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INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the first day of December,
1996, 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 four series, the Daily Income Fund, the Value Fund, the
Short-Term Bond Fund and the Short-Term Government Securities 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, 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
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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 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
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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
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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 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 cost 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
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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 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 Funds
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
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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 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.
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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 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 Acted")) 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 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.
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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 Manger 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
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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
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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 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
By:
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Xxxxx X. Xxxxxx, Secretary Xxxxxxx X. XxXxxxxxx, Vice-
President
ATTEST: RE ADVISERS CORPORATION
By:
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Xxxxx X. Xxxxxx, Secretary Xxxxxxx X. Xxxxxxxx, President
