AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT
Sub-Item 77Q1(e) - Amended and Restated
Investment Management Agreement
AMENDED
AND RESTATED
Investment
Management Agreement made as of the December 5, 2008, by and between Homestead
Funds, Inc., a Maryland corporation (the “Company”), on behalf of the Growth
Fund (the “Fund”), and RE Advisers Corporation, a Virginia corporation (the
“Investment Manager”).
WHEREAS, the Company engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the “1940 Act”);
and
WHEREAS, the Company is a
series type investment company currently consisting of eight series, each with
its own investment program, policies, and investment objectives, and
restrictions; and
WHEREAS, the Investment
Manager is engaged principally in the business of rendering investment
management services and is registered as an investment manager under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund (formerly
known as the Nasdaq-100 Index Tracking StockSM Fund) had been since its
inception through the date of this Agreement a passively managed index fund, the
Company initially retained the Investment Manager to render investment
management services (i.e., investment advisory and administrative services) to
the Fund pursuant to an agreement dated January 1, 2001, which agreement was
amended and restated as of September 26, 2003 and September 15, 2004;
and
WHEREAS, because the Fund is
transitioning to an actively managed fund, the parties hereto have mutually
agreed to amend certain terms of that agreement as reflected
herein;
NOW THEREFORE, the parties
hereto agree as follows:
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1.
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Duties and
Responsibilities of the Investment
Manager.
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1.1 Investment Advisory
Services. The Investment Manager shall act as the investment manager to
the Fund and shall, subject to the supervision of the Company’s Board of
Directors, provide the following investment advisory services: (i) supervise and
monitor the investment activities of any subadviser approved for the Fund by the
Board of Directors of the Company; (ii) delegate all or any portion of its
responsibilities hereunder to one or more subadvisers subject to the supervision
and oversight of the Investment Manager and the Board of Directors of the
Company (as contemplated in Section 5 of this Agreement), provided that the
Investment Manager retains the overall responsibility for the general management
of the Fund;
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(iii)
formulate and implement a continuing program for the management of the assets
and resources of the Fund in a manner consistent with the Fund’s investment
objectives, investment program, policies and restrictions, that may be amended
and updated, from time to time, to reflect changes in financial and economic
conditions; (iv) make all determinations with respect to the investment of the
Fund’s assets in accordance with applicable law and the Fund’s investment
objectives, investment program, policies, and restrictions as provided in the
Company’s Prospectus and Statement of Additional Information, as amended from
time to time, provisions of the Internal Revenue Code of 1986, as amended,
relating to regulated investment companies, and such other limitations as the
Board of Directors of the Company may impose by notice in writing to the
Investment Manager; (v) make all determinations as to the purchase and sale of
the portfolio securities, including advising the Board of Directors as to
certain matters involving the Fund’s portfolio securities that are not in the
nature of investment decisions; (vi) obtain and evaluate such business and
financial information relating to the economy, industries, businesses,
securities markets, and securities as it may deem necessary or useful in
discharging its responsibilities under this Agreement; (vii) furnish the Board
of Directors with periodic reports concerning the Investment Manager’s economic
outlook and investment strategy, as well as information concerning the Fund’s
portfolio activity and investment performance; (viii) determine the
creditworthiness of the issuers, obligors, or guarantors of money market and
debt securities utilized by the Fund; and (ix) evaluate the creditworthiness of
any entities with which the Fund proposes to engage in repurchase transactions.
In furtherance of this duty, the Investment Manager, as agent and
attorney-in-fact with respect to the Fund, is authorized, in its discretion and
without prior consultation with the Fund and the Board of Directors of the
Company to buy, sell, exchange, convert for the Fund’s use, and otherwise trade
in any money market instruments’ bonds, and other securities or assets, and to
select the broker-dealers, underwriters or issuers to be used and to place
orders and negotiate commissions (if any) for the execution of transactions in
securities with or through such broker-dealers, underwriters, or
issuers.
1.2 Administrative
Services. In addition to investment advisory services set forth above in
1.1, the Investment Manager shall oversee the administration of all aspects of
the Company’s business and affairs with respect to the Fund and shall provide
certain services required for effective administration of the Company with
respect to the Fund, in connection therewith, the Investment Manager
shall:
1.2.1
Office and Other
Facilities. Furnish, without cost to the Company, or provide and pay the
cost of, such office facilities, furnishings, and office equipment as are
adequate for the Company’s needs.
1.2.2
Personnel.
Provide, without additional remuneration from or other cost to the Company, the
services of individuals competent to perform all of the Company’s executive,
administrative, compliance, and clerical functions that are not covered by 2.2.9
below or performed by or through employees or other persons or agents engaged by
the Company (including, e.g., the custodian, accounting services agent, transfer
agent, dividend disbursing agent and shareholder servicing agent).
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1.2.3
Agents. Assist
the Company in selecting, coordinating the activities of, supervising, and
acting as liaison with any other persons and agents engaged by the Company,
including the Company’s sub-advisers, custodian, accounting services agent,
transfer agent, dividend disbursing agent, shareholder servicing agent,
independent accountants, and independent legal counsel. The Investment Manager
shall also monitor the functions of such persons and agents, including, in
particular, the accounting services agent in its evaluation of the Fund’s
portfolio securities.
1.2.4
Directors and
Officers. Authorize and permit the Investment Manager’s directors,
officers and employees who may be elected or appointed as directors or officers
of the Company to serve in such capacities, without remuneration from or
additional cost to the Company.
1.2.5
Books and
Records. Ensure that all financial, accounting, corporate, and other
records required to be maintained and preserved by the Company or on its behalf
will be maintained and preserved by the Company or on its behalf will be
maintained in accordance with applicable laws and regulations and that the
Company’s corporate existence will be maintained.
1.2.6
Reports to the
Company. Furnish to or place at the disposal of the Company such
information, reports, evaluations, analyses, and opinions relating to its
administrative functions as the Company may, at any time or from time to time,
reasonably request or as the Investment Manager may deem helpful to the
Company.
1.2.7
Reports and
Filings. Assist in the development and preparation of all reports and
communications by the Company to the Fund’s shareholders and all reports and
filings necessary to maintain the registrations and qualifications of the
Company’s shares under federal and state law.
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2.
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Allocation of
Expenses
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2.1 Expenses Paid by Investment
Manager.
2.1.1
Salaries and Fees of
Directors and Officers. As between the Fund and the Investment Manager,
the Investment Manager shall pay all salaries, expenses and fees, if any of the
directors, officers or employees of the Investment Manager who are directors,
officers or employees of the Company. The Investment Manager has obtained such
personnel through an agreement with National Rural Electric Cooperative
Association, which has primary responsibility for the salaries, expenses and
fees of persons provided to serve as directors, officers and employees of the
Investment Manager.
2.1.2
Waiver or Assumption
and Reimbursement of the Company’s Expenses by Investment
Manager. The waiver of assumption and reimbursement by the Investment
Manager of any expense of the Company that the Investment Manager is not
required by this Agreement to waive, or assume and reimburse, shall not obligate
the Investment Manager to waive, or assume or reimburse, the same or any similar
expense of the Company on any subsequent occasion, unless so required pursuant
to a separate agreement between the Company and the Investment
Manager.
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2.1.3
Organizational
Expenses. The Investment Manager shall pay or assume all organizational
expenses of the Company.
2.2 Expenses paid by the
Company. The Company, with respect to the Fund, shall bear all expenses
of its operations and business not specifically waived, assumed or agreed to be
paid by the Investment Manager as provided in this Agreement or any other
agreement between the Company and the Investment Manager. In particular, the
expenses hereby allocated to the Company, with respect to the Fund, include, but
are not limited to:
2.2.1
Custody and Accounting
Services. All fees and expenses of depositories, custodians, accounting
service agents, and other agents for the transfer, receipt, safekeeping,
servicing of and accounting for the Fund’s cash, securities, and other property,
including, among other things, fees and expenses for the calculation of
standardized effective and compound yield quotations for the Fund, maintenance
of ledgers, position and income reports, and settlement of fund purchases and
sales.
2.2.2
Transfer Agency,
Shareholder Servicing, and Dividend Disbursement. All costs of
establishing, maintaining, and servicing accounts of shareholders of the Fund,
including the Fund’s proportionate share of all fees and expenses of the
Company’s transfer agent, shareholder services agent, dividend disbursing agent
and any other agents engaged by the Company to service such Fund accounts. In
addition, the Company shall reimburse the Investment Manager and charge to the
Fund the Fund’s proportionate share of all expenses incurred by the Investment
Manager in responding to telephonic and written inquiries from, and in mailing
information to Fund shareholders and others who may request information on
behalf of Fund shareholders, regarding matters such as shareholder account or
transaction status, net asset value of Fund shares, Fund performance, and
general information about the Fund.
2.2.3
Shareholder
Reports. All costs of preparing, setting in type, printing, and
distributing reports and other communications to shareholders of the
Fund.
2.2.4
Prospectuses.
All costs of preparing, setting in type, printing and mailing to shareholders of
the Fund annual or more frequent revisions of the Company’s Prospectus and
Statement of Additional Information and any supplements thereto.
2.2.5
Shareholder
Meetings. All costs incidental to holding meetings of shareholders of the
Fund, including the printing of notices and proxy materials, and proxy
solicitations therefore.
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2.2.6
Pricing and Portfolio
Valuation. All costs of daily valuation of the individual portfolio
securities of the Fund and daily computation of the net asset value per share of
the Fund, including (i) a proportionate share of the cost of any equipment
obtained by the Company, the Investment Manager or agents of the Company or a
proportionate share of the cost of any equipment currently owned by the
Investment Manager that will be used to price the Fund’s shares or value the
Fund’s assets, or (ii) the cost of the services of any agents engaged by the
Company for the purpose of pricing Fund shares or valuing the assets of the
Fund.
2.2.7
Communications.
All charges for equipment or services used for communications between the
Investment Manager or the Company and the sub-advisers, custodian, accounting
services agent, transfer agent, shareholder servicing agent, dividend disbursing
agent, or any other agent engaged by the Company to provide services to the
Fund.
2.2.8
Independent Legal and
Accounting Fees. The Fund’s proportionate share of all charges for
services and expenses of the Company’s independent legal counsel and independent
accountants.
2.2.9
Directors’ Fees and
Expenses. The Fund’s proportionate share of all compensation of directors
(other than those directors affiliated with the Investment Manager), all
expenses incurred in connection with their services as directors, and all
expenses of meetings of the Board of Directors and committees of the Board of
Directors.
2.2.10
Federal Registration
Fees. The Fund’s proportionate share of all fees and expenses of
maintaining the registration of the Company under the 1940 Act and maintaining
the registration of the Fund’s shares or registering additional shares of the
Fund under the Securities Act of 1933, as amended (the “1933 Act”), including
all fees and expenses incurred in connection with the preparation, setting in
type, printing, and filing of any post-effective amendments or supplements to
the Registration Statement, Prospectus, and Statement of Additional Information
for the Company under the 1933 Act or the 1940 Act that may be prepared from
time to time.
2.2.11
State Registration
Fees. The Fund’s proportionate share of all fees and expenses of
maintaining the registration and qualification of the Company and of the Fund’s
shares for sale under the securities laws of various states and jurisdictions
and registering and qualifying additional shares of the Fund, and of maintaining
the registration and qualification of the Company under all other laws
applicable to the Company or its business activities.
2.2.12
Issue, Redemption, and
Transfer of the Fund’s Shares. All expenses incurred in connection with
the issue, redemption, and transfer of the Fund’s shares, including the expenses
of confirming all share transactions and of transmitting share certificates for
the Fund.
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2.2.13
Bonding and
Insurance. All expenses of bond, liability, and other insurance coverage
required by law or regulation or deemed advisable by the Board of Directors of
the Company, including, without limitation, such bond, liability and other
insurance expense that may from time to time be allocated to the Fund in a
manner approved by its Board of Directors.
2.2.14
Brokerage
Commissions. All brokers’ commissions, if any, and other charges incident
to the purchase or sale of the Fund’s portfolio securities.
2.2.15
Taxes. The
Fund’s proportionate share of all taxes or governmental fees payable to federal,
state or other governmental agencies, domestic or foreign, including issue,
stamp, or transfer taxes.
2.2.16
Trade Association
Fees. The Fund’s proportionate share of all fees, dues and other expenses
incurred in connection with the Company’s trade association or other membership
in any investment organization.
2.2.17
Nonrecurring and
Extraordinary Expenses. The Fund’s proportionate share of such
nonrecurring and extraordinary expenses as may arise, including the costs of
actions, suits, or proceedings to which the Company is a party and the expenses
the Company may incur as a result of its legal obligation to provide
indemnification to its officers, directors, employees, and agents.
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3.
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Management
Fee.
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3.1 Compensation. The
Company, with respect to the Fund, shall pay the Investment Manager as
compensation for all services rendered, facilities provided and expenses waived
or assumed and reimbursed by the Investment Manager, investment management fees
computed as follows, based on the value of the average daily net assets of the
Fund:
3.1.1
Rate. The fees
with respect to the Fund shall be at the following annualized rates: 0.65% of
average daily net assets up to $250 million; and 0.60% of average daily net
assets over $250 million.
3.1.2
Method of
Computation. The fee shall accrue each calendar day and the sum of the
daily fee accruals for the Fund shall be paid monthly to the Investment Manager
in arrears within 30 days after the last business day of the relevant month. The
daily fee accruals shall be computed by multiplying the fraction of one over the
number of calendar days in the year by the applicable annual rates for the Fund,
described in subparagraph 3.1.1, above, and multiplying the product by the net
assets of the Fund as determined in accordance with the Company’s Prospectus as
of the close of business on the previous business day on which the Company was
open for business.
3.1.3
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.
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4. Brokerage. Subject to
seeking best execution, and subject to any policies or procedures as then
approved by the Company’s Board of Directors, the Investment Manager, in
carrying out its duties under Paragraph 1.1, may cause the Fund to pay a
broker-dealer that furnishes brokerage and research services (as such services
are defined under Section 28(e) of the Securities Exchange Act of 1934, as
amended (the “1934 Act”)) a higher commission than that which might be charged
by another broker-dealer that does not furnish brokerage and research services
or which furnished brokerage and research services deemed to be of lesser value,
if the Investment Manager determines in good faith that the amount of such
commission is reasonable in relation to the value of the brokerage and research
services provided by the broker-clearer viewed in terms of either that
particular transaction or the overall responsibilities of the Investment Manager
with respect to the other accounts, if any, as to which it exercises investment
discretion (as such term is defined under Section 3(a)(35) of the 1934
Act).
5. Investment Manager’s Use of
the Service of Others. The Investment Manager may at its own 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 Investment Manager, the Company, or the Fund with
(i) such subadvisory services referred to in Paragraph 1.1; (ii) such
statistical and other factual information; (iii) such advice regarding economic
factors and trends; (iv) such advice as to occasional transactions in specific
securities; or (v) such other information, advice or assistance as the
Investment Manager may deem necessary, appropriate or convenient for the
discharge of its obligations hereunder or otherwise helpful to the Company or
the Fund, or in the discharge or the Investment Manager’s overall
responsibilities with respect to the other accounts for which it serves as an
investment manager.
6. Ownership of Records.
All records required to be maintained and preserved by the Company, with respect
to the Fund, pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the 1940 Act and
maintained and preserved by the Investment Manager on behalf of the Company,
with respect to the Fund, are the property of the Company and shall be
surrendered by the Investment Manager promptly on request by the
Company.
7. Reports to Investment
Manager. The Company shall furnish or otherwise make available to the
Investment Manager such Prospectuses, Statements of Additional Information,
financial statements, proxy statements, reports, and other information relating
to the business and affairs of the Company, with respect to the Fund, as the
Investment Manager may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
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8. Services to Other
Clients. Nothing herein contained shall limit the freedom of the
Investment Manager or any affiliated person of the Investment Manager to render
investment supervisory and corporate administrative services to other investment
companies, to act as investment counselor to other persons, firms or
corporations, or to engage in other business activities; however, so long as
this Agreement or any extension, renewal or amendment hereof shall remain in
effect or until the Investment Manager shall otherwise consent, the Investment
Manager shall be the only investment manager to the Company.
9. Limitation of Liability of
Investment Manager. Neither the Investment Manager nor any of its
officers, directors, or employees, nor any persons performing executive,
administrative, trading, or other functions for the Company, with respect to the
Fund or the Investment Manager (at the direction or request of the Investment
Manager) in connection with the Investment 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 Company, with respect to 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 their
duties on behalf of the Company or from reckless disregard by the Investment
Manager or any such persons of the duties of the Investment Manager under this
Agreement.
10. Term of Agreement.
This Agreement shall continue in effect for a period of more than two years only
so long as such continuance is specifically approved at least annually by the
Board of Directors of the Company or by vote of a majority of the outstanding
voting securities of the Fund in accordance with the requirements of the 1940
Act, and in either event by the vote of a majority of the Board of Directors of
the Company who are not “interested persons” (as defined in the 1940 Act and
rules thereunder) of any such party, cast, in person, at a meeting called for
the purpose of voting on such approval.
Any
approval of this Agreement by the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act and rules thereunder) of the Fund
shall be effective to approve or continue this Agreement with respect to the
Fund, notwithstanding (i) that a comparable agreement has not been approved by
the holders of a majority of the outstanding voting securities of any other
series of the Company and (ii) that this Agreement has not been approved by the
vote of a majority of the outstanding voting securities of the Company, unless
such approval shall be required by any other applicable law or otherwise. The
Investment Manager shall furnish to the Company, promptly upon its request, such
information as may be reasonably necessary to evaluate the terms of this
Agreement or any extension, renewal or amendment thereof.
11. Amendment and Assignment of
Agreement. This Agreement may not be amended 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.
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12. 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 Company such
action shall have been authorized by resolution of a majority of the Board of
Directors of the Company 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.
13. Miscellaneous.
13.1
Captions. The
captions in this Agreement are included for convenience of reference only and in
no other way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
13.2
Interpretation.
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
statutory or regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the Board of Directors of its responsibility for
and control of the conduct of the affairs of the Company.
13.3
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 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
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 1940
Act. Specifically, the terms “vote of a majority of the outstanding voting
securities”, “interested person”, “assignment”, and “affiliated person” shall
have the meanings assigned to them by Section 2(a) of the 1940 Act. In addition,
where the effect of a requirement of the 1940 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.
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IN WITNESS WHEREOF, the
parties have caused this Agreement to be signed by their respective officers
thereunto duly authorized as of the day and year first above
written.
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ATTEST:
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HOMESTEAD
FUNDS, INC.
On
behalf of the Growth Fund
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/s/
Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx
Xxxxxx Xxxxxxxxx, Secretary
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By:
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/s/
Xxxxx X. Xxxxxx
Xxxxx
X. Xxxxxx, President
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ATTEST:
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RE
ADVISERS CORPORATION
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/s/
Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx
Xxxxxx Xxxxxxxxx, Secretary
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By:
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/s/
Xxxxx X. Xxxxxx
Xxxxx
X. Xxxxxx, President
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