Exhibit 10.1

INVESTMENT ADVISORY AGREEMENT

BETWEEN

OAKTREE STRATEGIC INCOME CORPORATION

AND

OAKTREE CAPITAL MANAGEMENT, L.P.

This Investment Advisory Agreement (this “Agreement”) made this 17th day of
October, 2017 (the “Effective Date”), by and between OAKTREE STRATEGIC INCOME
CORPORATION, a Delaware corporation (the “Company”), and OAKTREE CAPITAL
MANAGEMENT, L.P., a Delaware limited partnership (the “Adviser”).

WHEREAS, the Company is a closed-end management investment fund that has elected
to be regulated as a business development company (“BDC”) under the Investment
Company Act of 1940, as amended (the “Investment Company Act”); and

WHEREAS, the Adviser is registered under the Investment Advisers Act of 1940, as
amended (the “Advisers Act”); and

WHEREAS, the Company desires to retain the Adviser to furnish investment
advisory services to the Company on the terms and conditions hereinafter set
forth, and the Adviser wishes to be retained to provide such services;

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereby agree as follows:

1. Duties of the Adviser.

(a) The Company hereby appoints the Adviser to act as the investment adviser to
the Company and to manage the investment and reinvestment of the assets of the
Company, subject to the supervision of the Board of Directors of the Company,
(the “Board”) for the period and upon the terms herein set forth, (i) in
accordance with the investment objective, policies and restrictions that are set
forth in the reports and/or registration statements that the Company files with
the Securities and Exchange Commission (the “SEC”) from time to time; (ii) in
accordance with all other applicable federal and state laws, rules and
regulations, and the Company’s charter and by-laws; and (iii) in accordance with
the Investment Company Act. Without limiting the generality of the foregoing,
the Adviser shall, during the term and subject to the provisions of this
Agreement (A) determine the composition of the portfolio of the Company, the
nature and timing of the changes therein and the manner of implementing such
changes; (B) identify, evaluate and negotiate the structure of the investments
made by the Company; (C) execute, close, monitor and service the Company’s
investments; (D) determine the securities and other assets that the Company will
purchase, retain, or sell; (E) perform due diligence on prospective portfolio
companies; and (F) provide the Company with such other investment advisory,
research and related services as the Company may, from time to time, reasonably
require for the investment of its funds. The Adviser shall have the power and
authority on behalf of the Company to effectuate its investment decisions for
the Company, including the negotiation,

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execution and delivery of all documents relating to the Company’s investments
and the placing of orders for other purchase or sale transactions on behalf of
the Company. In the event that the Company determines to obtain debt financing
(or refinance such financing), the Adviser shall arrange for such financing on
the Company’s behalf, subject to the oversight and approval of the Board. If it
is necessary for the Adviser to make investments on behalf of the Company
through a special purpose vehicle, the Adviser shall have authority to create or
arrange for the creation of such special purpose vehicle and to make such
investments through such special purpose vehicle.

(b) The Adviser hereby accepts such appointment and agrees during the term
hereof to render the services described herein for the compensation provided
herein.

(c) The Adviser is hereby authorized to enter into one or more sub-advisory
agreements with other investment advisers (each, a “Sub-Adviser”) pursuant to
which the Adviser may obtain the services of the Sub-Adviser(s) to assist the
Adviser in fulfilling its responsibilities hereunder. Specifically, the Adviser
may retain a Sub-Adviser to recommend specific securities or other investments
based upon the Company’s investment objective and policies, and work, along with
the Adviser, in structuring, negotiating, arranging or effecting the acquisition
or disposition of such investments and monitoring investments on behalf of the
Company, subject to the oversight of the Adviser and the Company. The Adviser,
and not the Company, shall be responsible for any compensation payable to any
Sub-Adviser. Any sub-advisory agreement entered into by the Adviser shall be in
accordance with the requirements of the Investment Company Act and other
applicable federal and state law.

(d) The Adviser shall, for all purposes herein provided, be deemed to be an
independent contractor and, except as expressly provided or authorized herein,
shall have no authority to act for or represent the Company in any way or
otherwise be deemed an agent of the Company.

(e) Subject to review by and the overall control of the Board, the Adviser shall
keep and preserve, in the manner and for the period required by the Investment
Company Act, any books and records relevant to the provision of its investment
advisory services to the Company and shall specifically maintain all books and
records with respect to the Company’s portfolio transactions and shall render to
the Board such periodic and special reports as the Board may reasonably request.
The Adviser agrees that all records that it maintains for the Company are the
property of the Company and shall surrender promptly to the Company any such
records upon the Company’s request, provided that the Adviser may retain a copy
of such records.

2. Company’s Responsibilities and Expenses Payable by the Company.

All personnel of the Adviser, when and to the extent engaged in providing
investment advisory services hereunder, and the compensation and routine
overhead expenses of such personnel allocable to such services, shall be
provided and paid for by the Adviser and not by the Company. The Company shall
bear all other costs and expenses of its operations and transactions, including
(without limitation) fees and expenses relating to: (a) offering expenses;
(b) diligence and monitoring of the Company’s financial, regulatory and legal
affairs (to the extent an investment opportunity is being considered for the
Company and any other accounts managed by Adviser or its affiliates, the
Adviser’s out-of-pocket expenses related to the due diligence for such
investment will be shared with such other accounts pro rata based on the
anticipated allocation of such investments opportunity between the Company and
the other

 

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accounts); (c) the cost of calculating the Company’s net asset value; (d) the
cost of effecting sales and repurchases of shares of the Company’s common stock
and other securities; (e) management and incentive fees payable pursuant to this
Agreement; (f) fees payable to third parties relating to, or associated with,
making investments and valuing investments (including third-party valuation
firms); (g) transfer agent and custodial fees; (h) fees and expenses associated
with marketing efforts (including attendance at investment conferences and
similar events); (i) allocable out-of-pocket costs incurred in providing
managerial assistance to those portfolio companies that request it; (j) fees,
interest or other costs payable on or in connection with any indebtedness;
(k) federal and state registration fees; (l) any exchange listing fees;
(m) federal, state and local taxes; (n) independent directors’ fees and
expenses; (o) brokerage commissions; (p) costs of proxy statements,
stockholders’ reports and notices; (q) costs of preparing government filings,
including periodic and current reports with the SEC; (r) fidelity bond,
liability insurance and other insurance premiums; (s) printing, mailing,
independent accountants and outside legal costs; (t) all other direct expenses
incurred by either the Company’s administrator or the Company in connection with
administering the Company’s business, including payments under the Company’s
administration agreement with its administrator (as in effect from time to time,
the “Administration Agreement”) that will be based upon the Company’s allocable
portion of overhead and other expenses incurred by the Company’s administrator
in performing its obligations under the Administration Agreement; and (u) the
compensation of the Company’s chief financial officer and chief compliance
officer, and their respective staffs.

3. Compensation of the Adviser.

The Company agrees to pay, and the Adviser agrees to accept, as compensation for
the services provided by the Adviser hereunder, a base management fee (“Base
Management Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set
forth. The Adviser may agree to temporarily or permanently waive or defer, in
whole or in part, the Base Management Fee and/or the Incentive Fee. See Appendix
A for examples of how these fees are calculated. The Company shall make any
payments due hereunder to the Adviser or to the Adviser’s designee as the
Adviser may otherwise direct. Any portion of a deferred fee payable to the
Adviser shall be deferred without interest and may be paid in any quarter prior
to the termination of this Agreement as the Adviser may determine upon written
notice to the Company.

(a) The Base Management Fee shall be calculated at an annual rate of 1.00% of
the Company’s gross assets, including any investments made with borrowings, but
excluding any cash and cash equivalents. For purposes of this Agreement, the
term “cash and cash equivalents” will have the meaning ascribed to it from time
to time in the notes to the financial statements that the Company files with the
SEC. The Base Management Fee shall be payable quarterly in arrears, and shall be
calculated based on the average value of the Company’s gross assets at the end
of the two most recently completed quarters. The Base Management Fee for any
partial month or quarter shall be appropriately prorated(upon termination of the
investment advisory agreement, as of the termination date). The initial payment
of the Base Management Fee shall cover the entire quarter in which this
Agreement becomes effective, and be calculated at the blended rate of (i) the
number of days in such quarter prior to the Effective Date multiplied by the
base management fee as calculated pursuant to the terms of the Investment
Advisory Agreement, dated June 27, 2013, by and between the Company and Fifth
Street Management

 

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LLC, plus (ii) the number of days in such quarter after and including the
Effective Date multiplied by the Base Management Fee set forth above, then
divided by (iii) the total number of days in such quarter, in order to allow the
Adviser to receive on behalf of Fifth Street Management LLC and remit as paying
agent the pro rata portion of the base management fee that was earned by, but
not paid to, Fifth Street Management LLC for services rendered to the Company
under the Investment Advisory Agreement, dated June 27, 2013, by and between the
Company and Fifth Street Management LLC.

(b) The Incentive Fee shall consist of two parts, as follows:

(i) The first part shall be calculated and payable quarterly in arrears based on
the Company’s “Pre-Incentive Fee Net Investment Income’’ for the immediately
preceding quarter (or upon termination of the investment advisory agreement, as
of the termination date). The initial payment of this part of the Incentive Fee
shall cover the entire quarter in which this Agreement becomes effective, and be
calculated at the blended rate of (i) the number of days in such quarter prior
to the Effective Date multiplied by the incentive fee on income as calculated
pursuant to the terms of the Investment Advisory Agreement, dated June 27, 2013,
by and between the Company and Fifth Street Management LLC, plus (ii) the number
of days in such quarter after and including the Effective Date multiplied by the
incentive fee on income set forth below, then divided by (iii) the total number
of days in such quarter, in order to allow the Adviser to receive on behalf of
Fifth Street Management LLC and remit as paying agent the pro rata portion of
the incentive fee on income that was earned by, but not paid to, Fifth Street
Management LLC for services rendered to the Company under the Investment
Advisory Agreement, dated June 27, 2013, by and between the Company and Fifth
Street Management LLC. For this purpose, ‘‘Pre-Incentive Fee Net Investment
Income’’ means interest income, dividend income and any other income (including
any other fees, such as commitment, origination, structuring, diligence and
consulting fees or other fees that the Company receives from portfolio companies
other than fees for providing managerial assistance) accrued during the quarter,
minus the Company’s operating expenses for the quarter (including the Base
Management Fee, expenses payable under the Administration Agreement, and any
interest expense and dividends paid on any issued and outstanding preferred
stock, but excluding the Incentive Fee). Pre-Incentive Fee Net Investment Income
includes, in the case of investments with a deferred interest feature (such as
original issue discount, debt instruments with payment-in-kind interest and zero
coupon securities), accrued income that the Company has not yet received in
cash. Pre-Incentive Fee Net Investment Income does not include any realized
capital gains, realized capital losses or unrealized capital appreciation or
depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of
return on the value of the Company’s net assets at the end of the immediately
preceding quarter, shall be compared to a ‘‘hurdle rate’’ of 1.5% per quarter
(6% annualized), subject to a ‘‘catch-up’’ provision measured as of the end of
each quarter. The Company’s net investment income used to calculate this part of
the incentive fee is also included in the amount of the Company’s gross assets
used to calculate the 1% base management fee. The operation of the incentive fee
with respect to the Company’s Pre-Incentive Fee Net Investment Income for each
quarter is as follows:

 

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  •   No incentive fee is payable to the Adviser in any quarter in which the
Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle
rate of 1.5% (the ‘‘preferred return’’ or ‘‘hurdle’’).

 

  •   100% of the Company’s Pre-Incentive Fee Net Investment Income with respect
to that portion of such Pre-Incentive Fee Net Investment Income, if any, that
exceeds the hurdle rate but is less than or equal to 1.8182% in any quarter
(7.2727% annualized) is payable to the Adviser. This portion of the
Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is
less than or equal to 1.8182%) is referred to as the “catch-up.” The “catch-up”
provision is intended to provide the Adviser with an incentive fee of 17.5% on
all of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle rate
did not apply when the Company’s Pre- Incentive Fee Net Investment Income
exceeds 1.8182% in any quarter.

 

  •   17.5% of the amount of the Company’s Pre-Incentive Fee Net Investment
Income, if any, that exceeds 1.8182% in any quarter (7.2727% annualized) is
payable to the Adviser once the hurdle is reached and the catch-up is achieved,
(17.5% of all Pre-Incentive Fee Net Investment Income thereafter is allocated to
the Adviser).

(ii)    The second part of the incentive fee shall be determined and payable in
arrears as of the end of each fiscal year (or upon termination of the investment
advisory agreement, as of the termination date), commencing the fiscal year
ending September 30, 2019, and shall equal 17.5% of the Company’s realized
capital gains, if any, on a cumulative basis from the beginning of the fiscal
year ending September 30, 2019 through the end of each subsequent fiscal year,
computed net of all realized capital losses and unrealized capital depreciation
on a cumulative basis, less the aggregate amount of any previously paid capital
gain incentive fees under this Agreement. Any realized capital gains, realized
capital losses, unrealized capital appreciation and unrealized capital
depreciation with respect to the Company’s portfolio as of the end of the fiscal
year ending September 30, 2018 shall be excluded from the calculations of the
second part of the incentive fee.

(c)    In certain circumstances the Adviser, any Sub-Adviser, or any of their
respective affiliates, may receive compensation from a portfolio company in
connection with the Company’s investment in such portfolio company. Any
compensation received by the Adviser, Sub-Adviser, or any of their respective
affiliates, attributable to the Company’s investment in any portfolio company,
in excess of any of the limitations in or exemptions granted from the 1940 Act,
any interpretation thereof by the staff of the SEC, or the conditions set forth
in any exemptive relief granted to the Adviser, any Sub-Adviser or the Company
by the SEC, shall be delivered promptly to the Company and the Company will
retain such excess compensation for the benefit of its shareholders.

4. Covenants of the Adviser.

The Adviser covenants that it will maintain its registration as an investment
adviser under the Advisers Act. The Adviser agrees that its activities will at
all times be in compliance in all material respects with all applicable federal
and state laws governing its operations and investments.

 

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5. Brokerage Commissions.

The Adviser is hereby authorized, to the fullest extent now or hereafter
permitted by law, to cause the Company to pay a member of a national securities
exchange, broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another member of such
exchange, broker or dealer would have charged for effecting that transaction, if
the Adviser determines in good faith, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, and operational facilities of the firm and the firm’s
risk and skill in positioning blocks of securities, that such amount of
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such member, broker or dealer, viewed in terms of
either that particular transaction or its overall responsibilities with respect
to the Company’s portfolio, and constitutes the best net results for the
Company.

6. Other Activities of the Adviser.

The services of the Adviser to the Company are not exclusive. Subject to the
provisions of the Company’s charter and by-laws, the Adviser and its managers,
partners, principals, officers, employees and agents shall be free to act for
their own account or the account of any other Account, and to engage in any
other business or render similar or different services to others including,
without limitation, the direct or indirect sponsorship or management of other
investment based accounts or commingled pools of capital, however structured,
having investment objectives similar to those of the Company, so long as the
Adviser’s services to the Company hereunder are not impaired thereby. The
Company agrees that the Adviser may give advice and take action in the
performance of its duties with respect to any of its other clients which may
differ from advice given or the timing or nature of action taken with respect to
the investments of the Company. Nothing in this Agreement shall limit or
restrict the right of any manager, partner, principal, officer, employee or
agent of the Adviser to engage in any other business or to devote his or her
time and attention in part to any other business, whether of a similar or
dissimilar nature, or to receive any fees or compensation in connection
therewith (including fees for serving as a director of, or providing consulting
services to, one or more of the Company’s portfolio companies, subject to
applicable law). So long as this Agreement or any extension, renewal or
amendment remains in effect, the Adviser shall be the only investment adviser
for the Company, subject to the Adviser’s right to enter into sub-advisory
agreements. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder. It is understood that
directors, managers, officers, employees and stockholders of the Company are or
may become interested in the Adviser and its affiliates, as directors, officers,
employees, partners, principals, stockholders, members, managers, agents or
otherwise, and that the Adviser and directors, officers, employees, partners,
principals, stockholders, members, managers and agents of the Adviser and its
affiliates are or may become similarly interested in the Company as stockholders
or otherwise.

 

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7. Responsibility of Dual Directors, Officers and/or Employees.

If any person who is a manager, partner, principal, officer, employee or agent
of the Adviser is or becomes a director, manager, officer and/or employee of the
Company and acts as such in any business of the Company, then such manager,
partner, principal, officer, employee and/or agent of the Adviser shall be
deemed to be acting in such capacity solely for the Company, and not as a
manager, partner, principal, officer, employee or agent of the Adviser or under
the control or direction of the Adviser, even if paid by the Adviser.

8. Limitation of Liability of the Adviser; Indemnification.

The Adviser (and its officers, managers, partners, members (and their members,
including the owners of their members), agents, employees, controlling persons
and any other person or entity affiliated with the Adviser) shall not be liable
to the Company for any action taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the Company (except to the
extent specified in Section 36(b) of the Investment Company Act concerning loss
resulting from a breach of fiduciary duty (as the same is finally determined by
judicial proceedings) with respect to the receipt of compensation for services,
and the Company shall indemnify, defend and protect the Adviser (and its
officers, managers, partners, members (and their members, including the owners
of their members), agents, employees, controlling persons and any other person
or entity affiliated with the Adviser, each of whom shall be deemed a third
party beneficiary hereof) (collectively, the “Indemnified Parties”) and hold
them harmless from and against all damages, liabilities, costs and expenses
(including reasonable attorneys’ fees and amounts reasonably paid in settlement)
incurred by the Indemnified Parties in or by reason of any pending, threatened
or completed action, suit, investigation or other proceeding (including an
action or suit by or in the right of the Company or its security holders)
arising out of or otherwise based upon the performance of any of the Adviser’s
duties or obligations under this Agreement or otherwise as an investment adviser
of the Company. Notwithstanding the preceding sentence of this Paragraph 8 to
the contrary, nothing contained herein shall protect or be deemed to protect the
Indemnified Parties against or entitle or be deemed to entitle the Indemnified
Parties to indemnification in respect of, any liability to the Company or its
security holders to which the Indemnified Parties would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser’s duties or by reason of the reckless disregard of the Adviser’s
duties and obligations under this Agreement.

9. Effectiveness, Duration and Termination of Agreement.

This Agreement shall become effective as of the Effective Date. This Agreement
shall remain in effect for two years from the Effective Date, and thereafter
shall continue automatically for successive annual periods, provided that such
continuance is specifically approved at least annually by (a) the vote of the
Board or a majority of the outstanding voting securities of the Company and
(b) the vote of a majority of the Company’s directors who are not parties to
this Agreement or “interested persons” (as such term is defined in
Section 2(a)(19) of the Investment Company Act) of any such party, in accordance
with the requirements of the Investment Company Act and each of whom is an
“independent director” under applicable New York Stock Exchange listing
standards. This Agreement may be terminated at any time, without

 

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the payment of any penalty, upon 60 days’ written notice, by the vote of a
majority of the outstanding voting securities of the Company, or by the vote of
the Company’s directors or by the Adviser. This Agreement shall automatically
terminate in the event of its “assignment” (as such term is defined for purposes
of Section 15(a)(4) of the Investment Company Act). Further, notwithstanding the
termination or expiration of this Agreement as aforesaid, the Adviser shall be
entitled to any amounts owed under Paragraph 3 through the date of termination
or expiration.

10. Notices.

Any notice under this Agreement shall be given in writing, addressed and
delivered or mailed, postage prepaid, to the other party at its principal
office.

11. Amendments.

This Agreement may be amended by mutual consent.

12. Entire Agreement; Governing Law.

This Agreement contains the entire agreement of the parties and supersedes all
prior agreements, understandings and arrangements with respect to the subject
matter hereof. Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, this Agreement shall be construed in accordance with
the laws of the State of New York. For so long as the Company is regulated as a
BDC under the Investment Company Act, this Agreement shall also be construed in
accordance with the applicable provisions of the Investment Company Act. In such
case, to the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the provisions of the Investment Company Act,
the latter shall control. To the fullest extent permitted by law, in the event
of any dispute arising out of the terms and conditions of this Agreement, the
parties hereto consent and submit to the jurisdiction of the courts of the State
of New York in the county of New York and of the U.S. District Court for the
Southern District of New York.

13. Forum Selection.

Any legal action or proceeding with respect to this Agreement or the services
provided hereunder or for recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its successors or assigns must be
brought and determined in the state or United States district courts of the
State of New York (and may not be brought or determined in any other forum or
jurisdiction), and each party hereto submits with regard to any action or
proceeding for itself and in respect of its property, generally and
unconditionally, to the sole and exclusive jurisdiction of the aforesaid courts.

14. No Third Party Beneficiary.

Other than expressly provided for in Paragraph 8 of this Agreement, this
Agreement does not and is not intended to confer any rights or remedies upon any
person other than the parties to this Agreement; there are no third-party
beneficiaries of this Agreement, including but not limited to stockholders of
the Company.

 

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15. Severability.

Every term and provision of this Agreement is intended to be severable. If any
term or provision hereof is illegal or invalid for any reason whatsoever, such
term or provision will be enforced to the maximum extent permitted by law and,
in any event, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.

16. Counterparts.

This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which taken together shall constitute a
single agreement.

17. Survival of Certain Provisions.

The provisions of Paragraph 8 of this Agreement shall survive any termination or
expiration of this Agreement and the dissolution, termination and winding up of
the Company.    

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date above written.

 

OAKTREE STRATEGIC INCOME CORPORATION By:  

/s/ Mathew M. Pendo

  Name: Mathew M. Pendo   Title: Chief Operating Officer OAKTREE CAPITAL
MANAGEMENT, L.P. By:  

/s/ Martin Boskovich

  Name: Martin Boskovich   Title: Managing Director By:  

/s/ Mary Gallegly

  Name: Mary Gallegly   Title: Vice President, Legal

[Signature Page to Investment Advisory Agreement]

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Appendix A

Example 1: Incentive Fee on Income for Each Quarter

Alternative 1

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.75%

Preferred return1 = 1.50%

Management fee2 = 0.25%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%

Pre-Incentive Fee net investment income

(investment income – (management fee + other expenses)) = 1.30%

Pre-Incentive Fee Net Investment Income does not exceed the Preferred Return,
therefore there is no Subordinated Incentive Fee on Income.

Alternative 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.25%

Preferred Return1 = 1.50%

Management fee2 = 0.25%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%

Pre-Incentive Fee net investment income

(investment income – (management fee + other expenses)) = 1.80%

Incentive Fee = 17.5% × pre-Incentive Fee net investment income, subject to
“catch-up”3

= 100% × (1.80% – 1.5%)

= 0.30%

Alternative 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.5%

Preferred Return1 = 1.50%

Management fee2 = 0.25%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%

Pre-Incentive Fee net investment income

(investment income – (management fee + other expenses)) = 3.05%

Incentive Fee = 17.5% × pre-Incentive Fee net investment income, subject to
“catch-up”3

Incentive Fee = 100% × “catch-up” + (17.5% × (pre-Incentive Fee net investment
income – 1.8182%))

Catch-up = 1.8182% – 1.5% = 0.3182%

Incentive Fee = (100% × 0.3182%) + (17.5% × (3.05% –1.8182%))

= 0.3182% + (17.5% × 1.2318%)

= 0.3182% + 0.2158%

= 0.534%

 

1  Represents 6.0% annualized preferred return.

2  Represents 1.0% annualized management fee.

3  The “catch-up” provision is intended to provide the Adviser with an Incentive
Fee of 17.5% on all of our pre-Incentive Fee net investment income as if a
preferred return did not apply when our net investment income exceeds 1.5% in
any calendar quarter and is not applied once the Adviser has received 17.5% of
investment income in a quarter. The “catch-up” portion of our pre-Incentive Fee
Net Investment Income is the portion that exceeds the 1.5% preferred return but
is less than or equal to approximately 1.8182% (that is, 1.5% divided by (1 –
0.175)) in any fiscal quarter.

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Example 2: Incentive Fee on Capital Gains

Assumptions

 

  •   Year 1: $10 million investment made in Company A (“Investment A”),
$10 million investment made in Company B (“Investment B”), $10 million
investment made in Company C (“Investment C”), $10 million investment made in
Company D (“Investment D”) and $10 million investment made in Company E
(“Investment E”).

 

  •   Year 2: Investment A sold for $20 million, fair market value (“FMV”) of
Investment B determined to be $8 million, FMV of Investment C determined to be
$12 million, and FMV of Investments D and E each determined to be $10 million.

 

  •   Year 3: FMV of Investment B determined to be $8 million, FMV of Investment
C determined to be $14 million, FMV of Investment D determined to be $14 million
and FMV of Investment E determined to be $16 million.

 

  •   Year 4: Investment D sold for $12 million, FMV of Investment B determined
to be $10 million, FMV of Investment C determined to be $16 million and FMV of
Investment E determined to be $14 million.

 

  •   Year 5: Investment C sold for $20 million, FMV of Investment B determined
to be $14 million and FMV of Investment E determined to be $10 million

 

  •   Year 6: Investment B sold for $16 million and FMV of Investment E
determined to be $8 million.

 

  •   Year 7: Investment E sold for $8 million and FMV.

These assumptions are summarized in the following chart:

 

     Investment
A      Investment
B      Investment
C      Investment
D      Investment
E    Cumulative
Unrealized
Capital
Depreciation      Cumulative
Realized
Capital
Losses      Cumulative
Realized
Capital
Gains  

Year 1

    
$10 million
(cost basis)  
      
$10 million
(cost basis)  
      
$10 million
(cost basis)  
      
$10 million
(cost basis)  
     $10 million
(cost basis)      —          —          —    

Year 2

    
$20 million
(sale price)  
      
$8 million
FMV  
      
$12 million
FMV  
      
$10 million
FMV  
     $10 million
FMV      $2 million        —        $ 10 million  

Year 3

     —         
$8 million
FMV  
      
$14 million
FMV  
      
$14 million
FMV  
     $16 million
FMV      $2 million        —        $ 10 million  

Year 4

     —         
$10 million
FMV  
      
$16 million
FMV  
      
$12 million
(sale price)  
     $14 million
FMV      —          —        $ 12 million  

Year 5

     —         
$14 million
FMV  
      
$20 million
(sale price)  
       —        $10 million
FMV      —          —        $ 22 million  

Year 6

     —         
$16 million
(sale price)  
       —          —        $8 million
FMV    $ 2 million        —        $ 28 million  

Year 7

     —          —          —          —        $8 million
(sale price)      —        $ 2 million      $ 28 million  

The Incentive Fee on Capital Gains would be:

 

  •   Year 1: None

 

  •   Year 2:

Capital Gains Fee = 17.5% multiplied by ($10 million realized capital gains on
sale of Investment A less $2 million cumulative capital depreciation) =
$1.4 million

 

  •   Year 3:

Capital Gains Fee = (17.5% multiplied by ($10 million cumulative realized
capital gains less $2 million cumulative capital depreciation)) less
$1.4 million cumulative Capital Gains Fee previously paid = $1.4 million less
$1.4 million = $0.00 million

 

  •   Year 4:

Capital Gains Fee = (17.5% multiplied by ($12 million cumulative realized
capital gains)) less $1.4 million cumulative Capital Gains Fee previously paid =
$2.1 million less $1.4 million = $0.7 million

--------------------------------------------------------------------------------

  •   Year 5:

Capital Gains Fee = (17.5% multiplied by ($22 million cumulative realized
capital gains)) less $2.1 million cumulative Capital Gains Fee previously paid =
$3.85 million less $2.1 million = $1.75 million

 

  •   Year 6:

Capital Gains Fee = (17.5% multiplied by ($28 million cumulative realized
capital gains less $2 million cumulative capital depreciation)) less
$3.85 million cumulative Capital Gains Fee previously paid = $4.55 million less
$3.85 million = $0.70 million

 

  •   Year 7:

Capital Gains Fee = (17.5% multiplied by ($28 million cumulative realized
capital gains less $2 million cumulative realized capital losses)) less
$4.55 million cumulative Capital Gains Fee previously paid = $4.55 million less
$4.55 million = $0.00 million