INVESTMENT ADVISORY AGREEMENT
Agreement made this 31st day of December, 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 registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (the "Act") as an open-end
management investment company consisting of two series including FMI Large Cap
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 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 supervise and manage
the investment portfolio of the Fund, and, subject to such policies as the
directors of the Company may determine, direct the purchase and sale of
investment securities in the day-to-day
management of the Fund. 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 or By-Laws or any applicable statute or
regulation, or to relieve or deprive the directors of the Company of their
responsibility for, and control of, the affairs of the Fund.
3. Expenses. The Adviser, at its own expense and without reimbursement
from the Company or the Fund, shall furnish office space, and all necessary
office facilities, equipment and executive personnel for managing the
investments of the Fund. The Fund shall bear all expenses initially incurred by
it, provided that the total expenses borne by the Fund, including the Adviser's
fee 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 extraordinary items, shall not 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, 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 qualified for sale impose no such restrictions, 1.75%. The
expenses of the Fund's operations borne by the Fund include by way of
illustration and not limitation, director's fees paid to those directors who are
not officers of the Company, the
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costs of preparing and printing its 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 Service and Distribution Plan, the
printing and distribution cost of prospectuses mailed to existing shareholders,
the cost of share 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 associated 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, 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 for 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.
4. 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
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average net assets of the Fund, as determined by valuations made as of the close
of each business day of the month. The monthly advisory fee shall be 1/12 of
1.00% (1.00% per annum) of such average net assets. 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 net assets of the business days
during which it is so in effect.
5. Ownership of Shares of the Fund. Except in connection with the
initial capitalization of the Fund, the Adviser shall not take, 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.
6. 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 the services hereunder are not impaired thereby.
Although the Adviser has permitted and is permitting the Fund and the Company to
use the names "FMI" and "Fiduciary" 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 names, and that the Fund and the
Company will not use such names if the Adviser ceases to be the Fund's sole
investment adviser. During the period that this Agreement is in effect, the
Adviser shall be the Fund's sole investment adviser.
7. 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
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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.
8. Brokerage Commissions. The Adviser, subject to the control and
direction of the directors of the Company, shall have the 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 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 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 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).
9. 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
any reports required to be made by the Adviser pursuant to Rule 17j-1(d) under
the Act.
10. 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 directors of the Company 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.
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11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by the directors of the Company 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 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 two (2) years from the date hereof and indefinitely thereafter, but
only so long as the continuance after such two (2) year period is specifically
approved annually by (i) the directors of the Company or by the vote of the
majority of the outstanding voting securities of the Fund, as defined in the
Act, and (ii) the directors of the Company in the manner required by the Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day first above written.
FIDUCIARY MANAGEMENT, INC. FMI FUNDS, INC.
(the "Adviser") (the "Company")
By: By:
-------------------------------- -----------------------------------
President President
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