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Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Homestead Funds, Inc.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
...........................................................................
(2) Aggregate number of securities to which transaction applies:
...........................................................................
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
...........................................................................
(4) Proposed maximum aggregate value of transaction:
...........................................................................
(5) Total fee paid:
...........................................................................
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
...........................................................................
(2) Form, Schedule or Registration Statement No.:
...........................................................................
(3) Filing Party:
...........................................................................
(4) Date Filed:
...........................................................................
NOTES* * *
* * * * *
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HOMESTEAD FUNDS, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Special Meeting of the Shareholders (the
"Meeting") of the Daily Income Fund, Short-Term Bond Fund, Short-Term Government
Securities Fund and Value Fund (each, a "Fund," and collectively, the "Funds")
of Homestead Funds, Inc. ("the Corporation"), will be held at the principal
executive office of the Corporation, located at 4301 Wilson Boulevard,
Arlington, Virginia 22203, on Monday, November 25, 1996 at 9:30 a.m. The purpose
of the Meeting is to consider the following proposals.
1. To approve amendments to the Investment Management Agreements for
the Daily Income Fund, Short-Term Bond Fund, Short-Term Government
Securities Fund and Value Fund to change the management fees.
2. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed October 25, 1996 as the record date for
the determination of the shareholders of the Fund entitled to notice of, and to
vote at, such Meeting or any adjournment thereof.
By order of the Board of Directors,
Anthony C. Williams, Chairman of the
Board
November 4, 1996
IN ORDER TO AVOID UNNECESSARY EXPENSES, PLEASE RETURN YOUR PROXY CARD PROMPTLY.
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HOMESTEAD FUNDS, INC.
4301 WILSON BOULEVARD
ARLINGTON, VIRGINIA 22203
---------------------
PROXY STATEMENT
---------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 25, 1996
GENERAL
This Proxy Statement is furnished to the shareholders of the Daily Income
Fund, Short-Term Bond Fund, Short-Term Government Securities Fund and Value
Fund, all portfolios of the Homestead Funds, Inc., a Maryland corporation (the
"Corporation") in connection with the solicitation by management of proxies to
be used at a special meeting (the "Meeting") of shareholders to be held at the
Corporation's office, located at 4301 Wilson Boulevard, Arlington Virginia 22203
on November 25, 1996 at 9:30 a.m., or any adjournment or adjournments thereof.
The Notice of Meeting, Proxy Statement and Voting Instruction Form will first be
mailed on or about November 4, 1996. Instructions of shareholders are being
solicited for the approval or disapproval of amendments to the investment
advisory agreements for the portfolios of the Corporation.
The Corporation consists of four portfolios (each, a "Fund," and
collectively, the "Funds"), each of which is a separate series of shares of
beneficial interest ("Shares"): the Daily Income Fund, the Short-Term Bond Fund,
the Short-Term Government Securities Fund and the Value Fund. Only shares of
each Fund affected will vote on the proposals for that Fund. Each outstanding
full share of each Fund is entitled to one vote on the matters affecting the
Fund, and each fractional share outstanding is entitled to a proportionate
fractional share of one vote.
In order that you may be represented at the Meeting or any adjournment or
adjournments thereof, you are requested to indicate your voting instructions on
the enclosed voting instruction form, to date and sign the form, and to mail the
form promptly in the enclosed postage pre-paid envelope, allowing sufficient
time for the form to be received before the Meeting. Abstentions will be counted
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum and will have the effect of a negative vote.
A quorum of each Fund for the Meeting will consist of a majority of the
shares of the respective Fund, issued and outstanding and entitled to vote
present in person or represented by proxy. If, by the time scheduled for the
Meeting, a quorum is not present or if a quorum is present but sufficient voting
instructions in favor of the proposal described in this Proxy Statement are not
received from the shareholders of any Fund, the persons named as proxies may
propose one or more adjournments of the Meeting with respect to that Fund to
permit further solicitation of voting instructions from shareholders of the
Fund. Any such adjournment will require the affirmative vote of a majority of
the shares of the Fund present in person or by proxy at the session of the
Meeting to be adjourned. The persons named as proxies will vote in favor of any
such adjournment if they determine that such adjournment and additional
solicitation are reasonable and in the interest of the Fund's shareholders.
Voting instructions may be revoked at any time prior to the voting thereof
by: (i) written instructions addressed to the Secretary of the Corporation at
4301 Wilson Boulevard, Arlington, Virginia 22203;
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(ii) attendance at the Meeting and voting in person; or (iii) properly executing
and returning a new voting instruction form (if received in time to be voted).
Mere attendance at the Meeting will not revoke voting instructions.
All expenses of the preparation and distribution of these proxy materials
will be borne by RE Advisers, Inc. (the "Adviser"), the Corporation's investment
adviser. In addition to the solicitation of voting instructions by the use of
the mails, voting instructions may be solicited by officers and employees of the
Adviser, or its affiliates, personally or by telephone or telegraph or by one or
more proxy soliciting firms. Brokerage houses, banks and other fiduciaries may
be requested to forward soliciting material to their principals and to obtain
authorization for the execution of voting instruction forms. For those services,
they will be reimbursed by the Adviser for their out-of-pocket expenses.
PROPOSAL NO. 1
APPROVAL OF AMENDMENTS TO THE INVESTMENT MANAGEMENT AGREEMENTS TO CHANGE THE
MANAGEMENT FEES FOR THE DAILY INCOME FUND, THE SHORT-TERM BOND FUND, THE
SHORT-TERM GOVERNMENT SECURITIES FUND AND THE VALUE FUND
GENERAL
This Meeting has been called for the purpose of considering amended
Investment Management Agreements, to become effective upon the first day of the
month following receipt of the necessary shareholder approval, between the
Adviser and the Corporation, on behalf of the Funds, which would result in an
increase in the management fee paid by each Fund to the Adviser for services
rendered by the Adviser to the Funds. Except for this change, as described
below, the proposed amended investment management agreements (the "Amended
Management Agreements") are identical in all other material respects to the
existing Investment Management Agreements (the "Current Management Agreements").
The Corporation's Board of Directors (the "Board") has approved the Amended
Management Agreements for each Fund, subject to approval by the shareholders of
such Fund.
SUMMARY AND EFFECT OF AMENDED MANAGEMENT AGREEMENTS
The Daily Income Fund
Under the Current Management Agreement of the Daily Income Fund, the
Corporation pays the Adviser on a monthly basis compensation at the annual rate
of 0.50% of the average daily net assets of the Daily Income Fund up to $100
million, 0.40% of the average daily net assets up to the next $100 million,
0.30% of the average daily net assets up to the next $300 million, and 0.25% of
such assets in excess of $500 million. In addition, the Adviser has agreed, as
part of the Expense Limitation Agreement entered into with the Corporation with
respect to the Daily Income Fund, to assume as its own expense and reimburse the
Daily Income Fund for all Fund Operating Expenses, other than certain expenses
that are capitalized and certain other non-recurring expenses, which in any
fiscal year exceed 0.75% of the average daily net assets of the Daily Income
Fund (the "Daily Income Fund Operating Expense Limit"). If the Fund Operating
Expenses for the Daily Income Fund, as a percentage of the Daily Income Fund's
average daily net assets, are less than the Daily Income Fund Operating Expense
Limit and the assets of the Daily Income Fund exceed $50 million, the Fund
Operating Expenses previously assumed and paid by the Adviser on behalf of the
Daily Income Fund may be reimbursed by the Daily Income Fund, provided that in
doing so the Daily Income Fund
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Operating Expense Limit is not exceeded and the period over which the
reimbursements are made does not exceed five years from the date of the first
such payment. No such reimbursement has been made by the Daily Income Fund.
Under the Amended Management Agreement of the Daily Income Fund, the
Corporation would pay the Adviser a monthly fee that is equal on an annual basis
to 0.50% of the average daily net assets of the Daily Income Fund. In addition,
contemporaneous with adopting the Amended Management Agreement, the Adviser will
continue the existing Expense Limitation Agreement with respect to the Daily
Income Fund, but the Operating Expense Limit will be raised from 0.75% to 0.80%
of the average daily net assets of the Daily Income Fund. Furthermore, the
agreement will not contain any rights for the Adviser to receive reimbursement
of any Operating Expenses assumed and paid by the Adviser on behalf of the Daily
Income Fund whether previously paid or paid in the future by the Adviser.
The Short-Term Bond Fund
Under the Current Management Agreement of the Short-Term Bond Fund, the
Corporation pays the Adviser on a monthly basis compensation at the annual rate
of 0.50% of the average daily net assets of the Short-Term Bond Fund up to $50
million, 0.40% of the average daily net assets up to the next $50 million, and
0.30% of such assets in excess of $100 million. In addition, the Adviser has
agreed, as part of the Expense Limitation Agreement entered into with the
Corporation with respect to the Short-Term Bond Fund, to assume as its own
expense and reimburse the Short-Term Bond Fund for all Fund Operating Expenses,
other than certain expenses that are capitalized and certain other non-recurring
expenses, which in any fiscal year exceed 0.75% of the average daily net assets
of the Short-Term Bond Fund (the "Bond Fund Operating Expense Limit"). If the
Fund Operating Expenses for the Short-Term Bond Fund, as a percentage of the
Short-Term Bond Fund's average daily net assets, are less than the Bond Fund
Operating Expense Limit and the assets of the Short-Term Bond Fund exceed $50
million, the Fund Operating Expenses previously assumed and paid by the Adviser
on behalf of the Short-Term Bond Fund may be reimbursed by the Short-Term Bond
Fund, provided that in doing so the Bond Fund Operating Expense Limit is not
exceeded and the period over which the reimbursements are made does not exceed
five years from the date of the first such payment. No such reimbursement has
been made by the Short-Term Bond Fund.
Under the Amended Management Agreement of the Short-Term Bond Fund, the
Corporation would pay the Adviser a monthly fee that is equal on an annual basis
to 0.60% of the average daily net assets of the Short-Term Bond Fund. In
addition, contemporaneous with adopting the Amended Management Agreement, the
Adviser will continue the existing Expense Limitation Agreement with respect to
the Short-Term Bond Fund, but the agreement will not contain any rights for the
Adviser to receive reimbursement of any Operating Expenses assumed and paid by
the Adviser on behalf of the Short-Term Bond Fund whether previously paid or
paid in the future by the Adviser.
The Short-Term Government Securities Fund
Under the Current Management Agreement of the Short-Term Government
Securities Fund, the Corporation pays the Adviser on a monthly basis
compensation at the annual rate of 0.50% of the average daily net assets of the
Short-Term Government Securities Fund up to $50 million, 0.40% of the average
daily net assets up to the next $50 million, and 0.30% of such assets in excess
of $100 million. In addition, the Adviser has agreed, as part of the Expense
Limitation Agreement entered into with the Corporation with respect to the
Short-Term Government Securities Fund, to assume as its own expense and
reimburse the Short-Term Government Securities Fund for all Fund Operating
Expenses, other than certain expenses that are capitalized
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and certain other non-recurring expenses, which in any fiscal year exceed 0.75%
of the average daily net assets of the Short-Term Government Securities Fund
(the "Government Securities Fund Operating Expense Limit"). If the Fund
Operating Expenses for the Short-Term Government Securities Fund, as a
percentage of the Short-Term Government Securities Fund's average daily net
assets, are less than the Government Securities Fund Operating Expense Limit and
the assets of the Short-Term Government Securities Fund exceed $50 million, the
Fund Operating Expenses previously assumed and paid by the Adviser on behalf of
the Short-Term Government Securities Fund may be reimbursed by the Short-Term
Government Securities Fund, provided that in doing so the Government Securities
Fund Operating Expense Limit is not exceeded and the period over which the
reimbursements are made does not exceed five years from the date of the first
such payment. No such reimbursement has been made by the Short-Term Government
Securities Fund.
Under the Amended Management Agreement of the Short-Term Government
Securities Fund, the Corporation would pay the Adviser a monthly fee that is
equal on an annual basis to 0.45% of the average daily net assets of the
Short-Term Government Securities Fund. In addition, contemporaneous with the
adoption of the Amended Management Agreement, the Adviser will continue the
existing Expense Limitation Agreement with respect to the Short-Term Government
Securities Fund, but the agreement will not contain any rights for the Adviser
to receive reimbursement of any Operating Expenses assumed and paid by the
Adviser on behalf of the Short-Term Government Securities Fund whether
previously paid or paid in the future by the Adviser.
The Value Fund
Under the Current Management Agreement of the Value Fund, the Corporation
pays the Adviser on a monthly basis compensation at the annual rate of 0.65% of
the average daily net assets of the Value Fund up to $50 million, 0.50% of the
average daily net assets up to the next $50 million, and 0.40% of such assets in
excess of $100 million. In addition, the Adviser has agreed, as part of the
Expense Limitation Agreement entered into with the Corporation with respect to
the Value Fund, to assume as its own expense and reimburse the Value Fund for
all Fund Operating Expenses, other than certain expenses that are capitalized
and certain other non-recurring expenses, which in any fiscal year exceed 1.25%
of the average daily net assets of the Value Fund (the "Value Fund Operating
Expense Limit"). If the Fund Operating Expenses for the Value Fund, as a
percentage of the Value Fund's average daily net assets, are less than the Value
Fund Operating Expense Limit and the assets of the Value Fund exceed $50
million, the Fund Operating Expenses previously assumed and paid by the Adviser
on behalf of the Value Fund may be reimbursed by the Value Fund, provided that
in doing so the Value Fund Operating Expense Limit is not exceeded and the
period over which the reimbursements are made does not exceed five years from
the date of the first such payment. Such reimbursement has been made by the
Value Fund.
Under the Amended Management Agreement of the Value Fund, the Corporation
would pay the Adviser a monthly fee that is equal on an annual basis to 0.65% of
the average daily net assets of the Value Fund up to $200 million, 0.50% of the
average daily net assets up to the next $200 million, and 0.40% of such assets
in excess of $400 million. In addition, contemporaneous with adopting the
Amended Management Agreement, the Adviser will continue the existing Expense
Limitation Agreement with respect to the Value Fund, but the agreement will not
contain any rights for the Adviser to receive reimbursement of any Operating
Expenses assumed and paid by the Adviser on behalf of the Value Fund whether
previously paid or paid in the future by the Adviser.
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Set forth below is a comparative fee table showing the amount of fees and
expenses payable under the Current Management Agreement and the amount of fees
and expenses that would have been payable had the Amended Management Agreements
been in effect during the fiscal year ended December 31, 1995.
COMPARATIVE FEE TABLES
ANNUAL OPERATING EXPENSES OF THE FUNDS FOR FISCAL YEAR ENDED DECEMBER 31, 1995
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
CURRENT FEE TABLE
SHORT-TERM
GOVERNMENT
DAILY INCOME SHORT-TERM SECURITIES
FUND BOND FUND FUND VALUE FUND
------------- ----------- ----------- -----------
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchase................... None None None None
Sales Load Imposed on Reinvested Dividends....... None None None None
Deferred Sales Load Imposed on Redemptions....... None None None None
Redemption Fee................................... None None None None
Exchange Fee..................................... None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE
WAIVER OR ASSUMPTION (as a percentage of
average daily net assets)
Investment Management Fee........................ .38%* .37%* 0%* .55%
12b-1 Fees....................................... None None None None
Other Expenses................................... .37% .38% .75% .29%
Total Fund Operating Expenses.................... .75%* .75%* .75%* .84%*
- ---------------
* RE Advisers has agreed to assume all annual fund operating expenses of each
Fund (other than certain expenses that are capitalized and certain other
non-recurring expenses) ("Fund Operating Expenses") which in any year exceed
.75% of the average daily net assets for the Daily Income Fund, Short-Term
Bond Fund and Short-Term Government Securities Fund, and 1.25% of the average
daily net assets for the Value Fund. There were no fees waived for the Value
Fund for the year ended December 31, 1995. The investment management fee
expense prior to any fee waivers for the year ended December 31, 1995 was
.50%, .49% and .50%, for the Daily Income Fund, Short-Term Bond Fund and
Short-Term Government Securities Fund, respectively. The total annual
operating expenses prior to any fee waivers for the year ended December 31,
1995 was .87% and .86% for the Daily Income Fund and Short-Term Bond Fund,
respectively. The total operating expenses before any fee waivers or
reimbursements for the Short-Term Government Securities Fund for the year
ending December 31, 1996 are estimated to be 3.50%.
EXAMPLES: An investor in each Fund would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each future time period**:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Daily Income Fund.............................................. $8 $24 $42 $ 93
Short-Term Bond Fund........................................... $8 $24 $42 $ 93
Short-Term Government Securities Fund.......................... $8 $24 NA NA
Value Fund..................................................... $8 $27 $46 $103
** There are no charges imposed upon redemption.
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
FEES OR EXPENSES FOR EACH FUND. ACTUAL FEES AND EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN ABOVE. Similarly, the annual rate of return assumed in the
Example is not an estimate or guarantee of future investment performance, but is
included for illustrative purposes.
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PROPOSED FEE TABLE
SHORT-TERM
GOVERNMENT
DAILY INCOME SHORT-TERM SECURITIES
FUND BOND FUND FUND VALUE FUND
------------- ----------- ----------- -----------
SHAREHOLDER TRANSACTION EXPENSES:
Sales Load Imposed on Purchase................... None None None None
Sales Load Imposed on Reinvested Dividends....... None None None None
Deferred Sales Load Imposed on Redemptions....... None None None None
Redemption Fee................................... None None None None
Exchange Fee..................................... None None None None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE
WAIVER OR ASSUMPTION (as a percentage of
average daily net assets)
Investment Management Fee........................ .43%* .37%* 0%* .65%
12b-1 Fees....................................... None None None None
Other Expenses................................... .37% .38% .75% .29%
Total Fund Operating Expenses.................... .80%* .75%* .75%* .94%*
- ---------------
* RE Advisers has agreed to assume all annual fund operating expenses of each
Fund (other than certain expenses that are capitalized and certain other
non-recurring expenses) ("Fund Operating Expenses") which in any year exceed
.80% of the average daily net assets for the Daily Income Fund, .75% of the
average daily net assets for the Short-Term Bond Fund and Short-Term
Government Securities Fund, and 1.25% of the average daily net assets for the
Value Fund. There were no fees waived for the Value Fund for the year ended
December 31, 1995. The investment management fee expense prior to any fee
waivers for the year ended December 31, 1995 was .50%, .60% and .45% for the
Daily Income Fund, Short-Term Bond Fund, and Short-Term Government Securities
Fund, respectively. The total annual operating expenses prior to any fee
waivers for the year ended December 31, 1995 was .87% and .98% for the Daily
Income Fund and Short-Term Bond Fund, respectively. The total operating
expenses before any fee waivers or reimbursements for the Short-Term
Government Securities Fund for the year ending December 31, 1996 are estimated
to be 3.50%.
EXAMPLES: An investor in each Fund would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2) redemption at the end of
each future time period**:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
Daily Income Fund.............................................. $ 8 $26 $44 $ 99
Short-Term Bond Fund........................................... $ 8 $24 $42 $ 93
Short-Term Government Securities Fund.......................... $ 8 $24 NA NA
Value Fund..................................................... $ 10 $30 $52 $115
** There are no charges imposed upon redemption.
THESE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
FEES OR EXPENSES FOR EACH FUND. ACTUAL FEES AND EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN ABOVE. Similarly, the annual rate of return assumed in the
Example is not an estimate or guarantee of future investment performance, but is
included for illustrative purposes.
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Set forth below are: (i) the management fees of each Fund, expressed as a
dollar amount for the Corporation's fiscal year ended December 31, 1995; (ii)
the proposed management fee for each Fund, expressed as a dollar amount for such
year, which assumes the Amended Management Agreements were in effect for such
year; and (iii) the difference between the actual and proposed fee figures,
expressed both as a dollar amount and as a percentage of the management fee for
each Fund for such year.
MANAGEMENT FEE & EXPENSE LIMITATION AGREEMENT COMPARISON
SHORT-TERM
GOVERNMENT
DAILY INCOME SHORT-TERM SECURITIES
FUND BOND FUND FUND VALUE FUND
------------ ---------- ---------- ----------
Current Fee:
Management Fee.................................. $227,457 $ 282,944 $ 4,919 $ 654,453
Less Fees waived by Manager in Accordance With
Existing Expense Limitation Agreement......... (53,465) (66,694) (4,919) --
---------- ---------- ---------- ----------
Net Management Fee.............................. 173,992 216,250 0 654,453
---------- ---------- ---------- ----------
Proposed Fee:
Management Fee.................................. 227,457 349,290 4,400 779,355
Less Fees Waived by Manager in Accordance With
Revised Expense Limitation Agreement.......... (30,942) (133,040) (4,400) --
---------- ---------- ---------- ----------
Net Management Fee.............................. 196,515 216,250 0 779,355
---------- ---------- ---------- ----------
(Increase) Decrease in Net Management Fee....... $(22,523) $ 0 $ 0 $ (124,902)
======== ========== ======== ==========
Change as a Percentage of Net Current Management
Fee........................................... 13% 0% 0% 19%
======== ========== ======== ==========
DESCRIPTION OF MANAGEMENT AGREEMENTS
The Adviser currently serves as the Adviser for the Corporation pursuant to
the Current Management Agreements dated September 17, 1990, for the Daily Income
Fund and the Value Fund, dated August 27, 1991, for the Short-Term Bond Fund,
and dated March 7, 1995 for the Short-Term Government Securities Fund. The
Management Agreements for the Daily Income Fund and Value Fund were last
submitted to a shareholder vote on April 18, 1991, and for the Short-Term Bond
Fund on April 24, 1992. Continuance of the Current Management Agreements was
approved by the Corporation's Board, including a majority of the directors who
are not "interested persons" (as such term is defined in the Investment Company
Act of 1940 (the "1940 Act")) of the Corporation or of the Adviser (the
"Independent Directors"), on August 21, 1996. The Current Management Agreements
will terminate upon shareholder approval of the Amended Management Agreements.
Except for the proposed change in the management fee payable by the
Corporation on behalf of the Funds to the Adviser, the terms of the Management
Agreements are identical in all material respects. Under the Management
Agreements, the Adviser is required to: (i) formulate and implement a continuing
program for the management of the assets and resources of the Funds in a manner
consistent with the Funds' investment objectives, investment program, policies
and restrictions, as they may be amended and updated from time to time to
reflect changes in financial and economic conditions; (ii) make all
determinations with
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respect to the investment of the Funds' assets in accordance with applicable law
and the Funds' investment objectives, investment program, policies and
restrictions, as provided in the Corporation'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 may impose by notice in writing to the
Adviser; (iii) make all determinations as to the purchase and sale of portfolio
securities, including advising the Board as to certain matters involving the
Funds' 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 the
Management Agreements; (v) furnish the Board with periodic reports concerning
the Adviser's economic outlook and investment strategy, as well as information
concerning the Funds' portfolio activity and investment performance; (vi)
determine the creditworthiness of the issuers, obligors, or guarantors of money
market and debt securities utilized by the Funds; and (vii) evaluate the
creditworthiness of any entities with which the Funds propose to engage in
repurchase transactions.
Each of the Management Agreements also requires the Adviser to provide
administrative services for the Fund, including: (i) providing such office
facilities, furnishings and office equipment as are adequate to the
Corporation's needs; (ii) providing the services of individuals competent to
perform all of the Corporation's executive, administrative, compliance, and
clerical functions that are not performed by or through employees or other
persons or agents engaged by the Corporation; (iii) assisting the Corporation in
selecting, coordinating the activities of, supervising and acting as liaison
with any other persons and agents engaged by the Corporation, including the
Corporation's custodian, accounting services agent, transfer agent, dividend
disbursing agent, shareholder servicing agent, independent accountants and
independent legal counsel, and monitoring the functions of such persons and
agents, including, in particular, the accounting services agent in its valuation
of the Fund's portfolio securities; (iv) authorizing and permitting the
Adviser's directors, officers and employees who may be elected or appointed as
directors or officers of the Corporation to serve in such capacities; (v)
ensuring that all financial, accounting, corporate, and other records required
to be maintained in accordance with applicable laws and regulations are so
maintained, and that the Corporation's corporate existence will be maintained;
(vi) furnishing to or placing at the disposal of the Corporation such
information, reports, evaluations, analyses, and opinions relating to its
administrative functions as the Corporation may, at any time or from time to
time, reasonably request or as the Adviser may deem helpful to the Corporation;
and (vii) assisting in the development and preparation of all reports and
communications by the Corporation to the Fund's shareholders and all reports and
filings necessary to maintain the registrations and qualifications of the
Corporation's shares under federal and state law.
Under the Current Management Agreement for the Daily Income Fund, in return
for its investment advisory and administrative services and expenses which the
Adviser assumes, the Corporation pays the Adviser on a monthly basis
compensation on behalf of the Daily Income Fund at the annual rate of 0.50% of
the average daily net assets of the Daily Income Fund up to $100 million, 0.40%
of the average daily net assets up to the next $100 million, 0.30% of the
average daily net assets up to the next $300 million, and 0.25% of such assets
in excess of $500 million. Under the Current Management Agreement for the
Short-Term Bond Fund, in return for its investment advisory and administrative
services and expenses which the Adviser assumes, the Corporation pays the
Adviser on a monthly basis compensation on behalf of the Short-Term Bond Fund at
the annual rate of 0.50% of the average daily net assets of the Short-Term Bond
Fund up to $50 million, 0.40% of the average daily net assets up to the next $50
million, and 0.30% of such assets in excess of $100 million. Under the Current
Management Agreement for the Short-Term Government Securities Fund, in return
for its investment advisory and administrative services and expenses which the
Adviser
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assumes, the Corporation pays the Adviser on a monthly basis compensation on
behalf of the Short-Term Government Securities Fund at the annual rate of 0.50%
of the average daily net assets of the Short-Term Government Securities Fund up
to $50 million, 0.40% of the average daily net assets up to the next $50
million, and 0.30% of such assets in excess of $100 million. Under the Current
Management Agreement for the Value Fund, in return for its investment advisory
and administrative services and expenses which the Adviser assumes, the
Corporation pays the Adviser on a monthly basis compensation on behalf of the
Value Fund at the annual rate of 0.65% of the average daily net assets of the
Value Fund up to $50 million, 0.50% of the average daily net assets up to the
next $50 million, and 0.40% of such assets in excess of $100 million.
Under each of the Management Agreements, expenses not expressly assumed by
the Adviser are paid by the Corporation. The Management Agreements each list
examples of expenses paid by the Corporation, of which the major categories
relate to interest, taxes, fees to Independent Directors, legal and audit
expenses, custodian, transfer agent and shareholder servicing expenses, pricing
and portfolio valuation costs, certain printing and registration costs, share
issuance and redemption costs, bonding and insurance expenses, and non-recurring
expenses including litigation.
The Adviser has agreed, as part of the Expense Limitation Agreement entered
into with the Corporation with respect to each Fund, to assume as its own
expense and reimburse the Fund for all Fund Operating Expenses, other than
certain expenses that are capitalized and certain other non-recurring expenses,
which in any fiscal year exceed 1.25% for the Value Fund and 0.75% for each of
the other Funds (i.e., the Operating Expense Limit) of the average daily net
assets of the Fund. If the Fund Operating Expenses for the Fund are less than
the Operating Expense Limit and the assets of the Fund exceed $50 million, the
Fund Operating Expenses previously assumed and paid by the Adviser on behalf of
the Fund may be reimbursed by that Fund, provided that in doing so the Operating
Expense Limit for the Fund is not exceeded and the period over which the
reimbursements are made does not exceed five years from the date of the first
such payment. As discussed above, the Adviser will continue the Expense
Limitation Agreements at the existing Operating Expense Limit for each Fund,
except that the Operating Expense Limit for the Daily Income Fund will be raised
from 0.75% to 0.80%. In addition, the Expense Limitation Agreements will no
longer provide for the reimbursement by the Funds of Operating Expenses assumed
and paid by the Adviser.
The Management Agreements contain identical provisions relating to the
selection of broker-dealers for the Corporation's portfolio transactions. Under
these agreements, portfolio decisions are based upon recommendations of the
Adviser and the judgment of the portfolio managers. The Adviser's primary
consideration when entering into securities transactions with broker-dealers is
to obtain, and maintain the availability of, execution at the most favorable
prices and in the most effective manner possible. Both agreements provide that
portfolio transactions may be directed to brokers or dealers in return for their
brokerage and research services, which are intangible and on which no dollar
value can be placed.
The Amended Management Agreements each provide for a one year initial term,
and that they shall continue in effect from year to year provided such
continuance is approved at least annually in the manner required by the 1940 Act
and that they may be terminated at any time by either party, without the payment
of any penalty, on 60 days' prior notice in writing to the other party. Under
each Management Agreement, in the case of termination by the Corporation, such
action shall have been authorized by resolution of a majority of the Board who
are not parties to such agreement or interested persons of such party, or by
vote of a majority of the outstanding voting securities of the Fund.
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REASONS FOR THE MANAGEMENT FEE CHANGES
In the years since adoption of the Current Management Agreements, many
events have occurred and continue to occur that are changing the mutual fund
industry. Unanticipated costs have been incurred to maintain state of the art
computer systems and other new technologies used in managing portfolios and
researching proposed investments. In addition, shareholders have been expecting
additional and enhanced administrative services, which the Adviser has provided.
Increased regulatory requirements have increased costs as more time and effort
is devoted to ensure compliance. Furthermore, the volatility of the financial
system as a whole has required closer monitoring of portfolio securities.
Consequently, the costs of managing mutual fund assets have increased and are
likely to continue to increase because of rising costs of personnel and
administrative services.
In addition, the Adviser has increased services to shareholders by
allocating additional staff to respond to shareholder inquiries and maintaining
toll free lines for easy shareholder contact with the Adviser. Investment
personnel of the Adviser are available and often discuss with shareholders Fund
investment policy, outlook and overall strategy. The Adviser remains committed
to maintaining a high level of shareholder satisfaction with its administrative
and other services. Responding to shareholder needs, the Adviser has provided
new shareholder options for investments and has enhanced available options for
tax advantaged investments made through IRAs and pension accounts.
CONSIDERATIONS OF THE BOARD OF DIRECTORS
The Board, at a meeting held September 30, 1996, in approving the Amended
Management Agreements, determined that the terms of the Amended Management
Agreements, in particular the increase in the management fee payable to the
Adviser for services rendered to the Funds, are fair and reasonable and in the
best interest of the Corporation and its shareholders.
In evaluating the proposal for each of the Funds, the Board, including the
Independent Directors, with the advice and assistance of legal counsel,
considered all factors they deemed relevant. These factors included: (i) the
nature, quality and extent of the services rendered; (ii) the impact of the
proposed fee increase and expense limitation on the Fund's expense ratio; (iii)
the investment record of the Adviser in managing the Fund; (iv) the increased
cost and complexity of providing the administrative services described above
with respect to the Fund; (v) the Adviser's need to maintain and enhance its
ability to retain and attract capable personnel to serve the Corporation; (vi)
the revenues and expenses of the Adviser in connection with the performance of
services under the Amended Management Agreement; (vii) possible benefits which
the Adviser and its affiliates may derive from the Adviser's relationship with
the Corporation; and (viii) comparative information respecting fees and expenses
incurred by other similar investment companies.
In evaluating the Amended Management Agreements, the Board relied on their
ongoing review of the Adviser's activities on behalf of the Corporation and were
also provided with extensive additional specific data and analyses by the
Adviser. The Board considered information obtained by Lipper Analytical
Services, Inc., Morningstar Mutual Funds and other financial publishers,
relating to investment management fees and total expenses paid by other
investment companies comparable to the Corporation and compared the investment
performance of the Fund with its relevant securities index and similar funds
managed by other advisers.
The Board focused in particular on the nature and magnitude of the expenses
incurred by the Adviser in managing and administering the Funds and the effect
on the Funds of the Adviser's expenditures, both past and future. In this
regard, the Board considered the need for increased expenditures on the
Adviser's part to adequately address the investment and other services provided
to shareholders. In addition, the Board
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evaluated the effect that implementation of the Amended Management Agreements
would have on the Adviser's profitability and on the expense ratio of each Fund.
While considering all of these factors, the Board placed particular
importance on the level of service provided by the Adviser to the Funds'
shareholders and the need to maintain that level of service in the future. The
Board weighed the fee proposals for each Fund with the level of service provided
to the Fund, compared them with the fees and expenses incurred by other similar
investment companies and found they compared favorably. The Board also felt the
level of the proposed fee increase did not significantly affect the expense
ratio of the Fund, as compared to similar investment companies and considering
the level of service provided by the Adviser and the expense limitations.
Based upon their review, the Directors who are not interested persons of
the Corporation concluded that adoption of the Amended Management Agreements
would, with respect to each Fund, assure the continued receipt of high quality
portfolio management and administrative services at a fair and reasonable fee.
Accordingly, the Independent Directors unanimously concluded that adoption of
the Amended Management Agreements was in the best interest of each Fund and its
shareholders.
CONCLUSION
FOR THE REASONS STATED ABOVE, THE BOARD RECOMMENDS THAT SHAREHOLDERS
APPROVE THE AMENDED MANAGEMENT AGREEMENT FOR EACH FUND.
INFORMATION ABOUT THE ADVISER
The Adviser is a corporation organized in the Commonwealth of Virginia, and
is a wholly owned subsidiary of RE Investment, which is a wholly-owned
subsidiary of NRECA United, Inc., a holding company organized and wholly-owned
by National Rural Electric Cooperative Association (NRECA), a non-profit
membership organization whose members provide electric light and power and other
services to more than 25 million people in 46 states. The Adviser and these
affiliates are located at 4301 Wilson Boulevard, Arlington, VA 22203, and the
Adviser's executive officers have their business address at that location. The
names and principal occupations of the principal executive officer and each
director of the Adviser are as follows:
NAME POSITION WITH ADVISER
- --------------------------------------------------------- ---------------------------------------
Anthony C. Williams...................................... President and Director
Director, Retirement, Safety and Insurance
Department, NRECA
Peter R. Morris.......................................... Vice President and Director
Executive Director, Investments, NRECA
Stuart E. Teach.......................................... Secretary, Treasurer and Director
Senior Equity Portfolio Manager, NRECA
The names and positions of the directors and officers of the Corporation
who are also directors, officers or employees of the Adviser are as follows:
NAME POSITION WITH CORPORATION
- --------------------------------------------------------- ---------------------------------------
Anthony C. Williams...................................... President and Director
Peter R. Morris.......................................... Secretary, Treasurer and Director
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ADDITIONAL INFORMATION
SHARE OWNERSHIP
As of October 25, 1996 (the "Record Date"), there were 55,908,174 shares of
the Daily Income Fund outstanding, 14,895,760 shares of the Short-Term Bond Fund
outstanding, 1,414,948 shares of the Short-Term Government Securities Fund
outstanding and 10,644,223 shares of the Value Fund outstanding. As of the
Record Date, there were no beneficial or record owners of 5% or more of the
shares of any Fund.
VOTING
Approval of the Amended Management Agreements (Proposal No. 1) by each Fund
requires the affirmative vote of "a majority of the outstanding voting
securities" of the Fund, which for this purpose means the affirmative vote of
the lesser of (i) more than 50% of the outstanding shares of the Fund or (ii)
67% or more of the shares of that Fund present at the Meeting if more than 50%
of the outstanding shares of that Fund are represented at the Meeting in person
or by proxy.
If a Fund approves the proposal, the Amended Management Agreement will
become effective for that Fund on December 1, 1996. Should a Fund not approve
the proposal, the Current Management Agreement will remain in effect for the
Fund and the Board will consider alternative actions, including further
solicitation of voting instructions from shareholders.
RECEIPT OF SHAREHOLDER PROPOSALS
Notwithstanding the approval or disapproval of the proposal described
above, as in the past, the Directors do not intend to hold regular annual
meetings of shareholders of the Corporation. If a shareholder wishes to present
a proposal to be included in the proxy statement of the next meeting of
shareholders of a Fund, such proposal must be received by the Corporation a
reasonable time before the solicitation is to be made. The Directors will call
meetings of shareholders of a Fund as may be required under the 1940 Act (such
as to approve a new investment advisory agreement for a Fund or to remove
directors) or as they may determine in their discretion.
MAILING OF ANNUAL REPORT
The Corporation will furnish, without charge, copies of its Annual Report
for the year ended December 31, 1995 and Semi-Annual Report dated June 30, 1996
to a shareholder upon request. Such requests should be made to Homestead Funds,
c/o Rodney Square Management Corporation, P.O. Box 8987, Wilmington, DE 19899,
or by calling (800) 258-3030. The reports will be sent by first class mail
within three business days of receipt of the request.
OTHER BUSINESS
The management knows of no business other than the matters specified above
which will be presented at the Meeting. Inasmuch as matters not known at the
time of the solicitation may come before the Meeting, the enclosed voting
instruction form confers discretionary authority with respect to such matters as
may properly come before the Meeting. It is the intention of the persons named
as proxies to vote in accordance with their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS,
Anthony C. Williams, Chairman of the
Board
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INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the first day of , 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 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
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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 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,
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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 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 of shareholders of the Fund, including the printing of notices
and proxy materials, and proxy solicitations therefor.
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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 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.
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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.
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
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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 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 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
6
21
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.
7
22
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:
- -------------------------- -------------------------------
Secretary
ATTEST: RE ADVISERS CORPORATION
By:
- -------------------------- -------------------------------
Secretary
8
23
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the first day of , 1996,
by and between Homestead Funds, Inc., a Maryland corporation (the "Company"), on
behalf of the Short-Term Bond 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 August 27, 1991 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 August
27, 1991;
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
1
24
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 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,
2
25
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 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 of shareholders of the Fund, including the printing of notices
and proxy materials, and proxy solicitations therefor.
3
26
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 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.
4
27
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: .60% of average daily net assets.
3.1.2 Method of Computation. The fee shall accrue each calendar
day and the sum of the daily fee accruals for the Fund shall be paid
monthly to the Investment Manager on the first business day of the next
calendar month. The daily fee accruals shall be computed by multiplying
the fraction of one over the number of calendar days in the year by the
applicable annual rates for the Fund, described in subparagraph 3.1.1,
above, and multiplying the product by the net assets of the Fund as
determined in accordance with the Company's Prospectus as of the close
of business on the previous business day on which the Company was open
for business.
3.1.3 Proration of Fee. If this Agreement becomes effective or
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
5
28
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 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 August 27, 1991 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
6
29
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.
7
30
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 Short-Term Bond Fund
By:
- ------------------------------ -----------------------------------
Secretary
ATTEST: RE ADVISERS CORPORATION
By:
- ------------------------------ -----------------------------------
Secretary
8
31
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the first day of , 1996,
by and between Homestead Funds, Inc., a Maryland corporation (the "Company"), on
behalf of the Short-Term Government Securities 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 March 7, 1995 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 March 7,
1995;
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
1
32
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 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.
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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.
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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 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 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.
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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: .45% of average daily net assets.
3.1.2 Method of Computation. The fee shall accrue each calendar
day and the sum of the daily fee accruals for the Fund shall be paid
monthly to the Investment Manager on the first business day of the next
calendar month. The daily fee accruals shall be computed by multiplying
the fraction of one over the number of calendar days in the year by the
applicable annual rates for the Fund, described in subparagraph 3.1.1,
above, and multiplying the product by the net assets of the Fund as
determined in accordance with the Company's Prospectus as of the close
of business on the previous business day on which the Company was open
for business.
3.1.3 Proration of Fee. If this Agreement becomes effective or
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
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36
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 March 7, 1995 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
6
37
"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.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: HOMESTEAD FUNDS, INC.
on behalf of the Short-Term
Government Securities Fund
By:
- -------------------------- ----------------------------
Secretary
ATTEST: RE ADVISERS CORPORATION
By:
- -------------------------- ----------------------------
Secretary
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39
INVESTMENT MANAGEMENT AGREEMENT
Investment Management Agreement, made as of the first day of , 1996,
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 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 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
1
40
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 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,
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41
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 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 of shareholders of the Fund, including the printing of notices
and proxy materials, and proxy solicitations therefor.
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42
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 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.
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43
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: .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 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
5
44
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 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 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
6
45
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.
7
46
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 Value Fund
By:
- ----------------------- ----------------------------
Secretary
ATTEST: RE ADVISERS CORPORATION
By:
- ----------------------- ----------------------------
Secretary
8
47
Daily Income Fund of
Homestead Funds, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, hereby appoints Anthony C. Williams and Peter R. Morris, as
proxies, each with full power of substitution, to vote all shares of the Daily
Income Fund series of Homestead Funds, Inc. (the "Fund") which the undersigned
is entitled to vote at the Special Meeting of Shareholders to be held at the
office of the Fund at 4301 Wilson Boulevard, Arlington, Virginia, on November
25, 1996 at 9:30 a.m. and at any adjournments thereof. This Proxy shall be
voted on the proposals described in the Proxy Statement as specified below.
Receipt of the Notice of the Special Meeting and the accompanying Proxy
Statement dated November 4, 1996 is hereby acknowledged.
PROPOSALS:
1) To approve or disapprove an amendment to the Investment Management
Agreement between the Fund and RE Advisers Corporation on behalf of the
Daily Income Fund.
2) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
If no specification is given on a returned Proxy, this Proxy will be voted for
Proposal 1.
PROPOSAL 1: FOR AGAINST ABSTAIN
--- --- ---
Dated: ,1996
---------------------
- --------------------------------
- --------------------------------
Signature(s) of shareholder(s)
Please sign exactly as your name(s) appear(s) on this Proxy. When signing in a
fiduciary capacity, such as executor, administrator, trustee, attorney or
guardian, please so indicate and provide your title as such. Corporate and
partnership proxies should be signed in the name of the corporation or
partnership, using the full name of such, by an authorized person indicating
the person's title.
48
Short-Term Bond Fund of
Homestead Funds, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, hereby appoints Anthony C. Williams and Peter R. Morris, as
proxies, each with full power of substitution, to vote all shares of the
Short-Term Bond Fund series of Homestead Funds, Inc. (the "Fund") which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held at the office of the Fund at 4301 Wilson Boulevard, Arlington, Virginia,
on November 25, 1996 at 9:30 a.m. and at any adjournments thereof. This Proxy
shall be voted on the proposals described in the Proxy Statement as specified
below. Receipt of the Notice of the Special Meeting and the accompanying Proxy
Statement dated November 4, 1996 is hereby acknowledged.
PROPOSALS:
1) To approve or disapprove an amendment to the Investment Management
Agreement between the Fund and RE Advisers Corporation on behalf of the
Short-Term Bond Fund.
2) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
If no specification is given on a returned Proxy, this Proxy will be voted for
Proposal 1.
PROPOSAL 1: FOR AGAINST ABSTAIN
--- --- ---
Dated: ,1996
---------------------
- --------------------------------
- --------------------------------
Signature(s) of shareholder(s)
Please sign exactly as your name(s) appear(s) on this Proxy. When signing in a
fiduciary capacity, such as executor, administrator, trustee, attorney or
guardian, please so indicate and provide your title as such. Corporate and
partnership proxies should be signed in the name of the corporation or
partnership, using the full name of such, by an authorized person indicating
the person's title.
49
Short-Term Government Securities Fund of
Homestead Funds, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, hereby appoints Anthony C. Williams and Peter R. Morris, as
proxies, each with full power of substitution, to vote all shares of the
Short-Term Government Securities Fund series of Homestead Funds, Inc. (the
"Fund") which the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held at the office of the Fund at 4301 Wilson Boulevard,
Arlington, Virginia, on November 25, 1996 at 9:30 a.m. and at any adjournments
thereof. This Proxy shall be voted on the proposals described in the Proxy
Statement as specified below. Receipt of the Notice of the Special Meeting and
the accompanying Proxy Statement dated November 4, 1996 is hereby acknowledged.
PROPOSALS:
1) To approve or disapprove an amendment to the Investment Management
Agreement between the Fund and RE Advisers Corporation on behalf of the
Short-Term Government Securities Fund.
2) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
If no specification is given on a returned Proxy, this Proxy will be voted for
Proposal 1.
PROPOSAL 1: FOR AGAINST ABSTAIN
--- --- ---
Dated: ,1996
---------------------
- --------------------------------
- --------------------------------
Signature(s) of shareholder(s)
Please sign exactly as your name(s) appear(s) on this Proxy. When signing in a
fiduciary capacity, such as executor, administrator, trustee, attorney or
guardian, please so indicate and provide your title as such. Corporate and
partnership proxies should be signed in the name of the corporation or
partnership, using the full name of such, by an authorized person indicating
the person's title.
50
Value Fund of
Homestead Funds, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, hereby appoints Anthony C. Williams and Peter R. Morris, as
proxies, each with full power of substitution, to vote all shares of the Value
Fund series of Homestead Funds, Inc. (the "Fund") which the undersigned is
entitled to vote at the Special Meeting of Shareholders to be held at the
office of the Fund at 4301 Wilson Boulevard, Arlington, Virginia, on November
25, 1996 at 9:30 a.m. and at any adjournments thereof. This Proxy shall be
voted on the proposals described in the Proxy Statement as specified below.
Receipt of the Notice of the Special Meeting and the accompanying Proxy
Statement dated November 4, 1996 is hereby acknowledged.
PROPOSALS:
1) To approve or disapprove an amendment to the Investment Management
Agreement between the Fund and RE Advisers Corporation on behalf of the
Value Fund.
2) To transact such other business as may properly come before the Meeting or
any adjournment thereof.
If no specification is given on a returned Proxy, this Proxy will be voted for
Proposal 1.
PROPOSAL 1: FOR AGAINST ABSTAIN
--- --- ---
Dated: ,1996
---------------------
- --------------------------------
- --------------------------------
Signature(s) of shareholder(s)
Please sign exactly as your name(s) appear(s) on this Proxy. When signing in a
fiduciary capacity, such as executor, administrator, trustee, attorney or
guardian, please so indicate and provide your title as such. Corporate and
partnership proxies should be signed in the name of the corporation or
partnership, using the full name of such, by an authorized person indicating
the person's title.