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EXHIBIT (C)(1)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of October 31, 1996, by and
between XXX XXXXXX AMERICAN CAPITAL PRIME RATE INCOME TRUST (the "Fund"), a
Massachusetts business trust (the "Trust"), and XXX XXXXXX AMERICAN CAPITAL
INVESTMENT ADVISORY CORP. (the "Advisor"), a Delaware corporation.
1. (A) Retention of Advisor by Fund. The Fund hereby employs the Advisor to
act as the investment adviser for and to manage the investment and reinvestment
of the assets of the Fund in accordance with the Fund's investment objective and
policies and limitations, and to administer its affairs to the extent requested
by, and subject to the review and supervision of, the Board of Trustees of the
Fund for the period and upon the terms herein set forth. The investment of funds
shall be subject to all applicable restrictions of applicable law and of the
Declaration of Trust and By-Laws of the Trust, and resolutions of the Board of
Trustees of the Fund as may from time to time be in force and delivered or made
available to the Advisor.
(B) Advisor's Acceptance of Employment. The Advisor accepts such employment
and agrees during such period to render such services, to supply investment
research and portfolio management (including without limitation the selection of
securities for the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed, in accordance with
the policies adopted by the Fund and its Board of Trustees), to administer the
business affairs of the Fund, to furnish offices and necessary facilities and
equipment to the Fund, to provide administrative services for the Fund, to
render periodic reports to the Board of Trustees of the Fund, and to permit any
of its officers or employees to serve without compensation as trustees or
officers of the Fund if elected to such positions.
(C) Independent Contractor. The Advisor shall be deemed to be an
independent contractor under this Agreement and, unless otherwise expressly
provided or authorized, shall have no authority to act for or represent the Fund
in any way or otherwise be deemed as agent of the Fund.
(D) Non-Exclusive Agreement. The services of the Advisor to the Fund under
this Agreement are not to be deemed exclusive, and the Advisor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
2. (A) Fee. For the services and facilities described in Section 1, the
Fund will accrue daily and pay to the Advisor at the end of each calendar month
an investment management fee equal to a percentage of the average daily net
assets of the fund as follows:
FEE PERCENT OF
AVERAGE DAILY AVERAGE DAILY
NET ASSETS NET ASSETS
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First $4.0 billion.................................................... .950 of 1%
Next $3.5 billion..................................................... .900 of 1%
Next $2.5 billion..................................................... .875 of 1%
Over $10 billion...................................................... .850 of 1%
(b) Determination of Net Asset Value. The net asset value of the Fund shall
be calculated as of the close of the New York Stock Exchange on the last day the
Exchange is open for trading in each calendar week or as of such other time or
times as the trustees may determine in accordance with the provisions of
applicable law and of the Declaration of Trust and By-Laws of the Trust, and
resolutions of the Board of Trustees of the Fund as from time to time in force.
For the purpose of the foregoing computations, on each such day when net asset
value is not calculated, the net asset value of a share of beneficial interest
of the Fund shall be deemed to be the net asset value of such share as of the
close of business of the last day on which such calculation was made.
(c) Proration. For the month and year in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of the
Advisor's fee on the basis of the number of days that the Agreement is in effect
during such month and year, respectively.
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3. Expenses. In addition to the fee of the Advisor, the Fund shall assume
and pay any expenses for services rendered by a custodian for the safekeeping of
the Fund's securities or other property, for keeping its books of account, for
any other charges of the custodian and for calculating the net asset value of
the Fund as provided above. The Advisor shall not be required to pay, and the
Fund shall assume and pay, the charges and expenses of its operations, including
compensation of the trustees (other than those who are interested persons of the
Advisor), charges and expenses of independent accountants, of legal counsel and
of any transfer or dividend disbursing agent, costs of acquiring and disposing
of portfolio securities, cost of listing shares of the New York Stock Exchange
or other exchange interest (if any) on obligations incurred by the Fund, costs
of share certificates, membership dues in the Investment Company Institute or
any similar organization, costs of reports and notices to shareholders, costs of
registering shares of the Fund under the federal securities laws, miscellaneous
expenses and all taxes and fees to federal, state or other governmental agencies
on account of the registration of securities issued by the Fund, filing of
corporation documents or otherwise. The Fund shall not pay or incur any
obligation for any management or administrative expenses for which the Fund
intends to seek reimbursement from the Advisor without first obtaining the
written approval of the Advisor. The Advisor shall arrange, if desired by the
Fund, for officers or employees of the Advisor to serve, without compensation
from the Fund, as trustees, officers or agents of the Fund if duly elected or
appointed to such positions and subject to their individual consent and to any
limitations imposed by law.
4. Interested Persons. Subject to applicable statutes and regulations, it
is understood that trustees, officers, shareholders and agents of the Fund are
or may be interested in the Advisor as directors, officers, shareholders, agents
or otherwise and that the directors, officers, shareholders and agents of the
Advisor may be interest in the Fund as trustees, officers, shareholders, agents
or otherwise.
5. Liability. The Advisor shall not be liable for any error of judgment or
of law, or for any loss suffered by the Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Advisor in the performance of
its obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
6. (A) Term. This Agreement shall become effective on the date hereof and
shall remain in full force until the second anniversary of the date hereof
unless sooner terminated as hereinafter provided. This Agreement shall continue
in force from year to year thereafter, but only as long as such continuance is
specifically approved at least annually in the manner required by the Investment
Company Act of 1940, as amended.
(B) Termination. This Agreement shall automatically terminate in the event
of its assignment. This Agreement may be terminated at any time without the
payment of any penalty by the Fund or by the Advisor on sixty (60) days written
notice to the other party. The Fund may effect termination by action of the
Board of Trustees or by vote of a majority of the outstanding shares of stock of
the Fund, accompanied by appropriate notice. This Agreement may be terminated at
any time without the payment of any penalty and without advance notice by the
Board of Trustees or by vote of a majority of the outstanding shares of the Fund
in the event that it shall have been established by a court of competent
jurisdiction that the Advisor or any officer or director of the Advisor has
taken any action which results in a breach of the covenants of the advisor set
forth herein.
(C) Payment upon Termination. Termination of this Agreement shall not
affect the right of the Advisor to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
be thereby affected.
8. Notices. Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice.
9. Disclaimer. The Advisor acknowledges and agrees that, as provided by
Section 5.5 of the Declaration of Trust of the Trust, the shareholders,
trustees, officers, employees and other agents of the Trust and the Fund
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shall not personally be bound by or liable hereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
hereunder.
IN WITNESS WHEREOF, the Fund and the Advisor have caused this Agreement to
be executed on the day and year first above written.
XXX XXXXXX AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
By: /s/ XXXXXX X. XXXXXXXXX
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President
XXX XXXXXX AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By: /s/ XXXXXX X. XXXXXX
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Secretary
