Sub-Item 77Q1(e):
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement made as of the 12th day of June, 2006,
by and between Homestead Funds, Inc., a Maryland corporation (the "Company"),
on behalf of the International 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, 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 had been since its inception a passively managed
index fund and the Company previously retained the Investment Manager to
render administrative services to the Fund pursuant to an agreement dated
January 23, 2001 and amended and restated as of September 15, 2004; and
WHEREAS, because the Fund is converting to an actively managed fund,
the Company desires to retain the investment management services of the
Investment Manager with respect to the Fund and the Investment Manager
desires to render such services to the Fund;
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) 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; (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-
ealers, 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 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 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.
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 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 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 Fee.
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 fee with respect to the Fund shall be at the
annualized rate of 0.75% 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 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 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.
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.
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 International Value Fund
/s/ Xxxxxxxx Xxxxxxxxxx By: /s/ Xxxxxx Xxxxxxxx
Xxxxxxxx Xxxxxxxxxx, Secretary Xxxxxx Xxxxxxxx,
Vice-President and Counsel
ATTEST: RE ADVISERS CORPORATION
/s/ Xxxxxxxx Xxxxxxxxxx By: /s/ Xxxxx X. Xxxxxx
Xxxxxxxx Xxxxxxxxxx, Secretary Xxxxx X. Xxxxxx, President
