmission containing applicable authorization codes,
passwords and/or authentication keys, the Corporation understands and agrees
that Custodian cannot determine the identity of the actual sender of such
Instructions and that Custodian shall conclusively presume that such Written
Instructions have been sent by an Authorized Person, and the Corporation shall
be responsible for ensuring that only Authorized Persons transmit such
Instructions to Custodian.  If the
Corporation elects (with Custodian’s prior consent) to transmit Instructions
through an on-



 14
 






 



line communications service owned or operated by a third party, the
Corporation agrees that Custodian shall not be responsible or liable for the
reliability or availability of any such service.


9.     The
books and records pertaining to the Corporation which are in possession of
Custodian shall be the property of the Corporation.  Such books and records shall be prepared and
maintained as required by the ‘40 Act and the rules thereunder. The
Corporation, or its authorized representatives, shall have access to such books
and records during Custodian’s normal business hours.  Upon the reasonable request of the
Corporation, copies of any such books and records shall be provided by
Custodian to the Corporation or its authorized representative.  Upon the reasonable request of the
Corporation, Custodian shall provide in hard copy or on computer disc any
records included in any such delivery which are maintained by Custodian on a
computer disc, or are similarly maintained.


10.   It
is understood that Custodian is authorized to supply any information regarding
the Accounts which is required by any law, regulation or rule now or hereafter
in effect.  The Custodian shall provide
the Corporation with any report obtained by the Custodian on the system of
internal accounting control of a Depository, and with such reports on its own
system of internal accounting control as the Corporation may reasonably request
from time to time.


11.   Custodian
shall have no duties or responsibilities whatsoever except such duties and
responsibilities as are specifically set forth in this Agreement, and no
covenant or obligation shall be implied against Custodian in connection with
this Agreement.


ARTICLE IX

TERMINATION


1.     Either
of the parties hereto may terminate this Agreement by giving to the other party
a notice in writing specifying the date of such termination, which shall be not
less than ninety (90) days after the date of giving of such notice.  In
the event such notice is given by the Corporation, it shall be accompanied by a
copy of a resolution of the board of the Corporation, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits.  In the event such notice is given by Custodian, the
Corporation shall, on or before the termination date, deliver to Custodian a
copy of a resolution of the board of the Corporation, certified by the
Secretary or any Assistant Secretary, designating a successor custodian or
custodians.  In the absence of such designation by the Corporation,
Custodian may designate a successor custodian which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and
undivided profits.  Upon the date set forth in such notice this Agreement
shall terminate, and Custodian shall upon receipt of a notice of acceptance by
the successor custodian on that date deliver directly to the successor
custodian all Securities and money then owned by the Corporation and held by it
as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.


2.     If
a successor custodian is not designated by the Corporation or Custodian in
accordance with the preceding Section, the Corporation shall upon the date
specified in the notice 



 15
 






 



of termination of this Agreement and upon the delivery by Custodian of
all Securities (other than Securities which cannot be delivered to the
Corporation) and money then owned by the Corporation be deemed to be its own
custodian and Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect
to Securities which cannot be delivered to the Corporation to hold such Securities
hereunder in accordance with this Agreement.


ARTICLE X

MISCELLANEOUS


1.     The
Corporation agrees to furnish to Custodian a new Certificate of Authorized
Persons in the event of any change in the then present Authorized Persons.  Until such new Certificate is received,
Custodian shall be fully protected in acting upon Certificates or Oral
Instructions of such present Authorized Persons.


2.     Any
notice or other instrument in writing, authorized or required by this Agreement
to be given to Custodian, shall be sufficiently given if addressed to Custodian
and received by it at its offices at One Wall Street, New York, New York 10286,
or at such other place as Custodian may from time to time designate in writing.


Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Corporation shall be
sufficiently given if addressed to the Corporation and received by it at its
offices at 1521 Westbranch Drive, Suite 200, McLean, Virginia  22102, or at such other place as the Corporation
may from time to time designate in writing.


3.     Each
and every right granted to either party hereunder or under any other document
delivered hereunder or in connection herewith, or allowed it by law or equity,
shall be cumulative and may be exercised from time to time.  No failure on the part of either party to
exercise, and no delay in exercising, any right will operate as a waiver
thereof, nor will any single or partial exercise by either party of any right
preclude any other or future exercise thereof or the exercise of any other
right.


4.     In
case any provision in or obligation under this Agreement shall be invalid,
illegal or unenforceable in any exclusive jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
thereby.  This Agreement may not be
amended or modified in any manner except by a written agreement executed by
both parties, except that any amendment to the Schedule I hereto need be signed
only by the Corporation and any amendment to Appendix I hereto need be signed
only by Custodian.  This Agreement shall
extend to and shall be binding upon the parties hereto, and their respective
successors and assigns; provided, however, that this Agreement shall not be
assignable by either party without the written consent of the other.


5.     This
Agreement shall be construed in accordance with the substantive laws of the
State of New York, without regard to conflicts of laws principles thereof.  The Corporation and Custodian hereby consent
to the jurisdiction of a state or federal court situated in New York City, 



 16
 






 



New York in connection with any dispute arising hereunder.  The Corporation hereby irrevocably waives, to
the fullest extent permitted by applicable law, any objection which it may now
or hereafter have to the laying of venue of any such proceeding brought in such
a court and any claim that such proceeding brought in such a court has been
brought in an inconvenient forum.  The
Corporation and Custodian each hereby irrevocably waives any and all rights to
trial by jury in any legal proceeding arising out of or relating to this
Agreement.


6.     The
Corporation hereby
acknowledges that Custodian is subject to federal laws, including the Customer
Identification Program (CIP) requirements under the USA PATRIOT Act and its
implementing regulations, pursuant to which Custodian must obtain, verify and
record information that allows Custodian to identify the Corporation.  Accordingly, prior to opening an Account
hereunder Custodian will ask the Corporation to provide certain information
including, but not limited to, the Corporation’s name, physical address, tax
identification number and other information that will help Custodian to
identify and verify the Corporation’s identity such as organizational
documents, certificate of good standing, license to do business, or other
pertinent identifying information.  The
Corporation agrees that Custodian cannot open an Account hereunder unless and
until Custodian verifies the Corporation’s identity in accordance with its CIP.


7.     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.



 17
 






 



IN WITNESS WHEREOF, the
Corporation and Custodian have caused this Agreement to be executed by their
respective officers, thereunto duly authorized, as of the day and year first
above written.


	
  

  	
  GLADSTONE CAPITAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harry Brill

  
	
   

  	
  Name:

  	
  Harry Brill

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
  Tax Identification No: 54-2040781

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE BANK OF NEW YORK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Edward G. McGann

  
	
   

  	
  Title:

  	
  Managing Director

  



 



 18
 






 



SCHEDULE I

CERTIFICATE OF AUTHORIZED PERSONS

(The Corporation - Oral and Written Instructions)


The undersigned hereby certifies that he/she is the
duly elected and acting ________________________ of Gladstone Capital
Corporation (the “Corporation”), and further certifies that the following
officers or employees of the Corporation have been duly authorized in
conformity with the Corporation’s Declaration of Trust and By-Laws to deliver
Certificates and Oral Instructions to The Bank of New York (“Custodian”)
pursuant to the Custody Agreement between the Corporation and Custodian dated
May  5, 2006 and that the signatures
appearing opposite their names are true and correct:


	
  David Gladstone 

  	
   

  	
  Chief Executive Officer 

  	
   

  	
  /s/ David Gladstone 

  
	
  Name

  	
   

  	
  Title

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  George Stelljes
  III 

  	
   

  	
  Chief Investment Officer 

  	
   

  	
  /s/ George Stelljes III 

  
	
  Name

  	
   

  	
  Title

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Harry Brill 

  	
   

  	
  Chief Financial Officer 

  	
   

  	
  /s/ Harry Brill 

  
	
  Name

  	
   

  	
  Title

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   Name

  	
   

  	
  Title

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   Name

  	
   

  	
  Title

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   Name

  	
   

  	
  Title

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   Name

  	
   

  	
  Title

  	
   

  	
  Signature

  



 


This certificate supersedes any certificate of
Authorized Persons you may currently have on file.


	
  [seal]

  	
   

  	
  By:

  
	
   

  	
   

  	
  Title:

  
	
  Date:

  	
   

  	
   

  



 



 19
 






 



SCHEDULE
II


Gladstone Capital
Corporation



 20
 






 



APPENDIX
I


ELECTRONIC
SERVICES TERMS AND CONDITIONS


1.    License; Use. (a) This Appendix I
shall govern the Corporation’s use of electronic communications, information
delivery, portfolio management and banking services, that The Bank of New York
and its affiliates (“Custodian”) may provide to the Corporation, such as The
Bank of New York Inform TM and The Bank of New York CA$H-Register Plus®, and any computer software,
proprietary data and documentation provided by Custodian to the Corporation in
connection therewith (collectively, the “Electronic Services”).
In the event of any conflict between the terms of this Appendix I and the main
body of this Agreement with respect to the Corporation’s use of the Electronic
Services, the terms of this Appendix I shall control.


(b) Custodian
grants to the Corporation a personal, nontransferable and nonexclusive license
to use the Electronic Services to which the Corporation subscribes solely for
the purpose of transmitting instructions and information (“Written Instructions”),
obtaining reports, analyses and statements and other information and data,
making inquiries and otherwise communicating with Custodian in connection with
the Corporation’s relationship with Custodian. 
The Corporation shall use the Electronic Services solely for its own
internal and proper business purposes and not in the operation of a service
bureau.  Except as set forth herein, no
license or right of any kind is granted to with respect to the Electronic
Services.  The Corporation acknowledges
that Custodian and its suppliers retain and have title and exclusive
proprietary rights to the Electronic Services, including any trade secrets or
other ideas, concepts, know-how, methodologies, and information incorporated
therein and the exclusive rights to any copyrights, trade dress, look and feel,
trademarks and patents (including registrations and applications for
registration of either), and other legal protections available in respect
thereof.  The Corporation further
acknowledges that all or a part of the Electronic Services may be copyrighted
or trademarked (or a registration or claim made therefor) by Custodian or its
suppliers.  The Corporation shall not
take any action with respect to the Electronic Services inconsistent with the
foregoing acknowledgments, nor shall the Corporation attempt to decompile,
reverse engineer or modify the Electronic Services.  The Corporation may not copy, distribute,
sell, lease or provide, directly or indirectly, the Electronic Services or any
portion thereof to any other person or entity without Custodian’s prior written
consent.  The Corporation may not remove
any statutory copyright notice or other notice included in the Electronic
Services.  The Corporation shall
reproduce any such notice on any reproduction of any portion of the Electronic
Services and shall add any statutory copyright notice or other notice upon
Custodian’s request.


(c) Portions of
the Electronic Services may contain, deliver or rely on data supplied by third
parties (“Third Party Data”), such as pricing data and indicative data, 



 21
 






 



and services supplied by
third parties (“Third Party Services”) such as analytic and accounting
services.  Third Party Data and Third
Party Services supplied hereunder are obtained from sources that Custodian
believes to be reliable but are provided without any independent investigation
by Custodian.  Custodian and its
suppliers do not represent or warrant that the Third Party Data or Third Party
Services are correct, complete or current. 
Third Party Data and Third Party Services are proprietary to their
suppliers, are provided solely for the Corporation’s internal use, and may not
be reused, disseminated or redistributed in any form.  The Corporation shall not use any Third Party
Data in any manner that would act as a substitute for obtaining a license for
the data directly from the supplier. 
Third Party Data and Third Party Services should not be used in making
any investment decision.  CUSTODIAN AND
ITS SUPPLIERS ARE NOT RESPONSIBLE FOR ANY RESULTS OBTAINED FROM THE USE OF OR
RELIANCE UPON THIRD PARTY DATA OR THIRD PARTY SERVICES.  Custodian’s suppliers of Third Party Data and
Services are intended third party beneficiaries of this Section 1(c) and
Section 5 below.


(d) The
Corporation understands and agrees that any links in the Electronic Services to
Internet sites may be to sites sponsored and maintained by third parties.  Custodian make no guarantees, representations
or warranties concerning the information contained in any third party site
(including without limitation that such information is correct, current,
complete or free of viruses or other contamination), or any products or
services sold through third party sites. 
All such links to third party Internet sites are provided solely as a
convenience to the Corporation and the Corporation accesses and uses such sites
at its own risk.  A link in the
Electronic Services to a third party site does not constitute Custodian’s
endorsement, authorisation or sponsorship of such site or any products and
services available from such site.


2.    Equipment.  The Corporation shall obtain and maintain at
its own cost and expense all equipment and services, including but not limited
to communications services, necessary for it to utilize and obtain access to
the Electronic Services, and Custodian shall not be responsible for the
reliability or availability of any such equipment or services.


3.    Proprietary Information.  The Electronic Services, and any proprietary
data (including Third Party Data), processes, software, information and
documentation made available to the Corporation (other than which are or become
part of the public domain or are legally required to be made available to the
public) (collectively, the “Information”), are the exclusive and confidential
property of Custodian or its suppliers. 
However, for the avoidance of doubt, reports generated by the
Corporation containing information relating to its account(s) (except for Third
Party Data contained therein) are not deemed to be within the meaning of the
term “Information.”  the Corporation
shall keep the Information confidential by using the same care and discretion
that the Corporation uses with respect to its own confidential property and
trade secrets, but not less than 



 22
 






 



reasonable care.  Upon termination of the Agreement or the
licenses granted herein for any reason, the Corporation shall return to
Custodian any and all copies of the Information which are in its possession or
under its control (except that the Corporation may retain reports containing
Third Party Data, provided that such Third Party Data remains subject to the
provisions of this Appendix).  The
provisions of this Section 3 shall not affect the copyright status of any of
the Information which may be copyrighted and shall apply to all information
whether or not copyrighted.


4.    Modifications.  Custodian reserves the right to modify the
Electronic Services from time to time. 
The Corporation agrees not to modify or attempt to modify the Electronic
Services without Custodian’s prior written consent.  The Corporation acknowledges that any
modifications to the Electronic Services, whether by the Corporation or
Custodian and whether with or without Custodian’s consent, shall become the
property of Custodian.


5.    NO REPRESENTATIONS OR WARRANTIES;
LIMITATION OF LIABILITY.  CUSTODIAN
AND ITS MANUFACTURERS AND SUPPLIERS MAKE NO WARRANTIES OR REPRESENTATIONS WITH
RESPECT TO THE ELECTRONIC SERVICES OR ANY THIRD PARTY DATA OR THIRD PARTY
SERVICES, EXPRESS OR IMPLIED, IN FACT OR IN LAW, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR
PURPOSE.  THE CORPORATION ACKNOWLEDGES
THAT THE ELECTRONIC SERVICES, THIRD PARTY DATA AND THIRD PARTY SERVICES ARE
PROVIDED “AS IS.”  TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE
LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT SPECIAL, OR CONSEQUENTIAL,
WHICH CUSTOMER MAY INCUR IN CONNECTION WITH THE ELECTRONIC SERVICES, THIRD
PARTY DATA OR THIRD PARTY SERVICES, EVEN IF CUSTODIAN OR SUCH SUPPLIER KNEW OF
THE POSSIBILITY OF SUCH DAMAGES.  IN NO
EVENT SHALL CUSTODIAN OR ANY SUPPLIER BE LIABLE FOR ACTS OF GOD, MACHINE OR
COMPUTER BREAKDOWN OR MALFUNCTION, INTERRUPTION OR MALFUNCTION OF COMMUNICATION
FACILITIES, LABOR DIFFICULTIES OR ANY OTHER SIMILAR OR DISSIMILAR CAUSE BEYOND
THEIR REASONABLE CONTROL.


6.    Security; Reliance; Unauthorized Use;
Corporations Transfers.  Custodian
will establish security procedures to be followed in connection with the use of
the Electronic Services, and the Corporation agrees to comply with the security
procedures.  The Corporation understands
and agrees that the security procedures are intended to determine whether
instructions received by Custodian through the Electronic Services are
authorized but are not (unless otherwise specified in writing) intended to
detect any errors contained in such instructions.  The Corporation will cause all persons
utilizing the 



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Electronic Services to
treat any user and authorization codes, passwords, authentication keys and
other security devices with the highest degree of care and
confidentiality.  Upon termination of the
Corporation’s use of the Electronic Services, the Corporation shall return to
Custodian any security devices (e.g., token cards) provided by Custodian.  Custodian is hereby irrevocably authorized to
comply with and rely upon on Written Instructions and other communications,
whether or not authorized, received by it through the Electronic Services.  The Corporation acknowledges that it has sole
responsibility for ensuring that only Authorized Persons use the Electronic
Services and that to the fullest extent permitted by applicable law Custodian
shall not be responsible nor liable for any unauthorized use thereof or for any
losses sustained by the Corporation arising from or in connection with the use of
the Electronic Services or Custodian’s reliance upon and compliance with
Written Instructions and other communications received through the Electronic
Services.  With respect to instructions
for a transfer of Corporations issued through the Electronic Services, when
instructed to credit or pay a party by both name and a unique numeric or
alpha-numeric identifier (e.g. ABA number or account number), the Custodian,
its affiliates, and any other bank participating in the Corporations transfer,
may rely solely on the unique identifier, even if it identifies a party
different than the party named.  Such
reliance on a unique identifier shall apply to beneficiaries named in such
instructions as well as any financial institution which is designated in such
instructions to act as an intermediary in a Corporations transfer.  It is understood and agreed that unless
otherwise specifically provided herein, and to the extent permitted by
applicable law, the parties hereto shall be bound by the rules of any
Corporations transfer system utilized to effect a Corporations transfer
hereunder.


7.             Acknowledgments.  Custodian shall acknowledge through the
Electronic Services its receipt of each Written Instruction communicated
through the Electronic Services, and in the absence of such acknowledgment
Custodian shall not be liable for any failure to act in accordance with such
Written Instruction and the Corporation may not claim that such Written
Instruction was received by Custodian. 
Custodian may in its discretion decline to act upon any instructions or
communications that are insufficient or incomplete or are not received by
Custodian in sufficient time for Custodian to act upon, or in accordance with
such instructions or communications.


8.             Viruses.  The Corporation agrees to use reasonable
efforts to prevent the transmission through the Electronic Services of any
software or file which contains any viruses, worms, harmful component or
corrupted data and agrees not to use any device, software, or routine to
interfere or attempt to interfere with the proper working of the Electronic
Services.


9.             Encryption.  The Corporation acknowledges and agrees that
encryption may not be available for every communication through the Electronic
Services, or for all data.  The
Corporation agrees that Custodian may deactivate any encryption features at 



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any time, without notice
or liability to the Corporation, for the purpose of maintaining, repairing or
troubleshooting its systems.


10.           On-Line Inquiry and Modification
of Records. In connection with the Corporation’s use of the Electronic
Services, Custodian may, at the Corporation’s request, permit the Corporation
to enter data directly into a Custodian database for the purpose of modifying
certain information maintained by Custodian’s systems, including, but not
limited to, change of address information. 
To the extent that the Corporation is granted such access, the
Corporation agrees to indemnify and hold Custodian harmless from all loss,
liability, cost, damage and expense (including attorney’s fees and expenses) to
which Custodian may be subjected or which may be incurred in connection with
any claim which may arise out of or as a result of changes to Custodian
database records initiated by the Corporation.


11.           Agents.   the Corporation may, on advance written
notice to the Custodian, permit its agents and contractors (“Agents”) to access
and use the Electronic Services on the Corporation’s behalf, except that the
Custodian reserves the right to prohibit the Corporation’s use of any
particular Agent for any reason.  The
Corporation shall require its Agent(s) to agree in writing to be bound by the
terms of the Agreement, and the Corporation shall be liable and responsible for
any act or omission of such Agent in the same manner, and to the same extent,
as though such act or omission were that of the Corporation.  Each submission of a Written Instruction or
other communication by the Agent through the Electronic Services shall
constitute a representation and warranty by the Corporation that the Agent
continues to be duly authorized by the Corporation to so act on its behalf and
the Custodian may rely on the representations and warranties made herein in
complying with such Written Instruction or communication.  Any Written Instruction or other communication
through the Electronic Services by an Agent shall be deemed that of the
Corporation, and the Corporation shall be bound thereby whether or not
authorized. The Corporation may, subject to the terms of this Agreement and
upon advance written notice to the Bank, provide a copy of the Electronic
Service user manuals to its Agent if the Agent requires such copies to use the
Electronic Services on the Corporation’s behalf.  Upon cessation of any such Agent’s services,
the Corporation shall promptly terminate such Agent’s access to the Electronic
Services, retrieve from the Agent any copies of the manuals and destroy them,
and retrieve from the Agent any token cards or other security devices provided
by Custodian and return them to Custodian.


 



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