Attachment 77Q1

INVESTMENT MANAGEMENT AGREEMENT

	Investment Management Agreement, made as of the 26th
day of September, 2003,
by and between Homestead Funds, Inc., a Maryland
corporation (the "Company"), on
behalf of the Small-Company Stock Fund (the "Fund"), and RE
Advisers Corporation, a
Virginia corporation (the "Investment Manager").

	WHEREAS, the Company engages in business as an open-
end management
investment company and is registered as such under the
Investment Company Act of
1940, as amended (the "1940 Act"); and

	WHEREAS, the Company is a series type investment
company currently
consisting of eight series, the Daily Income Fund, the
Value Fund, the Short-
Term Bond Fund, the Short-Term Government Securities Fund,
the Small-Company
Stock Fund, the Stock Index Fund, the Nasdaq-100 Index
Tracking StockSM Fund, and
the International Stock Index Fund, each with its own
investment program, policies, and
investment objectives, and restrictions;
and

	WHEREAS, the Investment Manager is engaged
principally in the business of
rendering investment management services and registered as
an investment manager
under the Investment Advisers Act of 1940, as amended; and

	WHEREAS, the Company retained the Investment Manager
pursuant to
an Investment Management Agreement initially 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;

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 the portfolio
securities, including advising
the Board of Directors as to certain matters involving the
Fund's portfolio securities that
are not in the nature of investment decisions; (iv) obtain
and evaluate such business and
financial information relating to the economy, industries,
businesses, securities markets,
and securities as it may deem necessary or useful in
discharging its responsibilities under
this Agreement; (v) furnish the Board of Directors with
periodic reports concerning the
Investment Manager's economic outlook and investment
strategy, as well as information
concerning the Fund's portfolio activity and investment
performance; (vi) determine the
creditworthiness of the issuers, obligers, or guarantors of
money market and debt
securities utilized by the Fund; and (vii) evaluate the
creditworthiness of any entities with
which the Fund proposes to engage in repurchase
transactions.  In furtherance of this
duty, the Investment Manager, as agent and attorney-in-fact
with respect to the Fund, is
authorized, in its discretion and without prior
consultation with the Fund and the Board of
Directors of the Company to buy, sell, exchange, convert
for the Fund's use, and
otherwise trade in any money market instruments' bonds, and
other securities or assets,
and to select the broker-dealers, underwriters or issuers
to be used and to place orders and
negotiate commissions (if any) for the execution of
transactions in securities with or
through such broker-dealers, underwriters, or issuers.

	1.2	Administrative services.  In addition to
investment advisory services set
forth above in 1.1, the Investment Manager shall oversee
the administration of all aspects
of the Company's business and affairs with respect to the
Fund and shall provide certain
services required for effective administration of the
Company with respect to the Fund, in
connection therewith, the Investment Manager shall:

1.2.1	Office and Other Facilities.	  Furnish, without cost
to the
company, or provide and pay the cost of, such office
facilities, furnishings, and office
equipment as are adequate for the Company's needs.

1.2.2	Personnel.  Provide, without additional remuneration
from or other
cost to the Company, the services of individuals competent
to perform all of the
Company's executive, administrative, compliance, and
clerical functions that are not
covered by 2.2.9 below or performed by or through employees
or other persons or agents
engaged by the Company (including, e.g., the custodian,
accounting services agent,
transfer agent, dividend disbursing agent and shareholder
servicing agent).

1.2.3	Agents. Assist the Company in selecting, coordinating
the
activities of, supervising, and acting as liaison with any
other persons and agents engaged
by the Company, including the Company's custodian,
accounting services agent, transfer
agent, dividend disbursing agent, shareholder servicing
agent, independent accountants,
and independent legal counsel.  The Investment Manager
shall also monitor the functions
of such persons and agents, including, in particular, the
accounting services agent in its
evaluation of the Fund's portfolio securities.

1.2.4	Directors and Officers.  Authorize and permit the
Investment
Manager's directors, officers and employees who may be
elected or appointed as
directors or officers of the Company to serve in such
capacities, without remuneration
from or additional cost to the Company.

1.2.5	Books and Records.  Ensure that all financial,
accounting,
corporate, and other records required to be maintained and
preserved by the Company or
on its behalf will be maintained and preserved by the
Company or on its behalf will be
maintained in accordance with applicable laws and
regulations and that the Company's
corporate existence will be maintained.

1.2.6	Reports to the Company.  Furnish to or place at the
disposal of the
Company such information, reports, evaluations, analyses,
and opinions relating to its
administrative functions as the Company may, at any time or
from time to time,
reasonably request or as the Investment Manager may deem
helpful to the Company.

1.2.7	Reports and Filings.  Assist in the development and
preparation of
all reports and communications by the Company to the Fund's
shareholders and all
reports and filings necessary to maintain the registrations
and qualifications of the
Company's shares under federal and state law.

2.	Allocation of Expenses

	2.1	Expenses Paid by Investment Manager.

		2.1.1	Salaries and Fees of Directors and
Officers.  As between the Fund
and the Investment Manager, the Investment Manager shall
pay all salaries, expenses and
fees, if any of the directors, officers or employees of the
Investment Manager who are
directors, officers or employees of the Company.  The
Investment Manager has obtained
such personnel through an agreement with National Rural
Electric Cooperative
Association, which has primary responsibility for the
salaries, expenses and fees of
persons provided to serve as directors, officers and
employees of the Investment
Manager.

		2.1.2	Waiver or Assumption and Reimbursement of
the Company's
Expenses by Investment Manager.  The Waiver of assumption
and reimbursement by the
Investment Manager of any expense of the Company that the
Investment Manager is not
required by this Agreement to waive, or assume and
reimburse, shall not obligate the
Investment Manager to waive, or assume or reimburse, the
same or any similar expense
of the Company on any subsequent occasion, unless so
required pursuant to a separate
agreement between the Company and the Investment Manager.

		2.1.3	Organizational Expenses.  The Investment
Manager shall pay or
assume all organizational expenses of the Company.

	2.2	Expenses paid by the Company.  The Company,
with respect to the Fund,
shall bear all expenses of its operations and business not
specifically waived, assumed or
agreed to be paid by the Investment Manager as provided in
this Agreement or any other
agreement between the Company and the Investment Manager.
In particular, the
expenses hereby allocated to the Company, with respect to
the Fund, include, but are not
limited to:

		2.2.1	Custody and Accounting services.  All
fees and expenses of
depositories, custodians, accounting service agents, and
other agents for the transfer,
receipt, safekeeping, servicing of and accounting for the
Fund's cash, securities, and
other property, including, among other things, fees and
expenses for the calculation of
standardized effective and compound yield quotations for
the Fund, maintenance of
ledgers, position and income reports, and settlement of
fund purchases and sales.

		2.2.2	Transfer Agency, shareholder servicing,
and Dividend
Disbursement.  All costs of establishing, maintaining, and
servicing accounts of
shareholders of the Fund, including the Fund's
proportionate share of all fees and
expenses of the Company's transfer agent, shareholder
services agent, dividend
disbursing agent and any other agents engaged by the
Company to service such Fund
accounts.  In addition, the company shall reimburse the
Investment Manager and charge
to the Fund the Fund's proportionate share of all expenses
incurred by the Investment
Manager in responding to telephonic and written inquiries
from, and in mailing
information to Fund shareholders and others who may request
information on behalf of
Fund shareholders, regarding matters such as shareholder
account or transaction status,
net asset value of Fund shares, Fund performance, and
general information about the
Fund.

		2.2.3	Shareholder Reports.  All costs of
preparing, setting in type,
printing, and distributing reports and other communications
to shareholders of the Fund.

		2.2.4	Prospectuses.  All costs of preparing,
setting in type, printing and
mailing to shareholders of the Fund annual or more frequent
revisions of the Company's
Prospectus and Statement of Additional Information and any
supplements thereto.

		2.2.5	Shareholder Meetings.  All costs
incidental to holding meetings of
shareholders of the Fund, including the printing of notices
and proxy materials, and proxy
solicitations therefore.

		2.2.6	Pricing and Portfolio Valuation.  All
costs of daily valuation of the
individual portfolio securities of the Fund and daily
computation of the net asset value
per share of the Fund, including (i) a proportionate share
of the cost of any equipment
obtained by the Company, the Investment Manager or agents
of the Company or a
proportionate share of the cost of any equipment currently
owned by the Investment
Manager that will be used to price the Fund's shares or
value the Fund's assets, or (ii) the
cost of the services of any agents engaged by the Company
for the purpose of pricing
Fund shares or valuing the assets of the Fund.

		2.2.7	Communications.  All charges for
equipment or services used for
communications between the Investment Manager or the
Company and the custodian,
accounting services agent, transfer agent, shareholder
servicing agent, dividend
disbursing agent, or any other agent engaged by the Company
to provide services to the
Fund.

		2.2.8	Independent Legal and Accounting Fees.
The Fund's
proportionate share of all charges for services and
expenses of the Company's
independent legal counsel and independent accountants.

		2.2.9	Directors' Fees and Expenses.  The Fund's
proportionate share of
all compensation of directors (other than those directors
affiliated with the Investment
Manager), all expenses incurred in connection with their
services as directors, and all
expenses of meetings of the Board of Directors and
committees of the Board of Directors.

		2.2.10	Federal Registration Fees.  The
Fund's proportionate share of all
fees and expenses of maintaining the registration of the
Company under the 1940 Act and
maintaining the registration of the Fund's shares or
registering additional shares of the
Fund under the Securities Act of 1933, as amended (the
"1933 Act"), including all fees
and expenses incurred in connection with the preparation,
setting in type, printing, and
filing of any post-effective amendments or supplements to
the Registration Statement,
Prospectus, and Statement of Additional Information for the
Company under the 1933
Act or the 1940 Act that may be prepared from time to time.

		2.2.11	State Registration Fees.  The
Fund's proportionate share of all fees
and expenses of maintaining the registration and
qualification of the Company and of the
Fund's shares for sale under the securities laws of various
states and jurisdictions and
registering and qualifying additional shares of the Fund,
and of maintaining the
registration and qualification of the Company under all
other laws applicable to the
Company or its business activities.

		2.2.12	Issue, Redemption, and Transfer of
the Fund's Shares.  All
expenses incurred in connection with the issue, redemption,
and transfer of the Fund's
shares, including the expenses of confirming all share
transactions and of transmitting
share certificates for the Fund.

		2.2.13	Bonding and Insurance.  All
expenses of bond, liability, and other
insurance coverage required by law or regulation or deemed
advisable by the Board of
Directors of the Company, including, without limitation,
such bond, liability and other
insurance expense that may from time to time be allocated
to the Fund in a manner
approved by its Board of Directors.

		2.2.14	Brokerage Commissions.  All
brokers' commissions, if any, and
other charges incident to the purchase or sale of the
Fund's portfolio securities.

		2.2.15	Taxes.   The Fund's proportionate
share of all taxes or
governmental fees payable to federal, state or other
governmental agencies, domestic or
foreign, including issue, stamp, or transfer taxes.

		2.2.16	Trade Association Fees.  The Fund's
proportionate share of all
fees, dues and other expenses incurred in connection with
the Company's trade
association or other membership in any investment
organization.

		2.2.17	Nonrecurring and Extraordinary
Expenses.  The Fund's
proportionate share of such nonrecurring and extraordinary
expenses as may arise,
including the costs of actions, suits, or proceedings to
which the Company is a party and
the expenses the Company may incur as a result of its legal
obligation to provide
indemnification to its officers, directors, employees, and
agents.

3.	Management 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: 0.85% of average daily net assets up to
$200 million; 0.75% of average
daily net assets in excess of $200 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 Act")) a higher commission than that which might be
charged by another broker-
dealer which does not furnish brokerage and research
services or which furnished
brokerage and research services deemed to be of lesser
value, if the Investment Manager
determines in good faith that the amount of such commission
is reasonable in relation to
the value of the brokerage and research services provided
by the broker-clearer viewed in
terms of either that particular transaction or the overall
responsibilities of the Investment
Manager with respect to the other accounts, if any, as to
which it exercises investment
discretion (as such term is defined under Section 3(a)(35)
of the 1934 Act).

5.	Investment Manager's Use of the Service of Others.
The Investment Manager
may at its own cost (except as contemplated by Paragraph 4
of this Agreement) employ,
retain or otherwise avail itself of the services or
facilities of other persons or
organizations for the purpose of providing the Investment
Manager 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 or 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 shall have a term
of 12 months beginning
on the first day of the month following the affirmative
vote of a majority of the
outstanding voting securities of the Fund approving this
Agreement.  This Agreement
shall thereafter continue from year to year, but only so
long as such continuance is
specifically approved at least annually by the Board of
Directors of the Company or by
vote of a majority of the outstanding voting securities of
the Fund in accordance with the
requirements of the 1940 Act, and in either event by the
vote of a majority of the Board
of Directors of the Company who are not "interested
persons" (as defined in the 1940 Act
and rules thereunder) of any such party, cast, in person,
at a meeting called for the
purpose of voting on such approval.

	Any approval of this Agreement by the holders of a
majority of the outstanding
shares (as defined in the 1940 Act and rules thereunder) of
the Fund shall be effective to
approve or continue this Agreement with respect to the
Fund, notwithstanding (i) that a
comparable agreement has not been approved by the holders
of a majority of the
outstanding shares of any other series of the Company and
(ii) that this Agreement has
not been approved by the vote of a majority of the
outstanding shares of the Company,
unless such approval shall be required by any other
applicable law or otherwise.  The
Investment Manager shall furnish to the Company, promptly
upon its request, such
information as may be reasonably necessary to evaluate the
terms of this Agreement or
any extension, renewal or amendment thereof.

11.	Amendment and Assignment of Agreement.  This
Agreement may not be
amended without the affirmative vote of a majority of the
outstanding voting securities of
the Fund, and this Agreement shall automatically and
immediately terminate in the event
of its assignment.

12.	Termination of Agreement.  This Agreement may be
terminated by either party
hereto, without the payment of any penalty, upon 60 days
prior notice in writing to the
other party; provided, that in the case of termination by
the Company such action shall
have been authorized by resolution of a majority of the
Board of Directors of the
Company who are not parties to this Agreement or interested
persons of any such party,
or by vote of a majority of the outstanding voting
securities of the Fund.





13.	Miscellaneous.

	13.1	Captions.  The captions in this Agreement are
included for convenience of
reference only and in no other way define or delineate any
of the provisions hereof or
otherwise affect their construction or effect.

	13.2	Interpretation.  Nothing herein contained shall
be deemed to require the
Company to take any action contrary to its Articles of
Incorporation or By-Laws, or any
applicable statutory or regulatory requirement to which it
is subject or by which it is
bound, or to relieve or deprive the Board of Directors of
its responsibility for and control
of the conduct of the affairs of the Company.

	13.3	Definitions.	Any question of
interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived
from a term or provision of
the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and
to interpretations thereof, if any, by the United States
courts or, in the absence of any
controlling decision of any such court, by rules,
regulations or orders of the Securities
and Exchange Commission validly issued pursuant to the 1940
Act.  Specifically, the
terms "vote of a majority of the outstanding voting
securities", "interested person",
"assignment", and "affiliated person" shall have the
meanings assigned to them by
Section 2(a) of the 1940 Act.  In addition, where the
effect of a requirement of the 1940
Act reflected in any provision of this Agreement is relaxed
by a rule, regulation or order
of the Securities and Exchange Commission, whether of
special or of general application,
such provision shall be deemed to incorporate the effect of
such rule, regulation or order.



	IN WITNESS WHEREOF, the parties have caused this
Agreement to be signed
by their respective officers thereunto duly authorized 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 Small
						Company Stock Fund

/s/Hope L. Saxton				By: /s/Denise Trujillo
Hope L. Saxton, Secretary		Denise Trujillo, Vice-
						President and Counsel


ATTEST:					RE ADVISERS CORPORATION


/s/Hope L. Saxton				By: Peter R. Morris
Hope L. Saxton, Secretary		Peter R. Morris,
						President





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