INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT ("Agreement"), made this 1st day of
May, 2001, between FMI FUNDS, INC., a Maryland corporation (the "Company"), and
FIDUCIARY MANAGEMENT, INC., a Wisconsin corporation (the "Adviser").
W I T N E S S E T H :
WHEREAS, the Company is currently registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act") as an
open-end management investment company consisting initially of one series, FMI
Focus Fund (the "Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940, as the
investment adviser for the Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise and
agree as follows:
1. Employment. The Company hereby employs the Adviser to manage the
investment and reinvestment of the assets of the Fund and to administer its
business and administrative operations, subject to the direction of the Board of
Directors of the Company (the "Board of Directors") and the officers of the
Company, for the period and on the terms set forth in this Agreement. The
Adviser hereby accepts such employment for the compensation herein provided and
agrees during such period to render the services and to assume the obligations
herein set forth.
2. Authority of the Adviser. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Company or
the Fund in any way or otherwise be deemed an agent of the Company or the Fund.
However, one or more shareholders, officers, directors or employees of the
Adviser may serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the Company.
Nothing herein contained shall be deemed to require the Company to take any
action contrary to its Articles of Incorporation, as amended, restated or
supplemented, or any applicable statute or regulation, or to relieve or deprive
the Board of Directors of its responsibility for and control of the affairs of
the Fund.
3. Obligations of and Services to be Provided by the Adviser. The
Adviser undertakes to provide the services hereinafter set forth and to assume
the following obligations:
A. Management and Administrative Services.
(1) The Adviser shall furnish to the Company adequate office space,
which may be space within the offices of the Adviser or in such other
place as may be agreed upon from time to time, and all office
furnishings, facilities and equipment as may be reasonably required
for performing services relating to advisory, research, asset
allocation, portfolio manager selection and evaluation activities and
otherwise managing and administering the business and operations of
the Fund.
(2) The Adviser shall employ or provide and compensate the executive,
administrative, secretarial and clerical personnel necessary to
supervise the provision of the services set forth in sub-paragraph
3(A)(1) and shall bear the expense of providing such services, except
as provided in Section 4 of this Agreement. The Adviser shall also
compensate all officers and employees of the Company who are officers
or employees of the Adviser or its affiliated companies.
B. Investment Management Services.
(1) The Adviser shall, subject to and in accordance with the
investment objective and policies of the Fund and any directions which
the Board of Directors may issue to the Adviser, have overall
responsibility for the general management and investment of the assets
and securities portfolios of the Fund.
(2) The Adviser may delegate its investment responsibilities under
sub-paragraph 3(B)(1) with respect to the Fund or segments thereof to
one or more persons or companies ("Portfolio Manager[s]") pursuant to
an agreement between the Adviser, the Company and each such Portfolio
Manager ("Sub-Advisory Agreement"). Each Sub-Advisory Agreement may
provide that the Portfolio Manager, subject to the control and
supervision of the Board of Directors and the Adviser, shall have full
investment discretion for the Fund and shall make all determinations
with respect to the investment of the Fund's assets assigned to the
Portfolio Manager and the purchase and sale of portfolio securities
with those assets, and such steps as may be necessary to implement its
decision. Any delegation of duties pursuant to this paragraph shall
comply with any applicable provisions of Section 15 of the Act, except
to the extent permitted by any exemptive order of the Securities and
Exchange Commission or similar relief. Adviser shall not be
responsible or liable for the investment merits of any decision by a
Portfolio Manager to purchase, hold or sell a security for the Fund's
portfolio.
(3) The Adviser shall develop overall investment programs and
strategies for the Fund, or segments thereof, shall revise such
programs as necessary, and
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shall monitor and report periodically to the Board of Directors
concerning the implementation of the programs.
(4) The Adviser shall research and evaluate Portfolio Managers and
shall advise the Board of Directors of the Company of the Portfolio
Managers which the Adviser believes are best-suited to invest the
assets of the Fund; shall monitor and evaluate the investment
performance of each Portfolio Manager; shall determine the portion of
the Fund's assets to be managed by each Portfolio Manager; shall
recommend changes or additions of Portfolio Managers when appropriate;
and shall coordinate the investment activities of the Portfolio
Managers.
(5) The Adviser shall be solely responsible for paying the fees of
each Portfolio Manager.
(6) The Adviser shall render to the Board of Directors such periodic
reports concerning the business and investments of the Fund as the
Board of Directors shall reasonably request.
C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.
The Adviser will make available and provide financial, accounting and
statistical information required by the Fund for the preparation of registration
statements, reports and other documents required by federal and state securities
laws, and with such information as the Fund may reasonably request for use in
the preparation of such documents or of other materials necessary or helpful for
the underwriting and distribution of the Fund's shares.
D. Provision of Personnel.
The Adviser shall make available its officers and employees to the
Board of Directors and officers of the Company for consultation and discussions
regarding the administration and management of the Company and its investment
activities.
4. Expenses. The Adviser shall not be required to pay any expenses of
the Fund except as provided herein; provided, however, that if the aggregate
annual operating expenses, including the Adviser's fee and the fees paid to the
Fund's Administrator but excluding all federal, state and local taxes, interest,
reimbursement payments to securities lenders for dividend and interest payments
on securities sold short, brokerage commissions and other costs incurred in
connection with the purchase or sale of portfolio securities and extraordinary
items, in any year exceed that percentage of the average net assets of the Fund
for such year, as determined by valuations made as of the close of each business
day of the year, which is the most restrictive percentage provided by the state
laws of the various states in which the Fund's shares are qualified for sale or,
if the states in which the Fund's shares are
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qualified for sale impose no such restrictions, 2.75%, then the Adviser's fee
shall be reduced as hereinafter provided. The expenses of the Fund's operations
borne by the Fund include by way of illustration and not limitation, directors
fees paid to those directors who are not officers of the Company, the costs of
preparing and printing registration statements required under the Securities Act
of 1933 and the Act (and amendments thereto), the expense of registering its
shares with the Securities and Exchange Commission and in the various states,
payments made pursuant to the Fund's Service and Distribution Plan, the printing
and distribution cost of prospectuses mailed to existing shareholders, the cost
of stock certificates (if any), director and officer liability insurance,
reports to shareholders, reports to government authorities and proxy statements,
interest charges, reimbursement payments to securities lenders for dividend and
interest payments on securities sold short, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues, auditing and
accounting services, insurance premiums, brokerage and other expenses connected
with the execution of portfolio securities transactions, fees and expenses of
the custodian of the Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer agents
and the cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Fund on a monthly
basis. If the accrued amount of the expenses of the Fund exceeds the expense
limitation established herein, the Company shall create an account receivable
from the Adviser in the amount of such excess. In such a situation the monthly
payment of the Adviser's fee will be reduced by the amount of such excess,
subject to adjustment month by month during the balance of the Company's fiscal
year if accrued expenses thereafter fall below the expense limitation.
5. Compensation of the Adviser. For the services and facilities to be
rendered and the charges and expenses to be assumed by the Adviser hereunder,
the Company, through and on behalf of the Fund, shall pay to the Adviser an
advisory fee, paid monthly, based on the average daily net assets of the Fund,
as determined by valuations made as of the close of each business day of the
month. The advisory fee shall be 1/12 of 1.25% of the average daily net assets
of the Fund. For any month in which this Agreement is not in effect for the
entire month, such fee shall be reduced proportionately on the basis of the
number of calendar days during which it is in effect and the fee computed upon
the average daily net assets on the business days during which it is so in
effect.
6. Ownership of Shares of the Fund. The Adviser shall not take an
ownership position in the Fund, and shall not permit any of its shareholders,
officers, directors or employees to take a long or short position in the shares
of the Fund, except for the purchase of shares of the Fund for investment
purposes at the same price as that available to the public at the time of
purchase or in connection with the initial capitalization of the Fund.
7. Exclusivity. The services of the Adviser to the Fund hereunder are
not to be deemed exclusive and the Adviser shall be free to furnish similar
services to others as long as
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the services hereunder are not impaired thereby. Although the Adviser has agreed
to permit the Company to use the name "FMI", if it so desires, it is understood
and agreed that the Adviser reserves the right to use and to permit other
persons, firms or corporations, including investment companies, to use such
name.
8. Liability. In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Fund or to
any shareholder of the Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for any losses that may be
sustained in the purchase, holding or sale of any security.
9. Brokerage Commissions. The Adviser, subject to the control and
direction of the Board of Directors, and any Portfolio Managers, subject to the
control and direction of the Board of Directors and the Adviser, shall have
authority and discretion to select brokers and dealers to execute portfolio
transactions for the Fund and for the selection of the markets on or in which
the transactions will be executed. The Adviser or the Portfolio Managers may
cause the Fund to pay a broker-dealer which provides brokerage and research
services, as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "Exchange Act"), to the Adviser or the Portfolio
Managers a commission for effecting a securities transaction in excess of the
amount another broker-dealer would have charged for effecting such transaction,
if the Adviser or the Portfolio Manager determines in good faith that such
amount of commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker-dealer viewed in terms of
either that particular transaction or his overall responsibilities with respect
to the accounts as to which he exercises investment discretion (as defined in
Section 3(a)(35) of the Exchange Act). The Adviser shall provide such reports as
the Board of Directors may reasonably request with respect to each Fund's total
brokerage and the manner in which that brokerage was allocated.
10. Code of Ethics. The Adviser has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Act and has provided the
Company with a copy of the code of ethics and evidence of its adoption. Upon the
written request of the Company, the Adviser shall permit the Company to examine
the reports required to be made by the Adviser pursuant to Rule 17j-1(c)(1).
11. Amendments. This Agreement may be amended by the mutual consent of
the parties; provided, however, that in no event may it be amended without the
approval of the Board of Directors in the manner required by the Act, and, if
required by the Act, by the vote of the majority of the outstanding voting
securities of the Fund, as defined in the Act.
12. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the Board of Directors or by a vote of the
majority of the outstanding voting securities of the Fund, as defined in the
Act, upon giving sixty (60) days' written notice to the Adviser. This Agreement
may be terminated by the Adviser at any time
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upon the giving of sixty (60) days' written notice to the Company. This
Agreement shall terminate automatically in the event of its assignment (as
defined in Section 2(a)(4) of the Act). Subject to prior termination as
hereinbefore provided, this Agreement shall continue in effect for an initial
period beginning as of the date hereof and ending April 30, 2003 and
indefinitely thereafter, but only so long as the continuance after such initial
period is specifically approved annually by (i) the Board of Directors or by the
vote of the majority of the outstanding voting securities of the Company, as
defined in the Act, and (ii) the Board of Directors in the manner required by
the Act, provided that any such approval may be made effective not more than
sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day first above written.
FIDUCIARY MANAGEMENT, INC.
(the "Adviser")
By:_________________________________
Xxxxxxx X. English, President
FMI FUNDS, INC.
(the "Company")
By:_________________________________
Xxx X. Xxxxxxx, President
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