Exhibit d(1)
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the 26th day of September,
2003, by and between Homestead Funds, Inc., a Maryland corporation (the
"Company"), on behalf of the Daily Income 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, the Daily Income Fund, the Value Fund, the
Short-Term Bond Fund, the Short-Term Government Securities Fund, the
Small-Company Stock Fund, the Stock Index Fund, the Nasdaq-100 Index Tracking
Stock(SM) Fund, and the International Stock Index Fund, 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 registered as an investment
manager under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Company retained the Investment Manager pursuant to an
Investment Management Agreement dated as of September 17, 1990 and desires to
continue to retain the Investment Manager to render investment management
services (i.e. investment advisory and administrative services) to it on behalf
of the Fund in the manner and on the terms and conditions hereinafter set forth,
amending and restating the Investment Management Agreement dated as of September
17, 1990;
NOW THEREFORE, the parties hereto agree as follows:
1. Duties and Responsibilities of the Investment Manager.
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) 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, for time to time, to reflect changes in financial and
economic conditions; (ii) 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 my impose by notice in writing to the Investment
Manager; (iii) make all determinations as to the purchase and sale of 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; (iv) 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; (v) 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; (vi) determine the creditworthiness of the
issuers, obligers, or guarantors of money market and debt securities utilized by
the Fund; and (vii) 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).
1.2.3 Agents. Assist the Company in selecting, coordinating
the activities of, supervising, and acting as liaison with any persons and
agents engaged by the Company, including the Company's 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.
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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 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 Findings. 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.
2. Allocation of Expenses.
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 required pursuant to a separate agreement between the Company
and the Investment Manager.
2.1.3 Organizational Expenses. The Investment Manager shall
pay or assume all organizational expenses of the Company.
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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 therefor.
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.
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2.2.7 Communications. All charges for equipment or services
used for communications between the Investment Manager or the Company and the
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.
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.
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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 proportionate share 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.
3. Management Fees.
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: .50% of average daily net assets.
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 on the first business day of the next calendar
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 terminated 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.
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 which 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-
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dealer which 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 Services 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 or the Company with (i) such statistical and other factual
information; (ii) such advice regarding economic factors and trends; (iii) such
advice as to occasional transactions in specific securities; (iv) or 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 of the
Investment Manager's overall responsibilities with respect to the other accounts
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.
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
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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 the 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 is an amendment and restatement of
the Investment Management Agreement dated as of September 17, 1990 and shall
have a term of 12 months beginning on the first day of the month following the
affirmative vote of a majority of the outstanding voting securities of the Fund
approving this Agreement. This Agreement shall thereafter continue from year to
year, but 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 shares (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 shares 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 shares 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.
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.
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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 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 Daily Income Fund
/s/ Hope X. Xxxxxx By: /s/ Xxxxxx Xxxxxxxx
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Hope X. Xxxxxx, Secretary Xxxxxx Xxxxxxxx,
Vice-President and Counsel
ATTEST: RE ADVISERS CORPORATION
/s/ Hope X. Xxxxxx By: /s/ Xxxxx X. Xxxxxx
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Hope X. Xxxxxx, Secretary Xxxxx X. Xxxxxx, President
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