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 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 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 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.
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.
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.
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 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 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 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-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 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.
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 Daily Income 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
