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INVESTMENT MANAGEMENT AGREEMENT
Between
T. ROWE PRICE CAPITAL APPRECIATION FUND
and
T. ROWE PRICE ASSOCIATES, INC.
INVESTMENT MANAGEMENT AGREEMENT, made as of the 24th day of April 1997, by
and between T. Rowe Price CAPITAL APPRECIATION FUND, a Massachusetts business
trust (hereinafter called the "Fund"), and T. Rowe Price ASSOCIATES, INC., a
corporation organized and existing under the laws of the State of Maryland
(hereinafter called the "Manager").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the federal Investment
Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Manager is engaged principally in the business of rendering
investment supervisory services and is registered as an investment adviser
under the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires the Manager to render investment supervisory
services to the Fund in the manner and on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Duties and Responsibilities of Manager.
A. Investment Advisory Services. The Manager shall act as investment
manager and shall supervise and direct the investments of the Fund
in accordance with the Fund's investment objective, program and
restrictions as provided in its prospectus, as amended from time to
time, and such other limitations as the Fund may impose by notice
in writing to the Manager. The Manager shall obtain and evaluate
such information relating to the economy, industries, businesses,
securities markets and securities as it may deem necessary or
useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of
the assets and resources of the Fund in a manner consistent with
its investment objective. In furtherance of this duty, the Manager,
as agent and attorney-in-fact with respect to the Fund, is
authorized, in its discretion and without prior consultation with
the Fund, to:
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(i) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as the Manager may
select.
B. Financial, Accounting, and Administrative Services. The Manager
shall maintain the existence and records of the Fund; maintain the
registrations and qualifications of Fund shares under federal and
state law; monitor the financial, accounting, and administrative
functions of the Fund; maintain liaison with the various agents
employed by the Fund (including the Fund's transfer agent,
custodian, independent accountants and legal counsel) and assist in
the coordination of their activities on behalf of the Fund.
C. Reports to Fund. The Manager shall furnish to or place at the
disposal of the Fund such information, reports, evaluations,
analyses and opinions as the Fund may, at any time or from time to
time, reasonably request or as the Manager may deem helpful to the
Fund.
D. Reports and Other Communications to Fund Shareholders. The Manager
shall assist the Fund in developing all general shareholder
communications, including regular shareholder reports.
E. Fund Personnel. The Manager agrees to permit individuals who are
officers or employees of the Manager to serve (if duly elected or
appointed) as officers, trustees, members of any committee of
trustees, members of any advisory board, or members of any other
committee of the Fund, without remuneration from or other cost to
the Fund.
F. Personnel, Office Space, and Facilities of Manager. The Manager at
its own expense shall furnish or provide and pay the cost of such
office space, office equipment, office personnel, and office
services as the Manager requires in the performance of its
investment advisory and other obligations under this Agreement.
2. Allocation of Expenses.
A. Expenses Paid by Manager.
(1) Salaries and Fees of Officers. The Manager shall pay all
salaries, expenses, and fees of the officers and trustees of
the Fund who are affiliated with the Manager.
(2) Assumption of Fund Expenses by Manager. The payment or
assumption by the Manager of any expense of the Fund that the
Manager is not required by this Agreement to pay or assume
shall not obligate the Manager to pay or assume the same or
any similar expense of the Fund on any subsequent occasion.
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B. Expenses Paid by Fund. The Fund shall bear all expenses of its
organization, operations, and business not specifically assumed or
agreed to be paid by the Manager as provided in this Agreement. In
particular, but without limiting the generality of the foregoing,
the Fund shall pay:
(1) Custody and Accounting Services. All expenses of the
transfer, receipt, safekeeping, servicing and accounting for
the Fund's cash, securities, and other property, including
all charges of depositories, custodians, and other agents, if
any;
(2) Shareholder Servicing. All expenses of maintaining and
servicing shareholder accounts, including all charges of the
Fund's transfer, shareholder recordkeeping, dividend
disbursing, redemption, and other agents, if any;
(3) Shareholder Communications. All expenses of preparing,
setting in type, printing, and distributing reports and other
communications to shareholders;
(4) Shareholder Meetings. All expenses incidental to holding
meetings of Fund shareholders, including the printing of
notices and proxy material, and proxy solicitation therefor;
(5) Prospectuses. All expenses of preparing, setting in type, and
printing of annual or more frequent revisions of the Fund's
prospectus and of mailing them to shareholders;
(6) Pricing. All expenses of computing the Fund's net asset value
per share, including the cost of any equipment or services
used for obtaining price quotations;
(7) Communication Equipment. All charges for equipment or
services used for communication between the Manager or the
Fund and the custodian, transfer agent or any other agent
selected by the Fund;
(8) Legal and Accounting Fees and Expenses. All charges for
services and expenses of the Fund's legal counsel and
independent auditors;
(9) Trustees' Fees and Expenses. All compensation of trustees,
other than those affiliated with the Manager, and all
expenses incurred in connection with their service;
(10) Federal Registration Fees. All fees and expenses of
registering and maintaining the registration of the Fund
under the Act and the registration of the Fund's shares under
the Securities Act of 1933, as amended (the "'33 Act"),
including all fees and expenses incurred in connection with
the preparation, setting in type, printing, and filing of any
registration statement and prospectus under the '33 Act or
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the Act, and any amendments or supplements that may be made
from time to time;
(11) State Filing Fees. All fees and expenses imposed on the Fund,
as appropriate, with respect to the sale of the Fund's shares
under securities laws of various states or jurisdictions, and
under all other laws applicable to the Fund or its business
activities (including registering the Fund as a broker-
dealer, or any officer of the Fund or any person as agent or
salesman of the Fund in any state);
(12) Issue and Redemption of Fund Shares. All expenses incurred in
connection with the issue, redemption, and transfer of Fund
shares, including the expense of confirming all share
transactions, and of preparing and transmitting the Fund's
stock certificates;
(13) Bonding and Insurance. All expenses of bond, liability, and
other insurance coverage required by law or deemed advisable
by the Fund's board of trustees;
(14) Brokerage Commissions. All brokers' commissions and other
charges incident to the purchase, sale, or lending of the
Fund's portfolio securities;
(15) Taxes. All taxes or governmental fees payable by or with
respect of the Fund to federal, state, or other governmental
agencies, domestic or foreign, including stamp or other
transfer taxes;
(16) Trade Association Fees. All fees, dues, and other expenses
incurred in connection with the Fund's membership in any
trade association or other investment organization; and
(17) Nonrecurring and Extraordinary Expenses. Such nonrecurring
expenses as may arise, including the costs of actions, suits,
or proceedings to which the Fund is a party and the expenses
the Fund may incur as a result of its legal obligation to
provide indemnification to its officers, trustees, and
agents.
3. Management Fee. The Fund shall pay the Manager a fee ("Fee") which
will consist of three components: a Group Management Fee ("Group
Fee"), an Individual Fund Fee ("Fund Fee") and a performance fee
adjustment ("Performance Fee Adjustment") based on the performance of
the Fund relative to the Standard & Poor's 500 Stock Index (the
"Index"). The Performance Fee Adjustment component will be in effect
until October 31, 1998. After this date the Management Fee will be
calculated based on the Group Fee and Fund Fee. The Fee shall be paid
monthly to the Manager on the first business day of the next
succeeding calendar month and shall be calculated as follows:
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A. Group Fee. The monthly Group Fee ("Monthly Group Fee") shall be the
sum of the daily Group Fee accruals ("Daily Group Fee Accruals")
for each month. The Daily Group Fee Accrual for any particular day
will be computed by multiplying the Price Funds' group fee accrual
as determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of the Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day shall be
calculated by multiplying the fraction of one (1) over the number
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with the
following schedule:
Price Funds
Annual Group Base Fee Rate
for Each Level of Assets
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Next $16 billion
0.305% Thereafter
The Price Funds shall include all the mutual funds distributed by
T. Rowe Price Investment Services, Inc. (other than institutional or
"private label" funds, Equity Index, and Spectrum Funds). For the
purposes of calculating the
Daily Price Funds' Group Fee Accrual for any particular day, the net
assets of each Price Fund shall be determined in accordance with the
Fund's prospectus as of the close of business on the previous business
day on which the Fund was open for business.
B. Fund Fee. The monthly Fund Fee ("Monthly Fund Fee") shall be the
sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for
each month. The Daily Fund Fee Accrual for any particular day will
be computed by multiplying the fraction of one (1) over the number
of calendar days in the year by the Fund Fee Rate of 0.30% and
multiplying this product by the net assets of the Fund for that
day, as determined in accordance with the Fund's prospectus as of
the close of business on the previous business day on which the
Fund was open for business.
C. Performance Fee Adjustment. This paragraph 3.C. will be in effect
through October 31, 1998, only and will be of no force or effect
thereafter. The Monthly Group Fee and Monthly Fund Fee shall be
combined (the "Combined Fee") and shall be subject to a downward
Performance Fee Adjustment, depending on the extent to which the
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total return investment performance of the Fund is less than the
total return performance of the Index during the previous thirty-
six (36) months. The Performance Fee Adjustment shall be computed
as of the end of each month and shall be subtracted from the
Combined Fee. No Performance Fee Adjustment will be made to the
Combined Fee unless the investment performance ("Investment
Performance") of the Fund (stated as a percent) is exceeded by the
investment record ("Investment Record") of the Index (stated as a
percent) by at least one full point. (The difference between the
Investment Performance and Investment Record is referred to as the
Investment Performance Differential.) The Performance Fee
Adjustment for any month shall be calculated by multiplying the
rate of the Performance Fee Adjustment ("Performance Fee Adjustment
Rate") (as determined below) achieved for the 36-month period,
times the average daily net assets of the Fund for such 36-month
period and dividing the product by 12. The Performance Fee
Adjustment Rate is calculated by multiplying the Investment
Performance Differential (rounded downward to the nearest full
point) times a factor of .02%. Regardless of the Investment
Performance Differential, the Performance Fee Adjustment Rate shall
not exceed .30%.
Example
For example, if the Investment Performance Differential
was (11.6%), it would be rounded to (11). The
Investment Performance Differential of (11) would be
multiplied by .02% to arrive at the Performance Fee
Adjustment Rate of (.22%). The (.22%) Performance Fee
Adjustment Rate would be multiplied by the fraction of
1/12 and that product would be multiplied by the Fund's
average daily net assets for the 36-month period to
arrive at the Performance Fee Adjustment.
The computation of the Investment Performance of the Fund and
the Investment Record of the Index will be made in accordance with
Rule 205-1 under the Investment Advisers Act of 1940 or any other
applicable rule as, from time to time, may be adopted or amended.
These terms are currently defined as follows:
The Investment Performance of the Fund shall be the sum of:
(i) the change in the Fund's net asset value per share
during the period;
(ii) the value of the Fund's cash distributions per share
having an exdividend date occurring within the period;
and
(iii) the per share amount of any capital gains taxes paid or
accrued during such period by the Fund for
undistributed, realized long-term capital gains.
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The Investment Record of the Index shall be the sum of:
(i) the change in the level of the Index during the period;
and
(ii) the value, computed consistently with the Index, of
cash distributions having an exdividend date occurring
within the period made by companies whose securities
comprise the Index.
No Performance Fee Adjustment will made after October 31,
1998.
D. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any month, the Fee for the period from the
effective date to the end of such month or from the beginning of
such month to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
4. Brokerage. Subject to the approval of the board of trustees of the
Fund, the Manager, in carrying out its duties under Paragraph 1.A.,
may cause the Fund to pay a broker-dealer which furnishes brokerage or
research services [as such services are defined under Section 28(e) of
the Securities Exchange Act of l934, as amended (the "'34 Act")] a
higher commission than that which might be charged by another broker-
dealer which does not furnish brokerage or research services or which
furnishes brokerage or research services deemed to be of lesser value,
if such commission is deemed reasonable in relation to the brokerage
and research services provided by the broker-dealer, viewed in terms
of either that particular transaction or the overall responsibilities
of the Manager with respect to the accounts as to which it exercises
investment discretion (as such term is defined under Section 3(a)(35)
of the '34 Act).
5. Manager's Use of the Services of Others. The Manager may (at its cost
except as contemplated by Paragraph 4 of this Agreement) employ,
retain or otherwise avail itself of the services or facilities of
other persons or organizations for the purpose of providing the
Manager or the Fund with such statistical and other factual
information, such advice regarding economic factors and trends, such
advice as to occasional transactions in specific securities or such
other information, advice or assistance as the Manager may deem
necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to the Fund, or in the
discharge of Manager's overall responsibilities with respect to the
other accounts which it serves as investment manager.
6. Ownership of Records. All records required to be maintained and
preserved by the Fund pursuant to the provisions of rules or
regulations of the Securities and Exchange Commission under Section
31(a) of the Act and maintained and preserved by the Manager on behalf
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of the Fund are the property of the Fund and will be surrendered by
the Manager promptly on request by the Fund.
7. Reports to Manager. The Fund shall furnish or otherwise make available
to the Manager such prospectuses, financial statements, proxy
statements, reports, and other information relating to the business
and affairs of the Fund as the Manager may, at any time or from time
to time, reasonably require in order to discharge its obligations
under this Agreement.
8. Services to Other Clients. Nothing herein contained shall limit the
freedom of the Manager or any affiliated person of the Manager to
render investment supervisory and corporate administrative services to
other investment companies, to act as investment manager or investment
counselor to other persons, firms or corporations, or to engage in
other business activities; but so long as this Agreement or any
extension, renewal or amendment hereof shall remain in effect or until
the Manager shall otherwise consent, the Manager shall be the only
investment manager to the Fund.
9. Limitation of Liability of Manager. Neither the Manager nor any of its
officers, directors, or employees, nor any person performing
executive, administrative, trading, or other functions for the Fund
(at the direction or request of the Manager) or the Manager in
connection with the Manager's discharge of its obligations undertaken
or reasonably assumed with respect to this Agreement, shall be liable
for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which this Agreement
relates, except for loss resulting from willful misfeasance, bad
faith, or gross negligence in the performance of its or his duties on
behalf of the Fund or from reckless disregard by the Manager or any
such person of the duties of the Manager under this Agreement.
10. Limitation of Liability of Fund. The term "T. Rowe Price Capital
Appreciation Fund" means and refers to the trustees from time to time
serving under the Master Trust Agreement (Declaration of Trust) of the
Fund dated May 9, 1986 as the same may subsequently thereto have been,
or subsequently hereto be, amended. It is expressly agreed that the
obligations of the Fund hereunder shall not be binding upon any of the
trustees, shareholders, nominees, officers, agents or employees of the
Fund, personally, but bind only the trust property of the Fund, as
provided in the Declaration of Trust of the Fund. The execution and
delivery of this Agreement have been authorized by the trustees and
shareholders of the Fund and signed by an authorized officer of the
Fund, acting as such, and neither such authorization by such trustees
and shareholders nor such execution and delivery by such officer shall
be deemed to have been made by any of them but shall bind only the
trust property of the Fund as provided in its Declaration of Trust.
11. Use of Manager's Name. The Fund may use the name "T. Rowe Price
Capital Appreciation Fund" or any other name derived from the name
"T. Rowe Price" only for so long as this Agreement or any extension,
renewal or amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the
business of the Manager as investment manager. At such time as this
Agreement or any extension, renewal or amendment hereof, or such other
similar agreement shall no longer be in effect, the Fund will (by
corporate action, if necessary) cease to use any name derived from the
name "T. Rowe Price," any name similar
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thereto or any other name indicating that it is advised by or otherwise
connected with the Manager, or with any organization which shall have
succeeded to the Manager's business as investment manager.
12. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect through April 30,
1998. Thereafter, this Agreement shall continue in effect from year to
year, subject to the termination provisions and all other terms and
conditions hereof, so long as: (a) such continuation shall be
specifically approved at least annually by the board of trustees of
the Fund or by vote of a majority of the outstanding voting securities
of the Fund and, concurrently with such approval by the board of
trustees or prior to such approval by the holders of the outstanding
voting securities of the Fund, as the case may be, by the vote, cast
in person at a meeting called for the purpose of voting on such
approval, of a majority of the trustees of the Fund who are not
parties to this Agreement or interested persons of any such party; and
(b) the Manager shall not have notified the Fund, in writing, at least
60 days prior to April 30, 1988 or prior to April 30th of any year
thereafter, that it does not desire such continuation. The Manager
shall furnish to the Fund, promptly upon its request, such information
as may reasonably be necessary to evaluate the terms of this Agreement
or any extension, renewal or amendment hereof.
13. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the Fund, and this Agreement shall
automatically and immediately terminate in the event of its
assignment.
14. Termination of Agreement. This Agreement may be terminated by either
party hereto, without the payment of any penalty, upon 60 days' prior
notice in writing to the other party; provided, that in the case of
termination by the Fund such action shall have been authorized by
resolution of a majority of the trustees of the Fund who are not
parties to this Agreement or interested persons of any such party, or
by vote of a majority of the outstanding voting securities of the
Fund.
15. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to require
the Fund to take any action contrary to its Master Trust Agreement
or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or
deprive the board of trustees of the Fund of its responsibility for
and control of the conduct of the affairs of the Fund.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
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interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as used
in Paragraphs 2, 8, 11, 12, and 13 hereof, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of
this Agreement is relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
Attest: T. ROWE PRICE CAPITAL APPRECIATION FUND
_________________________________ By: ___________________________________
Assistant Secretary
Attest: T. ROWE PRICE ASSOCIATES, INC.
__________________________________ By: ____________________________________
Assistant Secretary