1
EXPENSE LIMITATION AGREEMENT
Expense Limitation Agreement, made as of the first day of January,
1997, by and between Homestead Funds, Inc., a Maryland corporation (the
"Homestead Funds"), on behalf of the Short-Term Bond Fund (the "Fund"), and RE
Advisers Corporation, a Virginia corporation (the "Investment Manager").
WHEREAS, the Homestead Funds, on behalf of the Fund, and the
Investment Manager have entered into an Investment Management Agreement, dated
August 27, 1991, (the "Investment Management Agreement") pursuant to which the
Investment Manager will render investment management services to the Fund for
compensation based on the value of the net assets of the Fund; and
WHEREAS, the Homestead Funds and the Investment Manager have entered
into an Expense Limitation Agreement dated as of August 27, 1991 (the "Expense
Limitation Agreement"), providing for the limitations of expenses of the Fund,
and
WHEREAS, the Homestead Funds and the Investment Manager have
determined that it is appropriate and in the best interests of the Fund and its
shareholders to amend the Expense Limitation Agreement and to continue to
maintain Fund expenses at or below a fixed level;
NOW THEREFORE, the parties hereto agree as follows:
1. State Expense Limit
1.1 Limitation. To the extent that the aggregate
expenses of every character incurred by the Fund in any fiscal year, including
but not limited to investment management fees of the Investment Manager (but
excluding interest, taxes, brokerage commissions and other expenditures which
are capitalized in accordance with generally accepted accounting principles,
and other extraordinary expenses not incurred in the ordinary course of the
Fund's business) ("Fund Operating Expenses"), exceed the lowest applicable
limit actually enforced by any state in which the Fund's shares are qualified
for sale ("State Expense Limits") such excess amount ("Excess Amounts") shall
be the liability of the Investment Manager.
1.2 Method of Computation. To determine the Investment
Manager's liability for the Excess Amount, the Fund Operating Expenses shall be
annualized monthly as of the last day of the month. If the annualized Fund
operating Expenses for any month exceed the State Expense Limit, the Investment
Manager shall first waive or reduce its investment management fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount. In
the event the Excess Amount exceeds the
2
Page 2
amount of the investment management fee for such month, the Investment Manager,
in addition to waiving its entire investment management fee for such month,
shall also remit to the Fund the difference between the Excess Amount and the
amount due as the investment management fee; provided, however, that an
adjustment shall be made on or before the last day of the first month of the
next succeeding fiscal year if the aggregate Fund Operating Expenses for the
fiscal year do not exceed the State Expense Limit.
2. Operating Expense Limit.
2.1 Limitation. To the extent that Fund Operating
Expenses in any year exceed .75% of the Fund's average daily net assets (the
"Operating Expense Limit"), such excess amount ("Excess Operating amount")
shall be the liability of the Investment Manager.
2.2 Method of Computation. To determine the Investment
Manager's liability for the Excess Operating Amount, the Fund Operating
Expenses shall be annualized monthly as of the last day of the month. If the
annualized Fund Operating Expenses for any month exceed the Operating Expense
Limit, the Investment Manager shall first waive or reduce its investment
management fee for such month, as appropriate, to the extent necessary to pay
such Excess Operating Amount. In the event the Excess Operating Amount exceeds
the amount of the investment management fee for the month, the Investment
Manager, in addition to waiving its entire investment management fee for such
month, shall also assume as its own expense and reimburse the Fund for the
difference between the Excess Operating Amount and the investment management
fee up to the amount of the State Expense Limit; provided, however, that an
adjustment shall be made on or before the last day of the first month of the
next succeeding fiscal year if the aggregate Fund Operating Expenses for the
fiscal year do not exceed the Operating Expense Limit.
3. Termination of Agreement. This Agreement shall continue in
effect for a period of one year from the date of execution. This Agreement
shall continue thereafter from month to month and may then be terminated by
either party without payment of any penalty, upon 90 days prior notice in
writing to the other party at its principal place of business; provided that,
in the case of termination by the Homestead Funds, be authorized by resolution
of the Board of Homestead Funds.
3
Page 3
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are
included for convenience or reference only and in no other way define or
delineate any of the provisions hereof or otherwise affect their construction
or effect.
4.2 Interpretation. Nothing herein contained shall be
deemed to require the Homestead Funds 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 Homestead Funds.
4.3 Definitions. Any questions of interpretation of any
term or provision of this Agreement, including but not limited to the
investment management fee, the computations of net asset values and the
allocation of expenses, having a counterpart in or otherwise derived from the
terms and provisions of the Investment Management Agreement, shall have the
same meaning as and be resolved by reference to such agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year first
above written.
ATTEST: HOMESTEAD FUNDS, INC.
on behalf of the Short-Term Bond Fund
By:
------------------------------------- ------------------------------
Xxxxx X. Xxxxxx, Secretary Xxxxxxx X. XxXxxxxxx, Vice-
President
ATTEST: RE ADVISERS CORPORATION
By:
------------------------------------- ------------------------------
Xxxxx X. Xxxxxx, Secretary Xxxxxxx X. Xxxxxxxx, President
