Attachment 77Q1
AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of
the 15th day of September, 2004,
by and between Homestead Funds, Inc., a Maryland
corporation (the "Company"), on
behalf of the Value 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
StockSM 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 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 September
17, 1990, which agreement was
amended and restated as of December 1, 1996 and
September 26, 2003, and the parties
hereto have mutually agreed to amend certain terms
of that agreement as reflected herein;
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, from 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 may 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 other 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.
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 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.
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 so
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.
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 and 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.
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 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.
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: .65% of average daily net assets
up to $200 million; .50% of average
daily net assets up to the next $200 million; and
..40% of average daily net assets in
excess of $400 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.
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-
dealer which does not furnish brokerage and research
services or which furnished
brokerage and research services deemed to be of a 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
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 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.
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.
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.
ATTEST: HOMESTEAD FUNDS, INC.
on behalf of the Value
Fund
/s/ Hope X. Xxxxxx By: /s/ Xxxxxx Xxxxxxxx
Hope X. Xxxxxx, Secretary Xxxxxx Xxxxxxxx,
Vice-President and Counsel
ATTEST: RE ADVISERS CORPORATION
/s/ Hope X. Xxxxxx By: /s/Xxxxx X. Xxxxxx
Hope X. Xxxxxx, Secretary Xxxxx X. Xxxxxx, President
