<PAGE> 1
================================================================================
A MESSAGE FROM THE INVESTMENT MANAGER
Dear Shareholder:
The fourth quarter of 1995 marked the end of the best year for the stock market
in over three decades. Moderate economic growth, rising corporate profits, and
declining interest rates provided an excellent environment for financial
securities. Two widely followed stock market indicators, the Standard & Poor's
500 Index and the Dow Jones Industrial Average, recorded gains of 37.5% and
36.7% for the year.
Two important trends which helped the stock market were continuing increases in
corporate productivity and strong investment cash flow. Productivity
improvements have resulted from the increasing use of technology as well as
cost cutting through mergers and downsizing activities. Strong investment cash
flows reflected the demand for common stock, which was evident from the record
sales of common stock mutual funds. This increased demand for stocks helped
push prices higher last year.
Within the stock market itself, the best performing sectors for the year were
finance and technology. Declining interest rates helped push bank and insurance
stocks higher. For banks, lower interest rates resulted in a lower cost of
funds and higher profit margins; for insurance companies, lower rates generally
translated into higher returns on fixed-income investment portfolios. Regarding
technology, sales of computers and software products continued to surge,
resulting in better-than-anticipated operating performance and rising stock
prices for most of the year.
In addition to achieving excellent returns from last year's stock market
performance, investors also earned double-digit returns in the fixed-income
markets. Bonds benefited handsomely as both long and short-term interest rates
declined throughout the year. After a doubling of short-term interest rates in
1994, fixed-income securities rebounded as inflation expectations began to
decline and economic data released throughout the year reinforced the view that
the economy was slowing.
VALUE FUND
For the twelve months ended December 31, 1995, the Value Fund had a total
return of 33.8%. Portfolio strategy continued to focus on three important
sectors of the economy. The consumer cyclical sector, which represents
approximately 23% of the portfolio, emphasizes strong brand names such as
Maytag and Kodak. During the year, five new investments were added in this
sector of the portfolio: Cooper Tire, Deluxe Corporation, Brinker
International, Dillard Department Stores, and May Department Stores. The
financial sector at year-end comprised 17% of the portfolio. Two large Fund
holdings, Chase Manhattan Corporation and Chemical Banking Corporation,
announced a merger to be completed in 1996. Future prospects appear favorable,
however, we reduced our holdings as the market value of the combined companies
reached 5% of the portfolio. The investment in Allstate Corporation is the
result of a corporate restructuring and distribution of shares from Sears
Roebuck and Company to shareholders. Energy stocks, which comprise about 11% of
the portfolio, continue to represent good investment value. Continued corporate
restructuring has resulted in strong cash flows and attractive dividend yields
for these companies.
SHORT-TERM BOND FUND
The fixed-income markets changed course abruptly early in the year and posted
solid investment results for 1995. Fears of increased inflation proved
unfounded and interest rates for both short and long-term, fixed-income
securities declined throughout the year. For the twelve months ended December
31, 1995, the Short-Term Bond Fund produced a total return of 10.8%. Reflecting
the general decline in interest rates, the 30-day SEC yield decreased from 7.1%
at the beginning of the year to 5.4% on December 29.
<PAGE> 2
================================================================================
A MESSAGE FROM THE INVESTMENT MANAGER
(CONTINUED)
Portfolio strategy continued to emphasize high-quality corporate bonds, which
by year-end represented 45.5% of the portfolio, down slightly from 50.1% at the
previous year-end. Investments in mortgage-backed securities were increased
from 8.1% of the portfolio at the beginning of the year to 17.4% by year-end.
Average Fund maturity remained relatively unchanged at 2.8 years.
DAILY INCOME FUND
Money market interest rates remained essentially unchanged throughout the year
in contrast to 1994. The Fund's 7-day simple yield was 5.1% at both the end and
beginning of the year. Average maturity of the Fund was 33 days at the
beginning of the year and was relatively unchanged at 40 days by year-end. For
the twelve months ended December 31, 1995, the Daily Income Fund had a total
return of 5.4%.
SHORT-TERM GOVERNMENT SECURITIES FUND
On May 1, 1995, Homestead Funds introduced the Short-Term Government Securities
Fund. This Fund invests primarily in fixed-income securities backed by the
full faith and credit of the U.S. Government. The Fund ended the year with a
30-day SEC yield of 4.8% and an average maturity of 1.7 years. The aggregate
total return for the eight months ending December 31, 1995, was 5.4%.
Sincerely,
/s/ PETER R. MORRIS
Peter R. Morris
Director of Investments
<PAGE> 3
THE SHORT-TERM BOND FUND ANNUAL TOTAL RETURNS VS. SHORT-TERM INDEXES
[FIGURE 1]
<TABLE>
<CAPTION>
MERRILL LYNCH MERRILL LYNCH
1-2.99 YEAR SHORT-TERM 1-4.99 YEAR
U.S. TREASURY INDEX BOND FUND CORP./GOV. INDEX
<S> <C> <C> <C>
1994 0.6% 0.1% -0.6%
1995 11.0% 10.8% 13.0%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE SHORT-TERM BOND FUND AVERAGE TOTAL RETURNS ARE NET OF ANY FEE WAIVERS AND
REIMBURSEMENTS.
[FIGURE 2]
THE SHORT-TERM BOND FUND
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FUND AT
INCEPTION AND THE MERRILL LYNCH 1-4.99 YEAR CORPORATE/GOVERNMENT BOND INDEX
<TABLE>
<CAPTION>
MERRILL LYNCH
SHORT-TERM 1-4.99 YEAR
BOND FUND CORP./GOV. INDEX
<S> <C> <C>
NOV 91 $10,000 $10,000
DEC 91 10,199 10,303
JUNE 92 10,489 10,632
DEC 92 10,843 11,013
JUNE 93 11,322 11,538
DEC 93 11,559 11,798
JUNE 94 11,465 11,644
DEC 94 11,570 11,733
JUNE 95 12,365 12,678
DEC 95 12,820 13,254
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/95.
FUND M.L. INDEX
<S> <C> <C>
1 YEAR 10.8% 13.0%
SINCE
INCEPTION 6.2% 7.0%
(11/5/91)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE SHORT-TERM BOND FUND AVERAGE TOTAL RETURNS ARE NET OF ANY FEE WAIVERS AND
REIMBURSEMENTS.
1
<PAGE> 4
[FIGURE 3]
THE SHORT-TERM GOVERNMENT SECURITIES FUND
AGGREGATE TOTAL RETURN VS. SHORT-TERM INDEXES
<TABLE>
<CAPTION>
MERRILL LYNCH MERRILL LYNCH
1-2.99 YEAR SHORT-TERM GOVERNMENT 1-4.99 YEAR
U.S. TREASURY INDEX SECURITIES FUND U.S. TREASURY INDEX
<S> <C> <C> <C>
SINCE INCEPTION
(05/01/95) 6.4% 5.4% 7.6%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE SHORT-TERM GOVERNMENT SECURITIES FUND AVERAGE TOTAL RETURNS ARE NET OF ANY
FEE WAIVERS AND REIMBURSEMENTS.
[FIGURE 4]
THE SHORT-TERM GOVERNMENT SECURITIES FUND
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FUND AT
INCEPTION AND THE MERRILL LYNCH 1-4.99 YEAR U.S. TREASURY INDEX
<TABLE>
<CAPTION>
SHORT-TERM MERRILL LYNCH
GOVERNMENT SECURITIES FUND 1-4.99 YEAR U.S. TREASURY INDEX
<S> <C> <C>
MAY 95 $10,000 $10,000
JUNE 95 10,192 10,293
SEPT 95 10,325 10,448
DEC 95 10,544 10,756
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN FOR THE PERIOD ENDED 12/31/95.
FUND M.L. INDEX
<S> <C> <C>
SINCE
INCEPTION 5.4% 7.6%
(5/1/95)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE SHORT-TERM GOVERNMENT SECURITIES FUND AVERAGE TOTAL RETURNS ARE NET OF ANY
FEE WAIVERS AND REIMBURSEMENTS.
2
<PAGE> 5
[FIGURE 5]
THE VALUE FUND ANNUAL TOTAL RETURNS VS. THE S&P 500
<TABLE>
<CAPTION>
VALUE FUND S&P 500
<S> <C> <C>
1994 2.5% 1.3%
1995 33.8% 37.5%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE VALUE FUND AVERAGE TOTAL RETURNS ARE NET OF ANY FEE WAIVERS AND
REIMBURSEMENTS.
[FIGURE 6]
THE VALUE FUND
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE FUND AT INCEPTION AND THE S&P INDEX
<TABLE>
<CAPTION>
THE VALUE
FUND S&P 500
<S> <C> <C>
NOV 90 $10,000 $10,000
DEC 90 10,058 10,274
JUNE 91 11,157 11,745
DEC 91 11,783 13,413
JUNE 92 12,361 13,327
DEC 92 13,160 14,443
JUNE 93 14,598 15,141
DEC 93 15,638 15,889
JUNE 94 15,856 15,347
DEC 94 16,026 16,093
JUNE 95 18,873 19,336
DEC 95 21,444 22,097
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED 12/31/95.
FUND S&P 500
<S> <C> <C>
1 YEAR 33.8% 37.5%
5 YEARS 16.3% 16.6%
SINCE
INCEPTION 16.1% 16.9%
(11/19/90)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
THE VALUE FUND AVERAGE TOTAL RETURNS ARE NET OF ANY FEE WAIVERS AND
REIMBURSEMENTS.
3
<PAGE> 6
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
HOMESTEAD FUNDS, INC.
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SHORT-TERM
DAILY INCOME SHORT-TERM GOVERNMENT VALUE
FUND BOND FUND SECURITIES FUND FUND
------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost: $52,668,639; $62,302,994;
$2,690,101; $114,698,143) . . . . . . . . . . . . . . . $52,668,639 $63,069,563 $2,714,041 $147,405,357
Receivables
Investment securities sold . . . . . . . . . . . . . . - 20,430 - -
Dividends and interest . . . . . . . . . . . . . . . . 110,217 849,782 28,072 165,670
Due from Manager . . . . . . . . . . . . . . . . . . . - - 5,423 -
Capital shares sold . . . . . . . . . . . . . . . . . . 28,338 215,414 32,262 118,374
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 11,884 13,755 156 23,837
----------- ----------- ---------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . 52,819,078 64,168,944 2,779,954 147,713,238
----------- ----------- ---------- ------------
LIABILITIES
Payables
Investment securities purchased . . . . . . . . . . . . - 1,927,042 102,149 -
Accrued expenses . . . . . . . . . . . . . . . . . . . 27,300 35,266 18,409 57,662
Due to Manager . . . . . . . . . . . . . . . . . . . . 25,101 27,875 - 77,920
Capital shares redeemed . . . . . . . . . . . . . . . . 62,897 30,563 - -
Dividends . . . . . . . . . . . . . . . . . . . . . . . 4,631 23,202 1,196 71,865
----------- ----------- ---------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 119,929 2,043,948 121,754 207,447
----------- ----------- ---------- ------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $52,699,149 $62,124,996 $2,658,200 $147,505,791
=========== =========== ========== ============
NET ASSETS CONSIST OF:
Unrealized appreciation of investments . . . . . . . . . . $ - $ 766,569 $ 23,940 $ 32,707,214
Paid-in-capital applicable to outstanding shares
of 52,699,149 of Daily Income Fund, 11,962,525
of Short-Term Bond Fund, 522,066 of Short-
Term Government Securities Fund, 7,997,264
of Value Fund . . . . . . . . . . . . . . . . . . . . . 52,699,149 61,358,427 2,634,260 114,798,577
----------- ----------- ---------- ------------
$52,699,149 $62,124,996 $2,658,200 $147,505,791
=========== =========== ========== ============
NET ASSET VALUE PER SHARE . . . . . . . . . . . . . . . . . . $1.00 $5.19 $5.09 $18.44
=========== =========== ========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE> 7
================================================================================
STATEMENTS OF OPERATIONS
HOMESTEAD FUNDS, INC.
<TABLE>
<CAPTION>
SHORT-TERM
DAILY INCOME SHORT-TERM GOVERNMENT VALUE
FUND BOND FUND SECURITIES FUND FUND
------------- ------------- ----------------- -------------
May 1, 1995
Year Ended Year Ended (Commencement of Year Ended
December 31, December 31, Operations) to December 31,
1995 1995 December 31, 1995 1995
------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . $2,726,799 $3,632,124 $58,287 $1,044,187
Dividends . . . . . . . . . . . . . . . . . . . . - - - 2,957,686
------------- ------------- -------------- -------------
Total income . . . . . . . . . . . . . . . . . 2,726,799 3,632,124 58,287 4,001,873
------------- ------------- -------------- -------------
Expenses
Management fees . . . . . . . . . . . . . . . . . 227,457 282,944 4,919 654,453
Custodian and accounting fees . . . . . . . . . . 65,873 100,318 31,305 122,076
Shareholder servicing . . . . . . . . . . . . . . 42,786 45,377 18,358 91,298
Registration expense . . . . . . . . . . . . . . . 25,079 30,191 15 46,644
Legal and audit fees . . . . . . . . . . . . . . . 9,711 12,318 5,825 24,669
Communication . . . . . . . . . . . . . . . . . . 7,604 8,833 218 17,361
Insurance . . . . . . . . . . . . . . . . . . . . 6,078 9,788 39 17,481
Directors fees . . . . . . . . . . . . . . . . . . 2,791 3,595 53 7,190
Printing . . . . . . . . . . . . . . . . . . . . . 2,256 2,692 260 9,311
Other expenses . . . . . . . . . . . . . . . . . . 5,057 7,123 131 14,188
------------- ------------- -------------- -------------
Total expenses . . . . . . . . . . . . . . . . 394,692 503,179 61,123 1,004,671
Less fees waived by Manager . . . . . . . . . . (53,465) (66,694) (53,818) -
------------- ------------- -------------- -------------
Net expenses . . . . . . . . . . . . . . . . . 341,227 436,485 7,305 1,004,671
------------- ------------- -------------- -------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . 2,385,572 3,195,639 50,982 2,997,202
------------- ------------- -------------- -------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments . . . . . . . . . - 40,352 469 4,035,929
Net change in unrealized appreciation (depreciation) - 2,737,120 23,940 27,067,900
------------- ------------- -------------- -------------
NET GAIN ON INVESTMENTS . . . . . . . . . . . . . . . - 2,777,472 24,409 31,103,829
------------- ------------- -------------- -------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS . . . . . . . . . . . . . . . . . $2,385,572 $5,973,111 $75,391 $34,101,031
============= ============= ============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE> 8
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
HOMESTEAD FUNDS, INC.
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT
DAILY INCOME FUND SHORT-TERM BOND FUND SECURITIES FUND
---------------------------- --------------------------------------------------
May 1, 1995
(Commencement
Year Ended December 31, Year Ended December 31, of Operations) to
--------------------------- -------------------------- -------------------
1995 1994 1995 1994 December 31, 1995
----------- ------------- -------------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
OPERATIONS
Net investment income . . . . . $ 2,385,572 $ 1,101,830 $ 3,195,639 $ 2,324,376 $ 50,982
Net realized gain (loss)
on investments . . . . . . . - - 40,352 (850) 469
Net change in
unrealized appreciation
(depreciation) . . . . . . . - - 2,737,120 (2,271,840) 23,940
------------- ------------- ------------- ------------- -------------
Increase in net assets
from operations . . . . . . . 2,385,572 1,101,830 5,973,111 51,686 75,391
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income . . . . . (2,385,572) (1,101,830) (3,195,639) (2,324,376) (50,982)
Net realized gain
on investments . . . . . . . - - (39,502) - (469)
CAPITAL SHARE
TRANSACTIONS, NET . . . . . 16,030,967 11,509,412 7,129,945 17,484,131 2,634,260
------------- ------------- ------------- ------------- -------------
TOTAL INCREASE IN
NET ASSETS . . . . . . . . . 16,030,967 11,509,412 9,867,915 15,211,441 2,658,200
NET ASSETS
Beginning of year . . . . . . . 36,668,182 25,158,770 52,257,081 37,045,640 -
------------- ------------- ------------- ------------- -------------
END OF YEAR . . . . . . . . . . $52,699,149 $36,668,182 $62,124,996 $52,257,081 $2,658,200
============= ============= ============= ============= =============
<CAPTION>
VALUE FUND
--------------------------
Year Ended December 31,
--------------------------
1995 1994
------------ -----------
<S> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
OPERATIONS
Net investment income . . . . . $ 2,997,202 $ 1,664,090
Net realized gain (loss)
on investments . . . . . . . 4,035,929 703,689
Net change in
unrealized appreciation
(depreciation) . . . . . . . 27,067,900 (1,220,695)
------------- ------------
Increase in net assets
from operations . . . . . . . 34,101,031 1,147,084
DISTRIBUTIONS TO
SHAREHOLDERS
Net investment income . . . . . (2,997,202) (1,664,090)
Net realized gain
on investments . . . . . . . (4,035,929) (703,689)
CAPITAL SHARE
TRANSACTIONS, NET . . . . . 28,826,300 39,215,842
------------- ------------
TOTAL INCREASE IN
NET ASSETS . . . . . . . . . 55,894,200 37,995,147
NET ASSETS
Beginning of year . . . . . . . 91,611,591 53,616,444
------------- ------------
END OF YEAR . . . . . . . . . . $147,505,791 $91,611,591
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE> 9
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- ------- -------------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (83.1% of portfolio)
AT&T Capital Corp. . . . . . . . . . . . . . . 5.70% 01/03/96 $ 700,000 $ 699,778
American Express Credit Corp. . . . . . . . . . 5.65 01/03/96 1,190,000 1,189,627
American Express Credit Corp. . . . . . . . . . 5.35 06/27/96 1,000,000 973,547
American General Finance Corp. . . . . . . . . 5.80 01/26/96 400,000 398,389
American General Finance Corp. . . . . . . . . 5.71 01/26/96 450,000 448,216
American General Finance Corp. . . . . . . . . 5.76 01/31/96 700,000 696,640
American General Finance Corp. . . . . . . . . 5.64 02/12/96 700,000 695,394
Baltimore Gas & Electric Co. . . . . . . . . . 5.68 01/24/96 1,000,000 996,371
Beneficial Corp. . . . . . . . . . . . . . . . 5.77 01/26/96 1,700,000 1,693,188
Beneficial Corp. . . . . . . . . . . . . . . . 5.80 01/31/96 800,000 796,133
CIT Group Holdings, Inc. . . . . . . . . . . . 5.82 01/02/96 850,000 849,863
Chevron Oil Finance Co. . . . . . . . . . . . . 5.90 01/03/96 1,100,000 1,099,640
Chevron Oil Finance Co. . . . . . . . . . . . . 5.75 01/22/96 900,000 896,981
Commercial Credit Co. . . . . . . . . . . . . . 5.70 01/04/96 1,000,000 999,525
Commercial Credit Co. . . . . . . . . . . . . . 5.71 01/26/96 1,100,000 1,095,638
Consolidated Natural Gas Co. . . . . . . . . . 5.80 01/05/96 985,000 984,365
Consolidated Natural Gas Co. . . . . . . . . . 5.68 01/12/96 500,000 499,132
John Deere Capital Corp. . . . . . . . . . . . 5.70 01/05/96 415,000 414,737
John Deere Capital Corp. . . . . . . . . . . . 5.75 01/09/96 1,100,000 1,098,595
John Deere Capital Corp. . . . . . . . . . . . 5.75 01/17/96 400,000 398,978
John Deere Capital Corp. . . . . . . . . . . . 5.64 01/29/96 700,000 696,929
E. I. Dupont Co. . . . . . . . . . . . . . . . 5.65 01/17/96 2,400,000 2,393,973
Ford Motor Credit Corp. . . . . . . . . . . . . 5.68 01/30/96 800,000 796,340
Ford Motor Credit Corp. . . . . . . . . . . . . 5.68 02/07/96 1,400,000 1,391,827
General Electric Capital Corp. . . . . . . . . 5.76 01/08/96 1,300,000 1,298,544
General Electric Capital Corp. . . . . . . . . 5.35 06/27/96 1,000,000 973,547
Heller Financial Corp. . . . . . . . . . . . . 5.63 02/09/96 650,000 646,036
Hewlett-Packard Co. . . . . . . . . . . . . . . 5.63 01/10/96 1,500,000 1,497,889
Hewlett-Packard Co. . . . . . . . . . . . . . . 5.63 01/11/96 950,000 948,514
Household Finance Corp. . . . . . . . . . . . . 5.63 01/04/96 350,000 349,836
IBM Credit Corp. . . . . . . . . . . . . . . . 5.68 01/03/96 2,300,000 2,299,274
Merrill Lynch & Co. . . . . . . . . . . . . . . 5.75 01/02/96 1,100,000 1,099,824
Merrill Lynch & Co. . . . . . . . . . . . . . . 5.70 01/31/96 950,000 945,488
Norwest Financial, Inc. . . . . . . . . . . . . 5.75 01/19/96 750,000 747,844
Norwest Financial, Inc. . . . . . . . . . . . . 5.74 01/19/96 1,500,000 1,495,695
PHH Corp. . . . . . . . . . . . . . . . . . . . 5.68 01/19/96 1,400,000 1,396,024
J.C. Penney Funding Corp. . . . . . . . . . . . 5.68 01/16/96 2,500,000 2,494,083
Pepsico Inc. . . . . . . . . . . . . . . . . . 5.62 05/10/96 1,000,000 979,706
Schering Corp. . . . . . . . . . . . . . . . . 5.55 01/17/96 1,000,000 997,533
Schering Corp. . . . . . . . . . . . . . . . . 5.67 01/23/96 1,000,000 996,535
Transamerica Finance Corp. . . . . . . . . . . 5.73 01/12/96 1,000,000 998,249
Transamerica Finance Corp. . . . . . . . . . . 5.67 01/29/96 1,400,000 1,393,826
-----------
Total Commercial Paper (Cost $43,762,253) . . . . . . . . . . . . . . . . . . . . . . . . . . 43,762,253
-----------
</TABLE>
7
<PAGE> 10
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- ---------- -----------
<S> <C> <C> <C>
CORPORATE NOTES (5.6% of portfolio)
Associates Corp. of North America . . . . . . . 8.80% 03/01/96 $ 167,000 $ 167,702
CIT Group Holdings, Inc. . . . . . . . . . . . 8.88 06/15/96 1,250,000 1,265,524
CIT Group Holdings, Inc. . . . . . . . . . . . 4.75 03/15/96 100,000 99,753
Ford Motor Credit Corp. . . . . . . . . . . . . 8.25 07/15/96 120,000 121,364
Ford Motor Credit Corp. . . . . . . . . . . . . 8.00 10/01/96 103,000 104,403
General Electric Capital Corp. . . . . . . . . 7.14 09/06/96 100,000 100,802
Heller Financial Corp. . . . . . . . . . . . . 8.85 04/15/96 100,000 100,739
Household Finance Corp. . . . . . . . . . . . . 10.13 06/15/96 100,000 101,835
Household Finance Corp. . . . . . . . . . . . . 9.38 02/15/96 150,000 150,522
Household Finance Corp. . . . . . . . . . . . . 5.46 02/01/96 500,000 499,666
Philip Morris Cos., Inc. . . . . . . . . . . . 8.88 07/01/96 115,000 116,575
Wal-Mart Stores, Inc. . . . . . . . . . . . . . 8.00 05/01/96 115,000 115,723
-----------
Total Corporate Notes (Cost $2,944,608) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,944,608
-----------
U. S. GOVERNMENT & AGENCY OBLIGATIONS (9.5% of portfolio)
Federal Home Loan Bank Corp. . . . . . . . . . 5.59(a) 01/03/96 1,500,000 1,499,534
Federal Home Loan Bank Corp. . . . . . . . . . 5.54(a) 02/15/96 1,000,000 993,075
Federal National Mortgage Assn. . . . . . . . . 9.35 02/12/96 500,000 501,859
U. S. Treasury Note . . . . . . . . . . . . . . 7.63 04/30/96 1,000,000 1,006,193
U. S. Treasury Note . . . . . . . . . . . . . . 7.88 07/31/96 1,000,000 1,010,851
-----------
Total U. S. Government & Agency Obligations (Cost $5,011,512) . . . . . . . . . . . . . . . . 5,011,512
-----------
CORPORATE MASTER NOTE (1.8% of portfolio)
Associates Corp. of North America, 5.44% (b) . . . . . . . . . . . . . . . . . . 950,000 950,000
-----------
Total Corporate Master Note (Cost $950,000) . . . . . . . . . . . . . . . . . . . . . . . . . 950,000
-----------
MONEY MARKET ACCOUNT
State Street Bank and Trust Seven Seas Money Fund, 5.42% (c) . . . . . . . . . . . . . . . . . . . 266
-----------
Total Money Market Account (Cost $266) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266
-----------
TOTAL INVESTMENTS IN SECURITIES (Cost $52,668,639) -- 100% . . . . . . . . . . . . . . . . . . . . $52,668,639
===========
</TABLE>
- --------------
(a) Yield to maturity at purchase.
(b) Variable coupon rate as of December 29, 1995.
(c) One day yield at December 29, 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE> 11
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- ------- -------------- ----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (45.5% of portfolio)
BASIC INDUSTRIES - 8.0%
Allied Corp. . . . . . . . . . . . . . . . 5.70%(a) 09/15/98 $100,000 $ 85,250
Allied Corp. . . . . . . . . . . . . . . . 4.64-7.90(a) 01/15/96 352,000 351,560
Allied Corp. . . . . . . . . . . . . . . . 5.90(a) 08/01/97 154,000 141,295
Corning, Inc. . . . . . . . . . . . . . . 7.75 11/15/98 730,000 730,000
Corning, Inc. . . . . . . . . . . . . . . 7.10 08/14/00 100,000 103,875
Deere & Co., Inc. . . . . . . . . . . . . 8.25 06/01/96 100,000 101,125
Exxon Capital Corp. . . . . . . . . . . 7.88 04/15/96 100,000 100,678
Ford Capital BV . . . . . . . . . . . . . 9.13 05/01/98 500,000 537,500
Ford Motor Co. . . . . . . . . . . . . . . 5.78 01/01/99 400,000 399,696
Harsco Corp. . . . . . . . . . . . . . . . 8.75 05/15/96 500,000 505,625
Martin Marietta Corp. . . . . . . . . . . 8.50 03/01/96 350,000 351,313
Philip Morris Cos., Inc. . . . . . . . . . 8.75 12/01/96 300,000 308,625
Philip Morris Cos., Inc. . . . . . . . . . 9.75 05/01/97 300,000 315,750
Philip Morris Cos., Inc. . . . . . . . . . 9.25 12/01/97 200,000 213,000
Philip Morris Cos., Inc. . . . . . . . . . 6.38 01/15/98 250,000 253,125
Philip Morris Cos., Inc. . . . . . . . . . 8.55 03/08/96 150,000 150,750
Texaco Capital, Inc. . . . . . . . . . . . 9.00 11/15/96 365,000 376,406
----------
Total Basic Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,025,573
----------
CONSUMER NON-DURABLE GOODS - 3.1%
Beverages
Coca Cola Co. . . . . . . . . . . . . . . 7.75 02/15/96 103,000 103,258
Pepsico Capital Resources, Inc. . . . . . 6.54(a) 04/01/98 100,000 88,625
Department Stores
J.C. Penney & Co. . . . . . . . . . . . . 10.00 10/15/97 300,000 323,250
Sears Roebuck and Co. . . . . . . . . . . 8.55 08/01/96 100,000 101,750
Food
Nabisco, Inc. . . . . . . . . . . . . . . 7.75 11/01/03 352,000 355,080
Medical Supplier
Baxter International . . . . . . . . . . . 6.25 03/11/97 210,000 211,575
Johnson & Johnson Co. . . . . . . . . . . 8.00 09/01/98 250,000 254,375
Photography
Eastman Kodak Co. . . . . . . . . . . . . 10.00 06/15/01 163,000 166,260
Eastman Kodak Co. . . . . . . . . . . . . 9.88 11/01/04 263,000 288,643
Recreational
Walt Disney Co. . . . . . . . . . . . . . 1.50 10/20/99 50,000 42,114
----------
Total Consumer Non-Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,934,930
----------
</TABLE>
9
<PAGE> 12
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
CONSUMER SERVICES - 0.6%
Healthcare
Hospital Corp. of America . . . . . . . . 6.90(a)% 06/01/99 $111,000 $ 85,748
Schering-Plough Corp. . . . . . . . . . . 6.80-8.00(a) 12/02/96 300,000 285,750
----------
Total Consumer Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,498
----------
ENERGY - 0.6%
Oil
BP America, Inc. . . . . . . . . . . . . . 10.15 03/15/96 359,000 362,141
----------
Total Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 362,141
----------
FINANCE - 25.0%
Banks
Bank America Corp. . . . . . . . . . . . . 4.99(b) 05/17/99 100,000 97,656
Bank Leumi Israel . . . . . . . . . . . . 8.38 02/10/96 45,000 45,000
Bankers Trust NY Corp. . . . . . . . . . . 8.25 07/02/96 110,000 111,375
Bankers Trust NY Corp. . . . . . . . . . . 7.25 11/01/96 200,000 203,000
Barnett Banks, Inc. . . . . . . . . . . . 9.75 01/08/96 250,000 250,000
International Bank for Recon. & Dev. . . . 4.83(a) 02/15/96 110,000 109,313
International Bank for Recon. & Dev. . . . 4.59(a) 08/15/96 258,000 249,938
International Bank for Recon. & Dev. . . . 4.75-6.40(a) 02/15/97 934,000 881,463
International Bank for Recon. & Dev. . . . 5.47(a) 02/15/98 125,000 111,563
International Bank for Recon. & Dev. . . . 7.20(a) 08/15/98 26,000 22,555
International Bank for Recon. & Dev. . . . 5.93-7.89(a) 02/15/99 732,000 616,710
International Bank for Recon. & Dev. . . . 6.16-6.54(a) 08/15/99 525,000 429,844
NationsBank Corp. . . . . . . . . . . . . 4.75 08/15/96 100,000 99,625
Wells Fargo & Co. . . . . . . . . . . . . 8.20 11/01/96 100,000 102,250
Financial Services
American Express Co. . . . . . . . . . . . 8.75 06/15/96 315,000 319,013
Associates Corp. of North America . . . . 8.38 01/15/98 50,000 52,750
Avco Financial Services, Inc. . . . . . . 8.50 10/15/99 50,000 54,438
Beneficial Corp. . . . . . . . . . . . . . 9.80 05/12/97 110,000 116,188
CIT Group Holdings, Inc. . . . . . . . . . 6.00 02/15/97 200,000 200,398
Commercial Credit Co. . . . . . . . . . . 6.75 01/15/97 400,000 405,000
Dauphin Deposit Co. . . . . . . . . . . . 8.70 11/15/96 250,000 256,137
Dean Witter Discover & Co. . . . . . . . . 5.52(b) 03/02/99 335,000 335,209
Ford Motor Credit Corp. . . . . . . . . . 8.88 08/01/96 450,000 458,289
Ford Motor Credit Corp. . . . . . . . . . 9.85 02/27/96 100,000 100,601
Ford Motor Credit Corp. . . . . . . . . . 9.25 06/21/96 75,000 75,750
Ford Motor Credit Corp. . . . . . . . . . 5.93(b) 02/03/98 200,000 200,000
Franklin Universal Trust . . . . . . . . . 5.63 09/01/98 500,000 501,250
General Electric Capital Corp. . . . . . . 7.98(b) 12/15/07 750,000 767,040
General Electric Capital Corp. . . . . . . 6.20 03/15/97 334,800 338,148
</TABLE>
10
<PAGE> 13
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
FINANCE -- continued
General Electric Capital Corp. . . . . . . 6.65(b)% 04/14/08 $500,000 $ 512,360
General Electric Capital Corp. . . . . . . 5.28(b) 07/26/96 575,000 572,700
General Electric Capital Corp. . . . . . . 5.20(b) 08/01/96 50,000 50,000
General Motors Acceptance Corp. . . . . . 8.25 08/01/96 200,000 202,942
General Motors Acceptance Corp. . . . . . 8.00 10/01/96 228,000 231,855
General Motors Acceptance Corp. . . . . . 8.75 02/01/96 80,000 80,137
Heller Financial Corp. . . . . . . . . . . 6.45 02/15/97 62,500 63,047
Heller Financial Corp. . . . . . . . . . . 9.22 04/01/96 100,000 100,799
Household Finance Corp. . . . . . . . . . 10.08 04/01/96 200,000 202,080
Household Finance Corp. . . . . . . . . . 8.88 07/05/99 100,000 101,403
Lincoln National Corp. . . . . . . . . . . 7.13 07/15/99 150,000 155,625
Old Republic International Corp. . . . . . 11.50 06/01/15 150,000 153,188
Transamerica Finance Corp. . . . . . . . . 8.75 10/01/99 50,000 54,688
Xerox Credit Corp. . . . . . . . . . . . . 10.13 04/15/99 340,000 344,675
Xerox Credit Corp. . . . . . . . . . . . . 9.63 09/01/97 182,000 193,830
Insurance
CIGNA Corp. . . . . . . . . . . . . . . . 8.00 09/01/96 126,000 127,843
CNA Financial . . . . . . . . . . . . . . 8.88 03/01/98 500,000 532,500
ITT Hartford Group, Inc. . . . . . . . . . 7.25 12/01/96 150,000 152,217
ITT Hartford Group, Inc. . . . . . . . . . 8.20 10/15/98 357,000 379,313
Liberty Mutual Cap. Corp. . . . . . . . . 8.50 07/08/96 250,000 253,438
Manufacturers Life Mortgage Sec. . . . . . 8.25 03/01/97 250,000 257,188
Security & Commodity Brokers
J. P. Morgan & Co., Inc. . . . . . . . . . 5.37-6.38(a) 04/01/98 1,104,000 977,040
Lehman Brothers, Inc. . . . . . . . . . . 7.00 05/15/97 250,000 253,750
Lehman Brothers, Inc. . . . . . . . . . . 7.63 08/01/98 150,000 155,063
Merrill Lynch & Co. . . . . . . . . . . . 6.14(b) 01/26/00 250,000 250,077
Merrill Lynch & Co. . . . . . . . . . . . 4.75 06/24/96 250,000 249,140
Morgan Stanley Group, Inc. . . . . . . . . 7.32 01/15/97 250,000 254,374
Salomon Bros., Inc. . . . . . . . . . . . 9.38 07/12/96 150,000 152,435
Salomon Bros., Inc. . . . . . . . . . . . 5.26(b) 02/10/99 250,000 240,624
Salomon Bros., Inc. . . . . . . . . . . . 6.10 05/15/96 40,000 39,995
Salomon Bros., Inc. . . . . . . . . . . . 6.55 05/15/97 40,000 40,200
Shearson Lehman Brothers Holdings, Inc. . 5.25 01/02/96 500,000 500,000
Shearson Lehman Brothers Holdings, Inc . . 6.26-7.11(a) 05/16/98 503,000 438,238
----------
Total Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,783,267
----------
TECHNOLOGY - 1.7%
Aerospace
United Technologies Corp. . . . . . . . . 9.63 05/15/99 401,000 407,516
</TABLE>
11
<PAGE> 14
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
TECHNOLOGY -- continued
Computer & Business Equipment
Texas Instruments Corp. . . . . . . . . . 9.00% 07/15/99 $650,000 $ 663,000
-----------
Total Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,070,516
-----------
TRANSPORTATION - 0.8%
Railroad
Atchison Topeka Santa Fe RR Co. . . . . . 8.88 06/01/96 200,000 202,500
Atchison Topeka Santa Fe RR Co. . . . . . 5.37 09/15/99 228,000 225,150
CSX Transportation, Inc. . . . . . . . . . 6.50 03/01/96 100,000 100,125
-----------
Total Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527,775
-----------
UTILITIES - 5.7%
Electric & Gas
Consolidated Edison Company of New York . 5.90 12/15/96 127,000 127,000
Gulf State Utilities Co. . . . . . . . . . 5.00 01/01/96 705,000 705,000
Iowa Electric Light & Power Co. . . . . . 7.88 12/01/00 198,000 200,475
Kansas Gas & Electric Co. . . . . . . . . 5.63 05/01/96 200,000 200,250
Metropolitan Edison Co. . . . . . . . . . 5.75 06/01/96 50,000 50,063
Ohio Power Co. . . . . . . . . . . . . . . 5.00 01/01/96 250,000 250,000
Ohio Power Co. . . . . . . . . . . . . . . 5.13 01/01/96 142,000 142,000
Ohio Power Co. . . . . . . . . . . . . . . 8.30 04/01/97 68,000 70,089
Pacific Gas & Electric Co. . . . . . . . . 4.63 06/01/97 195,000 192,563
Pacific Gas & Electric Co. . . . . . . . . 4.87 12/09/96 250,000 248,750
Potomac Electric Power Co. . . . . . . . . 5.00 09/01/02 626,000 597,830
Southern California Gas Co. . . . . . . . 5.25 03/01/98 114,000 112,718
Telephone
GTE California . . . . . . . . . . . . . . 7.13 12/01/98 250,000 251,875
GTE Hawaiian Telephone Co., Inc. . . . . . 9.00 12/01/00 250,000 254,375
Hawaiian Telephone Co. . . . . . . . . . . 8.75 09/01/00 150,000 152,062
Southwestern Bell Telephone Co. . . . . . 6.05 02/09/98 50,000 50,312
-----------
Total Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,605,362
-----------
Total Corporate Bonds (Cost $28,401,950) . . . . . . . . . . . . . . . . . . . . . . . . 28,681,062
-----------
FOREIGN BONDS (1.2% of portfolio)
Israel Trust Government Trust Certificates . . 9.25 11/15/96 50,000 51,125
Kingdom of Sweden . . . . . . . . . . . . . . . 6.15(a) 04/01/97 215,000 201,025
Metropolis of Tokyo . . . . . . . . . . . . . . 7.50 03/18/97 119,000 121,975
Ontario Province of Canada . . . . . . . . . . 15.13 05/01/11 220,000 239,250
Ontario Province of Canada . . . . . . . . . . 8.25 04/08/96 150,000 151,125
-----------
Total Foreign Bonds (Cost $763,971) . . . . . . . . . . . . . . . . . . . . . . . . 764,500
-----------
</TABLE>
12
<PAGE> 15
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (8.8% of portfolio)
Case Equipment Loan Trust 1992-A A2 . . . . . . . . . . 5.40% 06/15/98 $ 50,605 $ 50,567
Case Equipment Loan Trust 1993-B A . . . . . . . . . . 4.30 05/17/99 47,259 46,904
Caterpillar Financial Asset Trust 1994-A A2 . . . . . . 6.10 06/25/00 50,366 50,366
Chase Manhattan Credit Card Master Trust 92-1 A . . . . 7.40 05/15/00 50,000 51,497
Chase Manhattan Grantor Trust 1993-A A . . . . . . . . 4.20 04/15/99 75,506 75,060
CIT Revenue Grantor Trust 1994-A A . . . . . . . . . . 4.90 07/15/09 247,855 242,541
Daimler-Benz Vehicle Trust 1994-A A . . . . . . . . . . 5.95 12/15/00 88,129 88,487
Discover Card Trust 1992-A A . . . . . . . . . . . . . 5.50 05/16/98 662,500 660,380
Discover Card Trust 1992-B A . . . . . . . . . . . . . 6.80 06/16/00 85,000 87,358
Fleet Finance, Inc. 1993-1 A . . . . . . . . . . . . . 5.45 03/20/23 230,195 230,232
Ford Credit Grantor Trust . . . . . . . . . . . . . . . 4.30 07/15/98 75,743 74,999
GMAC Grantor Trust 1992-D A . . . . . . . . . . . . . . 5.55 05/15/97 9,226 9,218
Green Tree Financial Corp. 1993-2 A1 . . . . . . . . . 6.44(b) 07/15/18 56,300 56,334
Honda 1992-A Grantor Trust . . . . . . . . . . . . . . 4.90 06/15/98 24,416 24,264
Household Affinity Credit Card Master Trust 93-2 A . . 5.60 05/15/02 100,000 99,349
MBNA Master Credit Card Trust 1993-3 . . . . . . . . . 5.40 09/15/00 148,000 147,275
Merrill Lynch Asset Backed Corp. 1993-1 A2 . . . . . . 5.13 07/15/98 21,189 21,083
Nissan Auto Rec. 1994-A A . . . . . . . . . . . . . . . 6.45 09/15/99 180,491 182,089
Olympic Auto Receivable Trust 1994-A A . . . . . . . . 5.65 01/15/01 172,857 172,566
Premier Auto Trust 1992-4 A . . . . . . . . . . . . . . 5.05 01/15/98 490,111 486,729
Premier Auto Trust 1992-5 A . . . . . . . . . . . . . . 4.55 03/15/98 227,152 225,572
Premier Auto Trust 1993-3 A3 . . . . . . . . . . . . . 4.90 12/15/98 380,831 378,220
Premier Auto Trust 1993-4 A2 . . . . . . . . . . . . . 4.65 02/02/99 103,697 102,893
Premier Auto Trust 1995-1 A6 . . . . . . . . . . . . . 8.05 04/04/00 150,000 158,802
Railcar Trust 1992-1 A . . . . . . . . . . . . . . . . 7.75 06/01/04 102,923 111,095
Sears Credit Acct. Master Trust 1992-1 A . . . . . . . 5.90 11/15/98 458,333 460,097
Sears EURO Acct. Rec. Trust 1991-1 . . . . . . . . . . 8.75 04/15/96 750,000 756,240
Toyota Auto Rec. Grantor Trust 1993-A A . . . . . . . . 3.90 08/15/98 140,173 138,155
Volvo Auto Rec. 1991-A A . . . . . . . . . . . . . . . 5.65 12/15/98 276,265 275,576
Volvo Auto Rec. 1992-A A . . . . . . . . . . . . . . . 4.65 06/15/98 67,624 67,049
----------
Total Asset Backed Securities (Cost $5,488,217) . . . . . . . . . . . . . . . . . . . . . . 5,530,997
----------
MORTGAGE BACKED SECURITIES (17.4% of portfolio)
Advanta Home Equity Loan Trust 1993-3 A1 . . . . . . . 4.90 10/25/09 318,545 303,668
American Financial Home Equity Loan 1991-1 A . . . . . 8.00 07/25/06 242,521 249,360
American Southwest Financial Corp. 51 D . . . . . . . . 8.75 08/01/17 82,723 85,686
BW Home Equity Trust 1990-1 A . . . . . . . . . . . . . 9.25 09/15/05 59,535 62,737
Chase Mortgage Finance Corp. 1992 L-1 1A3 . . . . . . . 5.50 11/25/09 18,124 18,018
Chase Mortgage Finance Corp. 1993-G A1 . . . . . . . . 7.00 04/25/01 134,687 132,507
CITICORP Mortgage Securities Inc. 1992-3 A3 . . . . . . 7.50 07/25/06 94,699 94,463
</TABLE>
13
<PAGE> 16
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- --------- ------- --------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES - continued
CITICORP Mortgage Trust Series 3 Class A5 . . . . . . . 9.00% 01/25/20 $100,000 $106,000
CMC Securities Corp 1992-D D3S . . . . . . . . . . . . 7.17(b) 12/25/23 70,887 70,909
CMC Securities Corp. 1993-E S9 . . . . . . . . . . . . 6.50 11/25/08 903,683 866,246
CMO Trust 15 . . . . . . . . . . . . . . . . . . . . . 5.00 03/20/18 132,130 126,243
CMO Trust 14 . . . . . . . . . . . . . . . . . . . . . 8.00 01/01/17 279,985 286,238
CMO Trust 17 B . . . . . . . . . . . . . . . . . . . . 7.25 04/20/18 103,315 105,382
Corestates Home Equity Trust 1994-1 A . . . . . . . . . 6.65 05/15/09 58,621 59,490
Daiwa Mortgage Acceptance 1992-1 . . . . . . . . . . . 7.88 10/25/19 54,772 54,883
FHLMC 1663 A . . . . . . . . . . . . . . . . . . . . . 7.00 07/15/23 211,884 213,672
FHLMC 39 ED . . . . . . . . . . . . . . . . . . . . . . 8.50 03/25/24 165,000 170,156
FHLMC 144 A . . . . . . . . . . . . . . . . . . . . . . 8.75 06/15/00 69,350 72,508
FHLMC 1036 E . . . . . . . . . . . . . . . . . . . . . 7.00 03/15/13 232,091 232,568
FHLMC 1221 G . . . . . . . . . . . . . . . . . . . . . 7.00 09/15/05 140,133 141,110
FHLMC 1270 C . . . . . . . . . . . . . . . . . . . . . 7.00 05/15/97 171,948 172,162
FHLMC 1349 PF . . . . . . . . . . . . . . . . . . . . . 6.50 10/15/12 362,430 362,328
FHLMC #218209 . . . . . . . . . . . . . . . . . . . . . 8.50 06/01/02 104,025 107,504
FNMA 1992-33 G . . . . . . . . . . . . . . . . . . . . 7.75 05/25/19 89,197 89,472
FNMA 1992-87 D . . . . . . . . . . . . . . . . . . . . 8.00 03/25/17 64,033 63,893
FNMA G92-40 C . . . . . . . . . . . . . . . . . . . . . 7.00 05/25/97 65,346 65,645
FNMA G92-48 B . . . . . . . . . . . . . . . . . . . . . 7.50 04/25/17 29,837 29,731
FNMA REMIC 1992-203 K . . . . . . . . . . . . . . . . . 6.50 11/25/07 379,174 379,398
FNMA REMIC 1993-15 K . . . . . . . . . . . . . . . . . 7.00 02/25/08 198,103 200,348
FNMA REMIC 1993-68 Z . . . . . . . . . . . . . . . . . 6.00 05/25/08 150,000 145,453
FNMA 1993-85 E . . . . . . . . . . . . . . . . . . . . 6.50 11/25/07 321,815 321,997
FNMA REMIC 1993-88 B . . . . . . . . . . . . . . . . . 5.40 06/25/00 428,423 401,011
FNMA REMIC 1993-140 L . . . . . . . . . . . . . . . . . 7.00 07/25/12 174,219 176,537
FNMA REMIC 1994-4 K . . . . . . . . . . . . . . . . . . 6.50 12/25/06 581,973 590,347
FNMA #016782 . . . . . . . . . . . . . . . . . . . . . 6.00 09/01/99 9,871 9,556
First Alliance Mortgage Loan Trust . . . . . . . . . . 7.83 10/25/25 188,933 196,752
Fund America Investors Corp. 1990-1 H . . . . . . . . . 8.95 10/20/17 154,947 155,044
GE Capital Mortgage Services, Inc. 1994-18 A3 . . . . . 7.00 08/25/24 100,000 100,477
GE Capital Mortgage Services, Inc. 1994-95 . . . . . . 5.50 02/25/24 100,000 94,374
GE Capital Mortgage Services, Inc. 1993-3 A . . . . . . 7.50 03/25/19 184,919 185,957
Goldman Sachs Trust 2 B 3 . . . . . . . . . . . . . . . 8.95 07/01/17 147,166 154,462
HFC Home Equity Loan 1992-1 A3 . . . . . . . . . . . . 5.80 05/20/07 21,262 21,291
Housing Securities, Inc. 1992-NB1 G . . . . . . . . . . 7.25 01/25/07 250,000 257,656
Housing Securities, Inc. 1992-EA A4 . . . . . . . . . . 7.50 10/25/07 451,000 462,252
Merrill Lynch 1991-1 A . . . . . . . . . . . . . . . . 8.00 06/15/10 60,044 61,473
Merrill Lynch 1994-A A4 . . . . . . . . . . . . . . . . 6.41(b) 02/15/09 203,182 198,375
Mid-State Trust CMO 3 A . . . . . . . . . . . . . . . . 7.63 04/01/22 302,229 316,799
Morgan Stanley Mortgage Trust T 6 . . . . . . . . . . . 8.75 07/20/19 133,977 147,928
Nomura Asset Securities Corp. 1994-4B 4A . . . . . . . 8.30 09/25/24 75,444 77,859
</TABLE>
14
<PAGE> 17
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- --------- ------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES -- continued
Novus Home Equity Loan Trust 1993-1A . . . . . . . . . 6.39%(b) 12/31/03 $ 70,931 $ 70,974
Prudential Home Mortgage 1993-10 A1 . . . . . . . . . . 6.50 02/25/00 176,342 175,468
RFMSI 1992-S19 . . . . . . . . . . . . . . . . . . . . 8.50 03/25/22 315,797 316,440
RFMSI 1993-57 A6 . . . . . . . . . . . . . . . . . . . 7.15 02/25/08 71,580 71,754
RFMSI 1993-S25 A1 . . . . . . . . . . . . . . . . . . . 6.50 07/25/08 111,184 111,998
RFMSI 1987-S2 A . . . . . . . . . . . . . . . . . . . . 8.50 05/25/02 42,870 43,893
Ryland 26C . . . . . . . . . . . . . . . . . . . . . . 9.00 12/01/16 345,312 366,495
Sears Mortgage Securities Corp. 1992-10 A7 . . . . . . 8.00 03/25/22 199,993 201,243
TMS Equity Trust 1993-C2 A3 . . . . . . . . . . . . . . 5.75 10/15/22 203,744 199,160
TMS Home Equity Loan 1993D-A1 . . . . . . . . . . . . . 5.68 02/15/09 176,726 172,517
UCFC Home Equity Loan 1994-A A1 . . . . . . . . . . . . 4.83 03/10/05 53,052 52,639
Zions Home Ref. Loan Trust 1993-1 . . . . . . . . . . . 5.15 09/25/03 201,858 198,053
-----------
Total Mortgage Backed Securities (Cost $10,804,971) . . . . . . . . . . . . . . . . . . . . . . . 10,978,559
-----------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS (25.3% of portfolio)
Certificates on Government Receipts . . . . . . . . . . 5.00(a) 11/15/96 56,000 53,524
Federal Farm Credit Bank . . . . . . . . . . . . . . . 7.77 04/04/00 500,000 502,650
Federal Farm Credit Bank . . . . . . . . . . . . . . . 6.96 06/06/00 250,000 251,433
Federal Home Loan Bank . . . . . . . . . . . . . . . . 5.25(b) 03/10/99 250,000 251,580
Federal Home Loan Bank . . . . . . . . . . . . . . . . 5.74(b) 12/23/98 500,000 502,020
Federal Home Loan Bank . . . . . . . . . . . . . . . . 6.40(b) 07/01/98 250,000 250,000
Federal Home Loan Bank . . . . . . . . . . . . . . . . 6.15(b) 09/01/98 500,000 504,580
Federal Home Loan Bank . . . . . . . . . . . . . . . . 7.87 12/15/97 250,000 261,807
Federal Home Loan Bank . . . . . . . . . . . . . . . . 6.67 10/30/00 1,000,000 1,003,470
Federal Home Loan Bank . . . . . . . . . . . . . . . . 6.83 11/09/00 250,000 250,375
Federal Home Loan Bank . . . . . . . . . . . . . . . . 6.31 12/20/00 250,000 251,447
Federal Home Loan Mortgage Corp. . . . . . . . . . . . 4.95 02/23/99 500,000 500,625
Federal Home Loan Mortgage Corp. . . . . . . . . . . . 4.75(b) 09/20/00 500,000 493,040
Federal Home Loan Mortgage Corp. . . . . . . . . . . . 6.38(b) 11/22/00 200,000 200,626
Federal Home Loan Mortgage Corp. . . . . . . . . . . . 7.19 05/17/00 250,000 251,358
Federal National Mortgage Assn. . . . . . . . . . . . . 5.77 08/25/98 250,000 251,375
Federal National Mortgage Assn. . . . . . . . . . . . . 4.40 08/25/98 250,000 251,858
Federal National Mortgage Assn. . . . . . . . . . . . . 4.75(b) 02/09/99 250,000 250,692
Federal National Mortgage Assn. . . . . . . . . . . . . 6.30(b) 03/30/98 250,000 250,485
Private Export Funding Corp. . . . . . . . . . . . . . 9.00 01/31/96 100,000 100,250
Private Export Funding Corp. . . . . . . . . . . . . . 5.75 04/30/98 331,000 333,483
Treasury Bond Receipt . . . . . . . . . . . . . . . . . 5.40(a) 11/15/97 49,875 45,040
Treasury Bond Receipt . . . . . . . . . . . . . . . . . 5.00(a) 11/15/96 76,000 72,498
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 7.13 02/28/00 250,000 266,322
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 5.13 03/31/98 550,000 549,433
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 5.25 07/31/98 250,000 250,225
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 4.38 11/15/96 750,000 744,637
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 5.00 01/31/99 750,000 744,690
</TABLE>
15
<PAGE> 18
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
------------ ---------- ----------- -----------
<S> <C> <C> <C>
U. S. GOVERNMENT AND AGENCY OBLIGATIONS -- continued
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 5.50% 04/30/96 $1,000,000 $ 1,000,800
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 6.75 06/30/99 1,250,000 1,307,525
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 6.50 08/15/97 500,000 510,165
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 7.25 11/30/96 250,000 254,353
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 7.25 02/15/98 250,000 260,137
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 8.00 10/15/96 2,300,000 2,346,897
U. S. Treasury Principal Only Strip . . . . . . . . . . 6.12-7.06(a) 05/15/96 675,000 662,464
-----------
Total U. S. Government and Agency Obligations (Cost $15,711,304) . . . . . . . . . . . . . . . . 15,981,864
-----------
COMMERCIAL PAPER (1.8% of portfolio)
American Express Credit Corp. . . . . . . . . . . . . . 5.65 01/03/96 386,000 385,879
Norwest Financial, Inc. . . . . . . . . . . . . . . . . 5.79 01/31/96 375,000 373,191
Beneficial Corp. . . . . . . . . . . . . . . . . . . . 5.80 01/31/96 375,000 373,188
-----------
Total Commercial Paper (Cost $1,132,258) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,132,258
-----------
MONEY MARKET ACCOUNT
State Street Bank and Trust Seven Seas Money Fund, 5.42% (c) . . . . . . . . . . . . . . . . . . . . . . . 323
-----------
Total Money Market Account (Cost $323) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323
-----------
TOTAL INVESTMENTS IN SECURITIES (Cost $62,302,994) -- 100% . . . . . . . . . . . . . . . . . . . . . . . $63,069,563
===========
</TABLE>
- -------------
(a) Yield-to-maturity at purchase.
(b) Variable Coupon rate as of December 29, 1995
(c) One day yield at December 29, 1995
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16
<PAGE> 19
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM GOVERNMENT SECURITIES FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- -------- -----------
<S> <C> <C> <C>
MORTGAGE BACKED SECURITIES (4.0% of portfolio)
GNMA 1994-4 A . . . . . . . . . . . . . . . . . . . . . 7.99% 09/16/22 $107,728 $ 109,289
----------
Total Mortgage Backed Securities (Cost $108,321) . . . . . . . . . . . . . . . . . . . . . . . . . . 109,289
----------
U. S. GOVERNMENT & AGENCY OBLIGATIONS (90.4% of portfolio)
Private Export Funding Corp. . . . . . . . . . . . . . 9.00 01/31/96 25,000 25,062
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 6.00 11/30/97 250,000 253,670
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 5.25 07/31/98 575,000 575,518
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 4.75 10/31/98 300,000 296,235
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 4.38 11/15/96 850,000 843,922
U. S. Treasury Note . . . . . . . . . . . . . . . . . . 6.50 04/30/97 450,000 457,601
----------
Total U. S. Government & Agency Obligations (Cost $2,429,036) . . . . . . . . . . . . . . . . . . . 2,452,008
----------
MONEY MARKET ACCOUNT (5.6% of portfolio)
Vanguard Money Market Reserves, U.S. Treasury, 5.18% (a) . . . . . . . . . . . . . . . . . . . . . . . . 152,744
----------
Total Money Market Account (Cost $152,744) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,744
----------
TOTAL INVESTMENTS IN SECURITIES (Cost $2,690,101) -- 100% . . . . . . . . . . . . . . . . . . . . . . $2,714,041
==========
</TABLE>
- -----------
(a) 7-day yield at December 29, 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
17
<PAGE> 20
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
VALUE FUND
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Shares/
Face Amount Value
------------- -----------
<S> <C> <C>
COMMON STOCKS (85.3% of portfolio)
BASIC INDUSTRIES - 15.4%
Aluminum
Alcan Aluminum Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,200 shs. $ 2,527,350
Chemicals
Avery Dennison Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,800 2,446,100
Betz Laboratories, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000 1,066,000
Dow Chemical Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,200 1,421,575
Monsanto Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,000 2,327,500
Nalco Chemical Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 2,259,375
Forest Products
Pope & Talbot, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,500 1,397,875
Weyerhauser Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,500 2,011,125
Packaging/Containers
Bemis Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,800 2,019,250
Paper
Champion International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,500 1,743,000
International Paper Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 1,515,000
Rubber
Cooper Tire & Rubber Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,000 1,945,375
-----------
Total Basic Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,679,525
-----------
CAPITAL GOODS - 4.3%
Industrial Machinery
Bearings, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,750 2,127,938
Parker-Hannifin Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,450 1,762,163
Trinova Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,000 2,375,874
-----------
Total Capital Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,265,975
-----------
CONSUMER DURABLE GOODS - 3.6%
Household Appliances & Furnishings
Maytag Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,400 3,227,850
Oneida Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,900 2,007,488
-----------
Total Consumer Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,235,338
-----------
CONSUMER NON-DURABLE GOODS - 14.8%
Drugs & Health Care
American Home Products Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 2,425,000
SmithKline Beecham Plc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,000 2,386,500
Photography
Eastman Kodak Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,500 2,646,500
</TABLE>
18
<PAGE> 21
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
VALUE FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Shares/
Face Amount Value
------------- ----------
<S> <C> <C>
CONSUMER NON-DURABLE GOODS-- continued
Retail
Dillard Department Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 74,500 shs. $ 2,123,250
K Mart Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,700 1,237,575
Longs Drug Stores Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,700 2,618,763
May Department Stores Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,500 2,429,375
Rite Aid Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,000 2,671,500
Ruddick Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,000 1,920,500
Sears Roebuck and Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,400 1,380,600
-----------
Total Consumer Non-Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,839,563
-----------
CONSUMER SERVICES - 2.5%
Restaurants
Brinker International Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 756,250
Wendy's International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,700 2,926,125
-----------
Total Consumer Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,682,375
-----------
ENERGY - 10.7%
Domestic Oil
Atlantic Richfield Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,400 2,037,800
International Oil
Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,500 2,551,563
Chevron Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 2,625,000
Texaco Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,700 3,273,450
Petroleum Services
Dresser Industries, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,200 2,539,875
Halliburton Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,300 2,799,562
-----------
Total Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,827,250
-----------
FINANCE - 17.1%
Banks
Banc One Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,000 2,000,750
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000 2,719,500
Chase Manhattan Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,000 2,788,750
Chemical Banking Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 2,937,500
CITICORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,500 2,589,125
Commerce Bancshares, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,323 2,689,855
</TABLE>
19
<PAGE> 22
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
VALUE FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Shares/
Face Amount Value
------------- ------------
<S> <C> <C>
FINANCE -- continued
Insurance
Allstate Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,817 shs. $ 1,843,098
Chubb Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 2,225,250
CIGNA Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,350 758,888
Ohio Casualty Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,200 1,945,250
Transamerica Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,300 2,718,237
------------
Total Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,216,203
------------
GENERAL BUSINESS - 2.4%
Business Services
Deluxe Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000 754,000
Donnelley, R.R. & Sons Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,100 2,838,938
------------
Total General Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,592,938
------------
TECHNOLOGY - 6.1%
Aerospace
Sundstrand Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 2,252,000
Computers & Business Equipment
Digital Equipment Corp. (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,500 3,110,063
Xerox Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,500 1,986,500
Electronics
Harris Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,500 1,666,062
------------
Total Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,014,625
------------
TRANSPORTATION - 2.0%
Air Travel
Southwest Airlines Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,400 2,938,800
------------
Total Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,938,800
------------
UTITLITIES - 6.4%
Electric
American Electric Power Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,300 1,429,650
Gas & Pipeline
Sonat, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,000 2,636,250
Questar Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,900 2,241,150
Telephone
Bellsouth Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,000 3,088,500
------------
Total Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,395,550
------------
Total Common Stocks (Cost $92,982,203) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,688,142
------------
</TABLE>
20
<PAGE> 23
================================================================================
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
VALUE FUND (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Shares/
Face Amount Value
------------- ----------
<S> <C> <C>
COMMERCIAL PAPER (11.0% of portfolio )
American Express Credit Corp., 5.65%, due 01/03/96 . . . . . . . . . . . . . . . . . . $4,260,000 $ 4,258,663
Ford Motor Credit Corp., 5.80%, due 01/02/96 . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,999,678
Ford Motor Credit Corp., 5.92%, due 01/02/96 . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,999,671
General Electric Capital Corp., 5.80%, due 01/02/96 . . . . . . . . . . . . . . . . . . 3,000,000 2,999,517
IBM Credit Corp., 5.65%, due 01/10/96 . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,997,175
Norwest Financial, 5.75%, due 01/04/96 . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,998,562
------------
Total Commercial Paper (Cost $16,253,266) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,253,266
------------
U.S. GOVERNMENT OBLIGATION (1.3% of portfolio )
U.S. Treasury Bill, 5.56%, due 05/09/96 . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,963,113
------------
Total U.S. Government Obligation (Cost $1,961,838) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,963,113
------------
CORPORATE MASTER NOTE (2.4% of portfolio )
Associates Corp. of North America, 5.44% (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000
------------
Total Corporate Master Note (Cost $3,500,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500,000
------------
MONEY MARKET ACCOUNT
State Street Bank and Trust Seven Seas Money Fund, 5.42% (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836
------------
Total Money Market Account (Cost $836) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 836
------------
TOTAL INVESTMENTS IN SECURITIES (Cost $114,698,143) -- 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,405,357
============
</TABLE>
- ------------
(a) Non-income producing.
(b) Variable coupon rate as of December 29,1995.
(c) One-day yield at December 29, 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE> 24
================================================================================
NOTES TO FINANCIAL STATEMENTS
HOMESTEAD FUNDS, INC.
1. ORGANIZATION
Homestead Funds, Inc. (Homestead Funds) is a Maryland corporation registered
with the Securities and Exchange Commission under the Investment Company Act of
1940 as a no-load, open-end diversified management investment company.
Homestead Funds currently consists of four funds: Daily Income Fund, Short-Term
Bond Fund, Short-Term Government Securities Fund and Value Fund. The Daily
Income Fund and Value Fund commenced operations on November 19, 1990 and the
Short-Term Bond Fund commenced operations on November 5, 1991. The Short-Term
Government Securities Fund commenced operations on May 1, 1995 with the sale of
10,000 shares at $5.00 per share to RE Advisers Corporation.
Each Fund is a separate investment portfolio with distinct investment
objectives, investment programs, policies and restrictions. The investment
objectives of the Funds as well as the nature and risks of the investment
activities of each Fund are set forth more fully in the Homestead Funds'
Prospectus and Statement of Additional Information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security valuation: With respect to the Daily Income Fund, all money market
instruments are valued on an amortized cost basis, which approximates market
value. Under the amortized cost method, discounts and premiums on securities
purchased are amortized over the life of the respective securities.
With respect to the Short-Term Bond Fund, the Short-Term Government Securities
Fund and the Value Fund, investments in common stocks, preferred stocks, and
convertible preferred stocks traded on national securities exchanges and
certain over-the-counter securities are valued at the last quoted sale price at
the close of the New York Stock Exchange. Short-term debt instruments with a
remaining maturity of more than 60 days, intermediate and long-term bonds,
convertible bonds, and other debt securities are generally valued at market
prices furnished by an independent pricing service. Where such prices are not
available, valuations are obtained from brokers who are market makers for such
securities. Over-the-counter issues not quoted on the NASDAQ system, other
equity securities and debt instruments for which a sale price is not available
are valued at the mean of the closing bid and asked prices, or the last
available sale price may be used for exchange-traded debt securities.
Securities with a maturity of 60 days or less are valued on an amortized cost
basis, which approximates market value.
Distributions to shareholders: Dividends to shareholders are recorded on the
ex-dividend date. Income dividends for the Daily Income Fund, the Short-Term
Bond Fund and the Short-Term Government Securities Fund are declared daily and
paid monthly. With respect to the Value Fund, income dividends are declared
and paid semi-annually. Capital gains dividends, if any, are declared and paid
at the end of each fiscal year.
Other: Dividend income is recorded on the ex-dividend date. Interest income
and expenses are recorded on the accrual basis. Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are reported on the identified cost basis.
3. FEDERAL INCOME TAXES
The Funds comply with the provisions of the Internal Revenue Code that are
applicable to regulated investment companies and distribute all of their
taxable income to their shareholders. Therefore, no provision for federal
income or excise tax is required.
22
<PAGE> 25
================================================================================
NOTES TO FINANCIAL STATEMENTS
HOMESTEAD FUNDS, INC. (CONTINUED)
At December 31, 1995, the aggregate costs of investments for the Daily Income
Fund, the Short-Term Bond Fund, the Short-Term Government Securities Fund and
the Value Fund for federal income tax is the same as for financial reporting
purposes. With respect to the Short-Term Bond Fund at December 31, 1995, net
unrealized appreciation aggregated $766,569, of which $900,296 related to gross
unrealized appreciation and $133,727 related to gross unrealized depreciation.
With respect to the Short-Term Government Securities Fund at December 31, 1995,
net unrealized appreciation aggregated $23,940, of which all related to gross
unrealized appreciation. With respect to the Value Fund at December 31, 1995,
net unrealized appreciation aggregated $32,707,214, of which $35,100,451
related to gross unrealized appreciation and $2,393,237 related to gross
unrealized depreciation.
4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term and U.S.
Government securities, for the year ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
SHORT-TERM
SHORT-TERM GOVERNMENT VALUE
BOND-FUND SECURITIES FUND FUND
----------- --------------- ------------
<S> <C> <C> <C>
Purchases $23,611,375 $247,734 $27,283,948
Proceeds from sales $16,602,851 $ 1,557 $10,550,096
</TABLE>
For the Short-Term Bond Fund and Short-Term Government Securities Fund,
purchases of long-term U.S. Government securities were $743,350 and $2,258,510
respectively, for the year or period ended December 31, 1995, and sales of U.
S. Government securities for the same period were $2,493,750 and $98,711,
respectively.
5. INVESTMENT MANAGER
The investment management agreements between Homestead Funds, with respect to
each Fund, and RE Advisers Corporation (Manager), an indirect, wholly-owned
subsidiary of National Rural Electric Cooperative Association (NRECA), provide
for an annual investment management fee, computed daily and paid monthly, based
on each Fund's average daily net assets at the following annualized rates:
with respect to the Daily Income Fund, .50% of the average daily net assets up
to $100 million, .40% of the average daily net assets up to the next $100
million, .30% of the average daily net assets up to the next $300 million, and
.25% of such assets in excess of $500 million; with respect to the Short-Term
Bond Fund and the Short-Term Government Securities Fund, .50% of the average
daily net assets up to $50 million, .40% of the average daily net assets up to
the next $50 million, and .30% of such assets in excess of $100 million; and,
with respect to the Value Fund, .65% of the average daily net assets up to $50
million, .50% of the average daily net assets up to the next $50 million, and
.40% of such assets in excess of $100 million.
The Manager has agreed, as part of the Expense Limitation Agreements entered
into with Homestead Funds, with respect to each Fund, to reimburse for all
Fund operating expenses, excluding certain non-recurring expenses, which in any
year exceed .75% of the average daily net assets of the Daily Income Fund, the
Short-Term Bond Fund and the Short-Term Government Securities Fund, and 1.25%
of the average daily net assets of the Value Fund. If, in any subsequent year,
a Fund's operating expenses are less than the operating expense limit for that
Fund and the assets of that Fund exceed $50 million, the Fund's operating
expenses previously
23
<PAGE> 26
================================================================================
NOTES TO FINANCIAL STATEMENTS
HOMESTEAD FUNDS, INC. (CONTINUED)
assumed and paid by the Manager on that Fund's behalf may be reimbursed by the
Fund to the Manager, provided that in doing so the operating expense limit for
that Fund was not exceeded. The period during which amounts may be reimbursed
by the Fund to the Manager will not exceed five years from the date on which
the first payment, if any, is made by the Fund.
Pursuant to the Expense Limitation Agreements, $53,465 of management fees for
the Daily Income Fund were waived, $66,694 of management fees for the
Short-Term Bond Fund were waived, and $4,919 of management fees were waived and
$48,899 of operating expenses of the Short-Term Government Securities Fund were
reimbursed by the Manager for the year or period ended December 31, 1995. At
December 31, 1995, cumulative fees and reimbursed expenses which may be subject
to payment by the funds in future years pursuant to such Agreements, amount to
$436,009, $365,758, and $53,818 for the Daily Income Fund, the Short-Term Bond
Fund, and the Short-Term Government Securities Fund, respectively. All costs
and expenses incurred in the organization of each of the Funds were assumed by
the Manager.
At December 31, 1995, certain officers and directors of the Homestead Funds,
and NRECA and its affiliates owned 8.4% of the Daily Income Fund shares
outstanding, 2.0% of the Short-Term Bond Fund shares outstanding, 16.3% of the
Short-Term Government Securities Fund shares outstanding, and 1.1% of the Value
Fund shares outstanding.
6. CAPITAL SHARE TRANSACTIONS
As of December 31, 1995, 250 million shares of $.01 par value capital shares
are authorized for each Fund. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT
DAILY INCOME FUND SHORT-TERM BOND FUND SECURITIES FUND
---------------------------- -------------------------- -------------------
May 1, 1995
(Commencement
Year Ended December 31, Year Ended December 31, Of Operations) to
---------------------------- -------------------------- -------------------
1995 1994 1995 1994 December 31, 1995
----------- ----------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C>
In Dollars
Shares sold . . . . $32,402,034 $24,607,175 $18,717,052 $30,802,812 $2,732,242
Shares issued in
reinvestment of
dividends . . . 2,300,431 1,073,664 2,927,165 2,055,949 49,005
----------- ----------- ------------ ----------- ----------
Total shares issued 34,702,465 25,680,839 21,644,217 32,858,761 2,781,247
Shares redeemed . . 18,671,498 14,171,427 14,514,272 15,374,630 146,987
----------- ----------- ------------ ----------- ----------
Net Increase . . . $16,030,967 $11,509,412 $ 7,129,945 $17,484,131 $2,634,260
=========== =========== ============ =========== ==========
In Shares
Shares sold . . . . 32,402,034 24,607,175 3,679,842 6,060,145 541,405
Shares issued in
reinvestment of
dividends . . . 2,300,431 1,073,664 571,497 408,305 9,676
----------- ----------- ------------ ----------- ----------
Total shares issued 34,702,465 25,680,839 4,251,339 6,468,450 551,081
Shares redeemed . . 18,671,498 14,171,427 2,848,599 3,044,492 29,015
----------- ----------- ------------ ----------- ----------
Net Increase . . . 16,030,967 11,509,412 1,402,740 3,423,958 522,066
=========== =========== ============ =========== ==========
<CAPTION>
VALUE FUND
-------------------------
Year Ended December 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
In Dollars
Shares sold . . . . $39,949,688 $48,277,823
Shares issued in
reinvestment of
dividends . . . 6,936,475 2,324,230
----------- -----------
Total shares issued 46,886,163 50,602,053
Shares redeemed . . 18,059,863 11,386,211
----------- -----------
Net Increase . . . $28,826,300 $39,215,842
=========== ===========
In Shares
Shares sold . . . . 2,378,552 3,241,429
Shares issued in
reinvestment of
dividends . . . 382,894 159,938
----------- -----------
Total shares issued 2,761,446 3,401,367
Shares redeemed . . 1,084,229 767,703
----------- -----------
Net Increase . . . 1,677,217 2,633,664
=========== ===========
</TABLE>
24
<PAGE> 27
================================================================================
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
------- -------- ------- ------- -------
Income from investment operations
Net investment income (a) . . . . . . . 0.05 0.04 0.03 0.03 0.06
------- -------- ------- ------- -------
Total from investment operations . . . 0.05 0.04 0.03 0.03 0.06
------- -------- ------- ------- -------
Distributions
Net investment income . . . . . . . . . (0.05) (0.04) (0.03) (0.03) (0.06)
------- -------- ------- ------- -------
Total distributions . . . . . . . . . . (0.05) (0.04) (0.03) (0.03) (0.06)
------- -------- ------- ------- -------
NET ASSET VALUE, END OF YEAR. . . . . . . . . . $1.00 $1.00 $1.00 $1.00 $1.00
======= ======== ======= ======= =======
TOTAL RETURN . . . . . . . . . . . . . . . . . 5.38% 3.63% 2.68% 3.39% 5.67%
======= ======== ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands) . . . . . $52,699 $36,668 $25,159 $22,330 $24,396
Ratio of expenses to average net assets(a). . 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to
average net assets (a) . . . . . . . . 5.25% 3.66% 2.64% 3.34% 5.44%
Ratio of gross expenses before voluntary
expense limitation to verage net assets. 0.87% 0.99% 1.11% 1.21% 1.27%
</TABLE>
(a) Excludes investment management fees and other expenses in excess of
0.75%, pursuant to the Expense Limitation Agreement with the Manager (See
Note 5 to financial statements).
25
<PAGE> 28
================================================================================
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
November 5, 1991
(Commencement
Year Ended December 31, of Operations) to
----------------------------------------------- December 31,
1995 1994 1993 1992 1991
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $4.95 $5.19 $5.10 $5.06 $5.00
------- -------- ------- ------- -------
Income from investment operations
Net investment income (a) . . . . . . . . . . . 0.28 0.24 0.24 0.26 0.04
Net realized and unrealized gain(loss)
on investments . . . . . . . . . . . . . . . 0.24 (0.24) 0.09 0.04 0.06
------- -------- ------- ------- -------
Total from investment operations . . . . . . . . . . 0.52 0.00 0.33 0.30 0.10
------- -------- ------- ------- -------
Distributions
Net investment income . . . . . . . . . . . . . (0.28) (0.24) (0.24) (0.26) (0.04)
------- -------- ------- ------- -------
Total distributions . . . . . . . . . . . . . . (0.28) (0.24) (0.24) (0.26) (0.04)
------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $5.19 $4.95 $5.19 $5.10 $5.06
======= ======== ======= ======= =======
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . 10.81% 0.09% 6.62% 6.30% 1.99%(c)
======= ======== ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) . . . . . . . . $62,125 $52,257 $37,046 $10,991 $1,268
Ratio of expenses to average net assets (a) . . . . . 0.75% 0.75% 0.75% 0.75% 0.75%(b)
Ratio of net investment income to
average net assets (a) . . . . . . . . . . . . . 5.49% 4.84% 4.58% 5.20% 5.59%(b)
Ratio of gross expenses before voluntary
expense limitation to average net assets . . . . 0.86% 0.98% 1.16% 1.94% 5.61%(b)
Portfolio turnover rate . . . . . . . . . . . . . . . 35% 13% 14% 19% 0%
</TABLE>
- -----------
(a) Excludes investment management fees and other expenses in excess of
0.75%, pursuant to the Expense Limitation Agreement with the Manager (See
Note 5 to financial statements).
(b) Annualized.
(c) Aggregate total return for the period.
26
<PAGE> 29
================================================================================
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
SHORT-TERM GOVERNMENT SECURITIES FUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
May 1, 1995
(Commencement
of Operations) to
December 31,
1995
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5.00
-----
Income from investment operations
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.18
Net realized and unrealized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . 0.09
-----
Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.27
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.18)
-----
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.18)
-----
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5.09
=====
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.44% (c)
=====
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,658
Ratio of expenses to average net assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75% (b)
Ratio of net investment income to average net assets (a) . . . . . . . . . . . . . . . . . . . . 5.18% (b)
Ratio of gross expenses before voluntary expense limitation to average net assets . . . . . . . . 6.21% (b)
Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
</TABLE>
- -----------
(a) Excludes investment management fees and other expenses in excess of 0.75%,
pursuant to the Expense Limitation Agreement with the Manager (See Note 5
to financial statements).
(b) Annualized.
(c) Aggregate total return for the period.
27
<PAGE> 30
================================================================================
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
VALUE FUND
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . . . $14.50 $14.54 $12.49 $11.48 $10.15
------ ------- ------- ------- -------
Income from investment operations
Net investment income (a) . . . . . . . . . . . 0.41 0.29 0.22 0.25 0.39
Net realized and unrealized gain on
investments . . . . . . . . . . . . . . . . 4.47 .07 2.12 1.09 1.34
------ ------- ------- ------- -------
Total from investment operations . . . . . . . . 4.88 .36 2.34 1.34 1.73
------ ------- ------- ------- -------
Distributions
Net investment income . . . . . . . . . . . . . (0.41) (0.29) (0.22) (0.25) (0.39)
Net realized gain . . . . . . . . . . . . . . . (0.53) (0.11) (0.07) (0.08) (0.01)
------ ------- ------- ------- -------
Total distributions . . . . . . . . . . . . . . (0.94) (0.40) (0.29) (0.33) (0.40)
------ ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . . . $18.44 $14.50 $14.54 $12.49 $11.48
====== ======= ======= ======= =======
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . 33.78% 2.50% 18.83% 11.68% 17.16%
====== ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands) . . . . . . . . . $147,506 $91,612 $53,616 $19,730 $10,398
Ratio of expenses to average net assets (a) . . . . . 0.84% 1.15% 1.25% 1.25% 1.25%
Ratio of net investment income to average
net assets (a) . . . . . . . . . . . . . . . . . 2.50% 2.19% 1.92% 2.33% 3.80%
Ratio of gross expenses before voluntary
expense limitation to average net assets . . . . n/a 1.15%(b) 1.25%(b) 1.61% 1.75%
Portfolio turnover rate . . . . . . . . . . . . . . . 10% 4% 2% 5% 26%
</TABLE>
(a) Excludes investment management fees and other expenses in excess of
1.25%, pursuant to the Expense Limitation Agreement with the Manager (See
Note 5 to financial statements).
(b) Includes investment management fees reimbursed to the manager pursuant to
the Expense Limitation Agreement with the Manager (See Note 5 to
financial statements).
28
<PAGE> 31
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Homestead Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of Homestead Funds, Inc. (comprising,
respectively, the Daily Income Fund, Short-Term Bond Fund, Short-Term
Government Securities Fund and Value Fund) as of December 31, 1995, and the
related statements of operations for the year then ended, statements of changes
in net assets and financial highlights for each of the two years in the period
then ended, of the Daily Income Fund, Short-Term Bond Fund and Value Fund, and
the related statement of operations, statement of changes in net assets and
financial highlights of the Short-Term Government Securities Fund for the
period from inception (May 1, 1995) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights of the Daily Income Fund, Short-Term Bond Fund and Value Fund for
the year ended December 31, 1993 and for each of the preceding years (or
periods) were audited by other auditors whose report dated February 11, 1994
expressed an unqualified opinion thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting Homestead Funds, Inc. at December 31,
1995, the results of operations for the year then ended, the changes in net
assets and financial highlights for each of the two years in the period then
ended, of the Daily Income Fund, Short-Term Bond Fund and Value Fund, and the
results of operations, changes in net assets and financial highlights of the
Short-Term Government Securities Fund for the period from inception (May 1,
1995) to December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Washington, D.C.
February 9, 1996
29
<PAGE> 32
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HOMESTEAD FUNDS, INC.
========================
A N N U A L R E P O R T
DECEMBER 31, 1995
[HOMESTEAD FUNDS INC. LOGO]
c/o Rodney Square Management Corp.
PO Box 8987
Wilmington, DE 19899
1-800-258-3030
