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A MESSAGE FROM THE INVESTMENT MANAGER
Dear Shareholder:
For the six months ended June 30, 1998, the U.S. financial markets continued to
benefit from a combination of favorable influences. Economic growth was strong,
inflation remained in check and interest rates, in general, continued to
decline. While there were some concerns about the extent to which Asia's
financial problems would act as a drag on the U.S. economy, consumers here
continued to spend freely. Their purchasing power helped to bolster the domestic
economy.
Against this backdrop, the U.S. stock market surged and a number of market
averages set record highs. The big, blue chip stocks, despite significant
erosion in earnings growth projections, led the advance and powered the Standard
& Poor's 500 Stock Index to a return of 17.6% for the six months ended June 30.
In a continuation of a four-year trend, smaller company stocks lagged larger
stocks and posted more modest gains. The Russell 2000 Index of smaller companies
returned just 4.9% for the period.
Even within the S&P 500 universe, the largest companies dominated: more than
half of all stocks in the S&P 500 lagged the Index by 15% or more for the 12
months ended June 30. During the second quarter, the ten largest companies in
the S&P 500 contributed 47% of the Index's advance. With strong performance so
tightly consolidated among a handful of stocks, it has been especially difficult
for portfolio managers to outperform the S&P 500. Lipper Analytical Services
notes that 90% of all mutual fund managers underperformed the Index, with the
average diversified stock fund up 11.7% for the first half, compared with 17.6%
for the S&P 500.
All major sectors of the stock market produced positive investment results for
the six months ended June 30. The best performing sectors were technology and
health care, which returned 30.9% and 25.8%, respectively. Despite the turmoil
in Asia and an anticipated slowdown in corporate profits, investors looking for
a "safe haven" continued to pour money into a select group of
large-capitalization technology and internet stocks without regard to valuation.
Above-average growth in sales and profit margins characterized the health care
sector, particularly among large international pharmaceutical companies.
The poorest performing sectors of the market were energy and basic materials
stocks which grew by 4.5% and 6.4% for the period ended June 30, respectively.
Energy stocks suffered from a significant decline in the price of oil, while
basic materials stocks were hurt by an anticipated slowdown in the economy and
price-cutting by foreign competition.
Improving financial conditions and the continuing strength of the stock market
led millions of new investors to adopt mutual funds as their investment vehicles
of choice. In fact, mutual funds and other direct investments have surpassed
real estate as the single largest source of wealth for U.S. households.
Additionally, the proportion of financial assets under direct control of
households has reached 70%. Given individual investors' increased participation
in the market and current market valuations, it is reasonable to assume that
household spending will be more responsive to stock market returns than in the
past.
DAILY INCOME FUND
For the six months ended June 30, 1998, the Daily Income Fund returned 2.44%.
Money market interest rates continued to trade within a narrow range, as the
Federal Reserve Board maintained its neutral monetary policy amid uncertainty
over the impact of the Asian financial crisis on the U.S. economy.
The Daily Income Fund began the year with a 7-day effective yield of 5.2% and
ended the first half with a yield of 5.0%. During the period, investments in
commercial paper were reduced from 79.9% to 58.7% of the portfolio. Investments
in high-quality, short-term corporate bonds, which offered attractive yields,
were increased from 17.4% to 36.6% of the portfolio. The Fund's average weighted
maturity increased modestly from 42 days at the start to 45 days at the close.
<PAGE> 2
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A MESSAGE FROM THE INVESTMENT MANAGER
(CONTINUED)
The Daily Income Fund's conservative approach allows investment only in
high-quality, short-term securities, making this an appropriate choice for those
who expect the value of their investment to remain stable.
SHORT-TERM GOVERNMENT SECURITIES FUND
The Short-Term Government Securities Fund returned 2.59% for the six months
ended June 30, 1998. Investment performance reflected an environment of modestly
declining interest rates combined with the portfolio's conservative maturity
structure.
The Fund began the year with a 30-day SEC yield of 5.1% and ended the period
with a yield of 5.0%. The portfolio's average weighted maturity at the close of
the period was 1.9 years, unchanged from its level at the beginning of the year.
SHORT-TERM BOND FUND
The Short-Term Bond Fund had a total return of 3.03% for the six months ended
June 30. Interest rates were stable to slightly lower during this period,
reflecting low inflation and the Federal Reserve Board's steady monetary policy.
We made no strategic changes to the Fund's maturity structure or security
diversification. The largest percentage of assets remained invested in
short-term corporate bonds, mortgage securities, and asset-backed bonds. The
portfolio's average weighted maturity was virtually unchanged from its 2.8 year
level at the beginning of the year.
The Fund's 30-day SEC yield was 5.8% at the start and end of this reporting
period.
VALUE FUND
The Value Fund's six-month total return was 9.42%. These investment results were
a bit behind the 11.7% return for the average stock fund measured by Lipper
Analytical Services and the 17.6% return for the S&P 500.
Our portfolio strategy continues to emphasize consumer cyclicals, financials,
and the basic materials sectors of the economy. Consumer cyclical companies such
as May Department Stores and Maytag continue to demonstrate solid earnings and
remain attractive long-term investments. The financial sector, comprised of
banks and insurance companies, continues to benefit from further cost cutting,
industry consolidation, and low interest rates. Basic materials such as paper
and forest products and chemical companies suffered from a general decline in
commodity prices as well as fears of increased competition particularly from
Asia.
The Value Fund continues to be underweighted in technology, the best performing
sector of the stock market this year. In our opinion, market values in this
sector have been driven more by speculation than by fundamental securities
analysis.
We continue to believe that when the market excesses correct themselves, our
long-term value approach towards investing will benefit our shareholders as it
has in the past.
SMALL COMPANY STOCK FUND
The Small Company Stock Fund's inception date was March 4, 1998. On June 30,
1998, the market value of the Fund was $4.3 million, and we had established
positions in 27 stocks. Portfolio holdings are listed later in this report.
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2
<PAGE> 3
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A MESSAGE FROM THE INVESTMENT MANAGER
(CONTINUED)
This Fund seeks long-term growth of capital through investment primarily in
stocks of small and medium-sized companies and stocks currently selling below
what we believe to be their fundamental value. The Fund's share price could
fluctuate significantly over the short-term; thus, the Fund is appropriate only
for individuals with long-term investment time horizons.
We appreciate your investment with Homestead Funds.
Sincerely,
/s/ PETER R. MORRIS
Peter R. Morris
Director of Investments
August 7, 1998
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PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (58.7% of portfolio)
American Express Credit Corp. .............................. 5.56% 07/09/98 $ 980,000 $ 978,789
American General Finance Corp. ............................. 5.62 07/14/98 400,000 399,188
American General Finance Corp. ............................. 5.52 07/07/98 100,000 99,908
American General Finance Corp. ............................. 5.55 07/07/98 923,000 922,146
American General Finance Corp. ............................. 5.58 07/13/98 600,000 598,884
Associates Corp. of North America........................... 6.00 07/02/98 140,000 139,977
Beneficial Corp. ........................................... 5.53 07/15/98 1,250,000 1,247,312
Beneficial Corp. ........................................... 5.55 07/16/98 800,000 798,150
Chevron USA, Inc. .......................................... 5.58 07/02/98 200,000 199,969
Chevron USA, Inc. .......................................... 5.60 07/10/98 500,000 499,300
Coca-Cola Co. .............................................. 5.60 07/02/98 174,000 173,973
Coca-Cola Co. .............................................. 5.60 07/09/98 210,000 209,739
Coca-Cola Co. .............................................. 5.55 07/02/98 150,000 149,977
Coca-Cola Co. .............................................. 5.55 07/06/98 326,000 325,749
Coca-Cola Co. .............................................. 5.55 07/08/98 106,000 105,886
Commercial Credit Co. ...................................... 5.51 07/09/98 1,200,000 1,198,531
Consolidated Natural Gas Co. ............................... 5.55 07/07/98 290,000 289,732
E.I. Dupont de Nemours & Co. ............................... 5.54 07/10/98 750,000 748,961
E.I. Dupont de Nemours & Co. ............................... 5.60 07/15/98 200,000 199,564
E.I. Dupont de Nemours & Co. ............................... 5.65 07/09/98 100,000 99,874
E.I. Dupont de Nemours & Co. ............................... 5.55 07/08/98 180,000 179,806
E.I. Dupont de Nemours & Co. ............................... 5.53 07/14/98 640,000 638,722
Ford Motor Credit Corp. .................................... 5.53 07/02/98 500,000 499,923
Ford Motor Credit Corp. .................................... 5.55 07/10/98 446,000 445,381
Ford Motor Credit Corp. .................................... 5.57 07/10/98 229,000 228,681
Ford Motor Credit Corp. .................................... 5.56 07/16/98 384,000 383,110
General Electric Capital Corp. ............................. 5.51 07/02/98 192,000 191,971
General Electric Capital Corp. ............................. 5.56 07/02/98 350,000 349,946
General Electric Capital Corp. ............................. 5.55 07/16/98 100,000 99,769
General Electric Capital Corp. ............................. 5.52 07/07/98 399,000 398,633
Household Finance Corp. .................................... 5.51 07/07/98 1,000,000 999,082
IBM Credit Corp. ........................................... 5.51 07/01/98 1,915,000 1,915,000
IBM Credit Corp. ........................................... 5.60 07/23/98 625,000 622,861
JC Penney Funding Corp. .................................... 5.54 07/29/98 545,000 542,652
JC Penney Funding Corp. .................................... 5.51 08/14/98 1,000,000 993,265
JC Penney Funding Corp. .................................... 5.52 07/17/98 1,000,000 997,547
John Deere Capital Corp. ................................... 5.52 07/06/98 749,000 748,426
Merrill Lynch & Co. ........................................ 5.52 07/06/98 200,000 199,847
Merrill Lynch & Co. ........................................ 5.64 07/08/98 275,000 274,698
Merrill Lynch & Co. ........................................ 5.52 07/10/98 300,000 299,586
Merrill Lynch & Co. ........................................ 5.53 07/29/98 170,000 169,269
Merrill Lynch & Co. ........................................ 5.54 07/15/98 700,000 698,492
Merrill Lynch & Co. ........................................ 5.54 07/23/98 255,000 254,137
Mobil Corp. ................................................ 6.05 07/01/98 1,097,000 1,097,000
Norwest Financial, Inc. .................................... 5.52 07/15/98 967,000 964,924
PHH Corp. .................................................. 5.63 07/01/98 243,000 243,000
</TABLE>
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5
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PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER -- continued
PHH Corp. .................................................. 5.67% 07/01/98 $ 107,000 $ 107,000
PHH Corp. .................................................. 6.10 07/02/98 500,000 499,915
PHH Corp. .................................................. 5.65 07/13/98 630,000 628,813
PHH Corp. .................................................. 5.60 07/16/98 624,000 622,544
PHH Corp. .................................................. 5.61 08/12/98 450,000 447,055
Prudential Funding Corp. ................................... 5.52 07/09/98 300,000 299,632
Prudential Funding Corp. ................................... 5.53 07/14/98 550,000 548,902
Prudential Funding Corp. ................................... 5.55 07/01/98 100,000 100,000
Prudential Funding Corp. ................................... 5.57 07/02/98 849,000 848,869
Prudential Funding Corp. ................................... 5.51 07/06/98 653,000 652,500
Prudential Funding Corp. ................................... 5.58 07/15/98 100,000 99,783
Texaco Inc. ................................................ 5.51 07/13/98 1,179,000 1,176,834
Transamerica Finance Corp. ................................. 5.52 07/07/98 500,000 499,540
Transamerica Finance Corp. ................................. 5.51 07/15/98 500,000 498,929
Transamerica Finance Corp. ................................. 5.51 07/21/98 100,000 99,694
Transamerica Finance Corp. ................................. 6.80 03/15/99 179,000 180,191
-----------
Total Commercial Paper (Cost $31,131,538)................................................................ 31,131,538
-----------
CORPORATE NOTES (36.6% of portfolio)
American Express Credit Corp. .............................. 7.38 02/01/99 355,000 358,111
American General Finance Co. ............................... 8.50 08/15/98 525,000 526,775
Associates Corp. of North America........................... 5.25 09/01/98 1,155,000 1,153,662
CIT Group Holdings, Inc. ................................... 6.35 07/31/98 1,090,000 1,090,450
Coca-Cola Co. .............................................. 7.88 09/15/98 844,000 847,521
Consolidated Natural Gas Co. ............................... 5.88 10/01/98 1,572,000 1,572,014
Eli Lilly & Co. ............................................ 5.50 07/08/98 1,456,000 1,455,902
Ford Motor Credit Corp. .................................... 5.63 12/15/98 375,000 374,814
Ford Motor Credit Corp. .................................... 5.63 01/15/99 600,000 599,333
Ford Motor Credit Corp. .................................... 8.00 01/15/99 206,000 208,282
General Electric Capital Corp. ............................. 5.00 09/10/98 328,000 327,457
General Electric Capital Corp. ............................. 5.75 11/10/98 500,000 499,827
General Electric Capital Corp. ............................. 6.13 12/30/98 366,000 366,599
General Electric Capital Corp. ............................. 8.10 01/26/99 25,000 25,316
General Electric Capital Corp. ............................. 6.13 08/18/98 270,000 270,059
Household Finance Corp. .................................... 7.75 06/01/99 60,000 60,977
John Deere Credit Corp. .................................... 9.63 11/01/98 840,000 850,207
John Deere Credit Corp. .................................... 6.00 02/01/99 650,000 650,615
Merrill Lynch & Co. ........................................ 5.89 12/01/98 500,000 500,175
Merrill Lynch & Co. ........................................ 7.75 03/01/99 110,000 111,296
Mobil Corp. ................................................ 7.25 03/15/99 163,000 164,602
Norwest Financial, Inc. .................................... 8.50 08/15/98 590,000 591,867
Norwest Financial, Inc. .................................... 6.23 09/01/98 400,000 400,161
Pacific Gas & Electric Co. ................................. 5.38 08/01/98 1,222,000 1,221,418
PepsiCo, Inc. .............................................. 5.46 07/01/98 1,000,000 1,000,000
PepsiCo, Inc. .............................................. 7.75 10/01/98 300,000 301,336
PepsiCo, Inc. .............................................. 7.63 11/01/98 1,174,000 1,180,789
</TABLE>
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6
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PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
CORPORATE NOTES -- continued
Philip Morris Cos., Inc. ................................... 8.63% 03/01/99 $ 352,000 $ 358,356
Shell Oil Co. .............................................. 6.95 12/15/98 1,137,000 1,143,185
Wal-Mart Stores, Inc. ...................................... 5.13 10/22/98 1,202,000 1,199,520
-----------
Total Corporate Notes (Cost $19,410,626).................................................................. 19,410,626
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (4.3% of portfolio)
Federal Farm Credit Bank Note............................... 5.38 08/03/98 2,000,000 1,999,490
Federal Home Loan Bank Note................................. 9.25 11/25/98 100,000 101,349
Federal National Mortgage Association....................... 9.40 08/10/98 150,000 150,587
-----------
Total U.S. Government Agency Obligations (Cost $2,251,426)................................................ 2,251,426
-----------
CORPORATE MASTER NOTE (0.4% of portfolio)
Associates Corp. of North America........................... 5.57(a) 200,000 200,000
-----------
Total Corporate Master Note (Cost $200,000)............................................................... 200,000
-----------
MONEY MARKET ACCOUNT
State Street Bank and Trust SSgA Fund....................... 5.26(b) 4,878
-----------
Total Money Market Account (Cost $4,878).................................................................. 4,878
-----------
TOTAL INVESTMENTS IN SECURITIES (COST $52,998,468) -- 100%............................................ $52,998,468
===========
</TABLE>
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(a) Variable coupon rate as of June 30, 1998.
(b) One day yield at June 30, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (30.6% of portfolio)
BASIC INDUSTRIES -- 3.4%
Allied Corp. ............................................ 5.68-5.70%(a) 09/15/98 $ 475,000 $ 469,518
Allied Corp. ............................................ 6.12-6.22(a) 08/01/99 109,000 102,251
Allied Corp. ............................................ 6.07-6.20(a) 08/01/01 275,000 228,250
Allied Signal, Inc. ..................................... 9.88 06/01/02 150,000 169,687
Archer Daniels Midland Co. .............................. 6.22(a) 05/01/02 200,000 159,250
Corning, Inc. ........................................... 7.10 08/14/00 100,000 102,375
Corning, Inc. ........................................... 6.00 08/15/03 500,000 497,500
Dow Chemical Co. ........................................ 9.35 03/15/02 1,063,000 1,114,097
E.I. Dupont De Nemours & Co. ............................ 8.50 02/15/03 125,000 132,158
General Motors Corp. .................................... 9.13 07/15/01 200,000 216,750
McKesson Corp. .......................................... 4.50 03/01/04 460,000 429,145
Nabisco, Inc. ........................................... 8.00 01/15/00 338,000 348,140
Pet, Inc. ............................................... 5.75 07/01/98 335,000 335,000
Ryder System, Inc. ...................................... 7.56 08/15/00 85,000 87,550
------------
Total Basic Industries.............................................................................. 4,391,671
------------
CONSUMER NON-DURABLE GOODS -- 2.6%
Beverages
Anheuser-Busch Cos., Inc. ............................... 6.90 10/01/02 374,000 381,012
PepsiCo, Inc. ........................................... 7.00 11/02/10 250,000 249,587
Photography
Eastman Kodak Co. ....................................... 9.88 11/01/04 625,000 632,031
Processed Foods
McDonald's Corp. ........................................ 7.38 07/15/02 630,000 638,662
Recreation
Walt Disney Co. ......................................... 1.50 10/20/99 50,000 47,233
Retail
Sears Roebuck & Co. ..................................... 9.50 06/01/99 175,000 180,024
Sears Roebuck & Co. ..................................... 6.00 05/01/00 278,000 277,624
Sears Roebuck Acceptance Corp. .......................... 6.80 10/09/02 900,000 920,250
------------
Total Consumer Non-Durable Goods.................................................................... 3,326,423
------------
CONSUMER SERVICES -- 0.8%
Healthcare
American Hospital Supply Finance Corp. .................. 6.07(a) 08/15/00 1,000,000 880,313
Hospital Corp. of America................................ 6.90(a) 06/01/99 111,000 104,946
------------
Total Consumer Services............................................................................. 985,259
------------
FINANCE -- 16.0%
Banks
BankAmerica Corp. ....................................... 6.65(b) 05/17/99 400,000 396,518
BankAmerica Corp. ....................................... 8.13 08/15/04 210,000 215,250
BankAmerica Corp. ....................................... 8.95 11/15/04 710,000 732,578
Barclays N.A. Capital Corp. ............................. 9.75 05/15/21 306,000 348,840
Barclays N.A. Capital Corp. ............................. 7.88 08/15/98 90,000 90,225
Chase Manhattan Corp. ................................... 7.88 08/01/04 600,000 609,555
</TABLE>
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PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
FINANCE -- continued
Chemical New York Corp. NV............................... 6.05%(a) 02/16/00 $ 100,000 $ 90,154
CITICORP................................................. 8.63 11/01/04 465,000 481,856
CITICORP................................................. 6.50 09/16/01 75,000 75,723
Deutsche Bank Financial.................................. 6.14(a) 02/01/00 200,000 182,750
First Union Corp. ....................................... 8.77 11/15/04 380,000 392,078
International Bank for Recon. & Dev. .................... 7.20(a) 08/15/98 26,000 25,837
International Bank for Recon. & Dev. .................... 5.93-7.89(a) 02/15/99 732,000 708,210
International Bank for Recon. & Dev. .................... 6.16-6.54(a) 08/15/99 525,000 493,500
Irving Bank Corp. ....................................... 8.50 06/01/02 146,000 146,117
National City Bank of Cleveland.......................... 7.10 09/25/12 800,000 819,019
Financial Services
ACC Consumer Finance..................................... 10.25 12/01/03 375,000 409,219
American Express Credit Corp. ........................... 6.02-6.15(a) 12/12/00 300,000 258,765
American Express Credit Corp............................. 6.25 08/10/05 200,000 200,724
Avco Financial Services, Inc. ........................... 8.50 10/15/99 50,000 51,625
Beneficial Corp. ........................................ 5.66 02/01/99 200,000 199,182
Beneficial Corp. ........................................ 9.50 03/08/01 450,000 487,125
CM International......................................... 6.02-7.41(a) 09/11/00 1,325,000 1,153,431
Dean Witter Discover Co. ................................ 5.59(b) 03/02/99 3,305,000 3,310,255
Ford Motor Credit Corp. ................................. 7.35(b) 01/23/12 500,000 502,520
Franklin Universal Trust................................. 5.63 09/01/98 500,000 499,725
Goldman Sachs Group...................................... 5.90 01/15/03 1,000,000 982,500
Household Finance Corp. ................................. 8.00 08/15/04 250,000 254,856
Household Finance Corp. ................................. 8.95 09/15/99 110,000 113,562
Household Finance Corp. ................................. 8.55 10/15/04 180,000 185,216
Household Finance Corp. ................................. 6.08 03/08/06 520,000 523,391
IBM Credit Corp. ........................................ 9.68 07/01/08 250,000 262,071
Lincoln National Corp. .................................. 7.13 07/15/99 150,000 151,875
Merrill Lynch & Co. ..................................... 7.05 04/15/03 364,000 364,000
Midland American Capital Corp. .......................... 12.75 11/15/03 835,000 853,787
Solomon, Inc. ........................................... 7.30 05/15/02 400,000 415,500
Sears Overseas Finance Co. .............................. 6.28-6.79(a) 07/12/98 200,000 199,804
Texaco Capital, Inc. .................................... 5.50 06/01/99 150,000 150,187
Transamerica Financial Corp. ............................ 8.75 10/01/99 50,000 51,558
Transamerica Financial Corp. ............................ 7.85 10/21/99 1,000,000 1,022,520
Transamerica Financial Corp. ............................ 7.68 03/16/00 500,000 512,693
Transamerica Financial Corp. ............................ 6.60 03/20/01 250,000 252,986
Xerox Credit Corp. ...................................... 6.78 05/21/01 500,000 510,000
Insurance
ITT Hartford Group, Inc. ................................ 8.20 10/15/98 357,000 359,228
Liberty Mutual Capital Corp.(d).......................... 7.98 12/01/02 500,000 528,105
Security & Commodity Brokers
Lehman Brothers, Inc. ................................... 7.63 08/01/98 150,000 150,154
------------
Total Finance....................................................................................... 20,724,774
------------
</TABLE>
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PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
TRANSPORTATION -- 0.7%
Airlines
Delta Airlines, Inc. .................................... 9.60% 05/26/00 $ 50,000 $ 52,842
Railroad
Atchison Topeka & Santa Fe RR Co. ....................... 5.37 09/15/99 228,000 226,268
Chesapeake & Ohio Railroad Co. .......................... 11.63 11/15/98 113,000 114,849
Conrail, Inc. ........................................... 6.89 07/01/00 100,000 101,625
Norfolk & Western Railway Co. ........................... 8.13 11/15/00 100,000 104,879
Union Pacific Co. ....................................... 9.95 11/01/00 291,000 315,371
------------
Total Transportation................................................................................ 915,834
------------
UTILITIES -- 7.1%
Electric & Gas
Central Power and Light Co. ............................. 7.00 02/01/01 100,000 100,250
Cleveland Electric Illuminating Co. ..................... 7.63 08/01/02 100,000 104,750
Commonwealth Edison Co. ................................. 6.75 07/01/98 685,000 685,000
Commonwealth Edison Co. ................................. 2.75 04/01/99 70,000 67,988
Commonwealth Edison Co. ................................. 7.50 01/01/01 150,000 150,938
Connecticut Light & Power Co. ........................... 7.25 07/01/99 187,000 187,234
DTE Capital Corp. ....................................... 6.17 06/15/38 500,000 502,201
Duke Power Co. .......................................... 7.41 02/10/04 250,000 259,375
Eastern Edison Co. ...................................... 5.75 07/01/98 530,000 530,000
Florida Power Corp. ..................................... 7.38 06/01/02 502,000 507,020
Florida Power Corp. ..................................... 7.25 11/01/02 500,000 507,500
Georgia Power Co. ....................................... 6.88 09/01/02 1,000,000 1,017,500
New Orleans Public Service Co. .......................... 7.00 03/01/03 500,000 510,000
New York State Electric & Gas Co. ....................... 7.63 11/01/01 250,000 252,500
Pacific Gas & Electric Co. .............................. 5.38 08/01/98 110,000 110,000
Pacific Gas & Electric Co. .............................. 5.75 12/01/98 751,000 750,061
Pacific Gas & Electric Co. .............................. 6.88 12/01/99 150,000 150,415
South Carolina Electric & Gas Co. ....................... 6.50 09/01/98 490,000 490,000
Texas Utilities Co. ..................................... 9.50 08/01/99 300,000 310,500
Texas Utilities Co. ..................................... 5.75 07/01/98 150,000 150,000
Telephone
AT&T Corp. .............................................. 8.20 02/15/05 1,037,000 1,069,406
NYNEX Corp. ............................................. 9.55 05/01/10 172,754 199,577
Southwestern Bell Telephone Co. ......................... 5.88 06/01/03 500,000 496,875
------------
Total Utilities..................................................................................... 9,109,090
------------
Total Corporate Bonds (Cost $39,245,866)............................................................ 39,453,051
------------
FOREIGN BONDS (0.2% of portfolio)
British Columbia Hydro & Power Co. ...................... 12.50 09/01/13 100,000 104,875
Hydro-Quebec............................................. 6.27 01/03/26 80,000 81,600
Hydro-Quebec............................................. 6.50 07/16/03 100,000 101,912
------------
Total Foreign Bonds (Cost $278,540)................................................................. 288,387
------------
</TABLE>
- ----------------------------------------------------------------
- ----------------------------------------------------
10
<PAGE> 11
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (20.8% of portfolio)
Access Financial Manufactured Housing Contract Trust 95-1... 6.10% 05/15/21 $ 292,312 $ 292,387
Americredit Automobile Receivables Trust 96-B............... 6.50 01/12/02 48,806 49,045
Arcadia Automobile Receivables Trust 97-C................... 6.05 11/15/00 273,448 273,932
Banc One Auto Grantor Trust 97-A............................ 6.27 11/20/03 356,551 358,762
Bear Asset Trust Securities 97-1A........................... 6.69 06/15/03 1,000,000 1,001,140
Case Equipment Loan Trust 95-B.............................. 6.15 09/15/02 320,154 321,255
Case Equipment Loan Trust 96-A.............................. 5.50 02/15/03 194,670 194,341
Caterpillar Financial Asset Trust 95-A...................... 6.30 08/25/01 228,729 229,263
Centerior Energy Receivables Master Trust 96-1.............. 7.20 04/15/02 90,000 93,753
Charming Shoppes Master Trust 94-1.......................... 7.00 04/15/03 325,000 328,057
Chase Manhattan Auto Owner Trust 97-B....................... 6.35 02/15/01 100,000 100,841
Chase Manhattan Credit Card Master Trust 96-4............... 6.73 02/15/03 110,000 110,875
Chase Manhattan Grantor Trust 95-A.......................... 6.00 09/17/01 173,815 174,089
CIT Revenue Grantor Trust 94-A.............................. 4.90 07/15/09 116,343 114,382
Citibank Credit Card Master Trust 97-3...................... 6.84 02/10/04 750,000 757,133
Copelco Capital Funding Corp. 96-A.......................... 6.34 07/20/04 173,563 174,269
Countrywide Asset-Backed Certificates 96-1.................. 6.53 02/25/14 310,876 312,250
CPS Auto Trust 97-2......................................... 6.65 10/15/02 233,121 235,028
CSFBTLC Trust II 94-1(e).................................... 8.80 12/25/01 525,765 525,765
CSXT Trade Receivables Master Trust 93-1.................... 5.05 09/25/99 950,000 949,108
CTB Auto Grantor Trust 97-A................................. 6.50 09/15/03 222,704 223,680
Dayton Hudson Credit Card Trust 95-1........................ 6.10 02/25/02 110,000 110,122
Discover Card Trust 91-F.................................... 7.85 11/21/00 119,000 119,457
Discover Card Trust 93-2.................................... 5.40 11/16/01 1,067,917 1,066,784
Discover Card Trust 97-2.................................... 6.79 04/16/10 1,250,000 1,273,413
First Bank Corporate Card Master Trust 97-1................. 6.40 02/15/03 70,000 71,261
First Chicago Master Trust 97-T............................. 5.73(b) 10/15/02 260,000 259,987
First Security Auto Grantor Trust 95-A...................... 6.25 01/15/01 219,600 220,043
First Security Auto Grantor Trust 97-B...................... 6.10 04/15/03 556,842 556,368
Fleetwood Credit Corp. 93-A................................. 6.00 01/15/08 261,752 261,143
Ford Credit Auto Lease Trust 96-1........................... 5.80 05/15/99 222,587 222,500
Ford Credit Auto Owner Trust 98-A........................... 5.65 10/15/01 90,000 89,779
Ford Credit Grantor Trust 95-A.............................. 5.90 05/15/00 137,868 137,886
Ford Credit Grantor Trust 95-B.............................. 5.90 10/15/00 156,202 156,460
Green Tree Financial Corp. 95-9............................. 6.00 01/15/27 173,156 173,188
Green Tree Financial Corp. 95-7............................. 6.70 11/15/26 145,000 147,168
Green Tree Financial Corp. 97-B............................. 6.61 04/15/27 454,566 456,716
Green Tree Financial Corp. 93-4............................. 5.85 01/15/19 680,756 680,947
Green Tree Financial Corp. 95-5............................. 6.25 09/15/26 399,853 400,776
Green Tree Financial Corp. 96-1............................. 5.50 03/15/27 230,142 229,962
Honda Auto Receivables Grantor Trust 97-A................... 5.85 02/15/03 836,937 836,711
Honda Auto Receivables Grantor Trust 97-B................... 5.95 05/15/03 890,503 891,269
Household Affinity Credit Card Master Trust 93-2............ 5.60 05/15/02 100,000 99,715
IBM Credit Receivables Lease Asset Master Trust 93-1........ 4.55 11/15/00 158,334 157,721
ICI Funding Secured Assets Corp. 97-1....................... 7.00 03/25/28 700,000 701,953
J.C. Penney Master Credit Card Trust 90-C................... 9.63 06/15/00 200,000 215,511
</TABLE>
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11
<PAGE> 12
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES -- continued
Keycorp Auto Grantor Trust 95-A............................. 5.80% 07/15/00 $ 68,750 $ 69,299
Master Financial Asset Securitization Trust 97-1............ 6.63 12/20/10 450,000 451,098
MBNA Master Credit Card Trust 93-3.......................... 5.40 03/15/00 336,000 334,852
Metlife Capital Equipment Loan Trust 97-A................... 6.85 05/20/08 550,000 569,489
Metris Master Trust 97-1.................................... 6.87 10/20/05 395,000 408,729
MMCA Automobile Trust 95-1.................................. 5.70 11/15/00 104,121 104,156
Nationsbank Auto Owner Trust 96-A........................... 6.38 07/15/00 64,078 64,362
Navistar Financial Corp. Owner Trust 96-A................... 6.35 11/15/02 296,662 297,938
Nissan Auto Receivables Grantor Trust 95-A.................. 6.10 08/15/01 62,155 62,283
Norwest Automobile Trust 96-A............................... 5.90 03/15/00 450,595 455,994
Olympic Automobile Receivables Trust 94-A................... 5.65 01/15/01 250,981 250,865
Olympic Automobile Receivables Trust 95-D................... 6.15 07/15/01 200,000 200,598
Olympic Automobile Receivables Trust 95-E................... 5.85 03/15/01 354,502 354,743
Olympic Automobile Receivables Trust 96-A................... 5.85 07/15/01 1,225,000 1,225,060
Olympic Automobile Receivables Trust 96-B................... 6.50 12/15/00 153,429 153,883
Onyx Acceptance Grantor Trust 96-1.......................... 5.40 05/15/01 148,441 147,978
PNC Student Loan Trust I 97-2............................... 6.45 01/25/02 135,000 137,549
Premier Auto Trust 93-4..................................... 4.65 02/02/99 30,546 30,499
Premier Auto Trust 95-1..................................... 8.05 04/04/00 137,697 139,050
Premier Auto Trust 95-4..................................... 6.00 05/06/00 238,647 238,924
Premier Auto Trust 96-2..................................... 6.35 01/06/00 52,188 52,291
Premier Auto Trust 96-2..................................... 6.58 10/06/00 115,000 115,766
Premier Auto Trust 97-2..................................... 6.13 09/06/00 270,000 270,667
Railcar Trust 92-1.......................................... 7.75 06/01/04 82,880 87,385
Small Business Administration 92-10......................... 7.15 09/01/02 238,263 245,747
Standard Credit Card Master Trust 95-8...................... 6.70 09/07/02 1,130,000 1,150,385
TFLC Equipment Leases Trust 95-1............................ 6.40 09/15/01 90,334 90,364
Union Acceptance Corp. 95-C................................. 6.40 10/10/02 318,689 319,739
Union Acceptance Corp. 95-D................................. 5.97 01/07/03 248,153 248,194
Union Acceptance Corp. 96-D................................. 5.96 10/10/00 207,060 207,006
Western Financial Grantor Trust 95-2........................ 7.10 07/01/00 79,631 80,117
Western Financial Grantor Trust 95-4........................ 6.20 02/01/02 578,685 580,383
WFS Financial Owner Trust 97-A.............................. 6.50 09/20/01 97,973 98,540
WFS Financial Owner Trust 97-D.............................. 6.25 03/20/02 400,000 402,620
World Omni Automobile Lease Securitization Trust 96-A....... 6.55 06/25/02 827,352 830,513
------------
Total Total Asset Backed Securities (Cost $26,870,107).............................................. 26,833,261
------------
MORTGAGE BACKED SECURITIES (21.1% of portfolio)
Advanta Home Equity Loan Trust 92-3......................... 6.05 09/25/08 167,825 166,919
Advanta Home Equity Loan Trust 92-4......................... 7.20 11/25/08 48,770 49,516
Advanta Home Equity Loan Trust 93-2......................... 6.15 10/25/09 94,282 94,514
Advanta Home Equity Loan Trust 93-3......................... 4.90 01/25/10 124,858 120,685
Advanta Home Equity Loan Trust 93-3......................... 4.75 02/25/10 376,794 369,838
Advanta Home Equity Loan Trust 93-4......................... 5.70 03/25/25 274,092 268,949
Advanta Home Equity Loan Trust 94-1......................... 6.30 07/25/25 858,211 859,722
AFC Home Equity Loan Trust 92-4............................. 6.20 10/11/07 68,187 68,166
</TABLE>
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12
<PAGE> 13
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES -- continued
American Financial Home Equity Loan 91-1.................... 8.00% 07/25/06 $ 87,652 $ 89,333
Amresco Residential Securities Mortgage Loan Trust 97-3..... 6.61 06/25/12 350,000 349,692
Amresco Residential Securities Mortgage Loan Trust 96-3..... 7.55 02/25/23 110,000 113,479
Bear Stearns Secured Investors Trust 87-2................... 9.95 10/20/18 160,917 173,728
Champion Home Equity Loan Trust 97-2........................ 6.59 11/20/10 284,437 284,557
Chase Mortgage Finance Corp. 93-G........................... 7.00 04/25/01 65,008 65,090
Chase Mortgage Finance Corp. 93-N........................... 6.75 11/25/24 434,925 434,925
Chase Mortgage Finance Corp. 94-L........................... 7.50 11/25/10 250,000 259,711
Chemical Mortgage Acceptance Corp. 88-2..................... 7.50(b) 05/25/18 358,636 367,122
Citibank N.A. 86-4.......................................... 10.00 11/25/16 121,387 122,135
CITICORP Mortgage Securities, Inc. 88-11.................... 7.29 08/25/18 751,711 757,349
CITICORP Mortgage Securities, Inc. 92-16.................... 7.50 09/25/22 43,590 44,774
CITICORP Mortgage Securities, Inc. 88-17.................... 7.29(b) 11/25/18 818,901 830,411
CITICORP Mortgage Trust 3................................... 9.00 01/25/20 100,000 99,633
Cityscape Home Equity Loan Trust 97-B....................... 7.02 01/25/12 445,482 451,986
CMC Securities Corp. 92..................................... 7.53 12/25/22 524,235 531,525
CMC Securities Corp. 93-E................................... 7.00 10/25/23 73,065 72,839
CMC Securities Corp. 92-D................................... 6.99(b) 12/25/23 37,676 38,208
CMC Securities Corp. 93-E................................... 6.50 11/25/08 903,683 902,014
CMO Trust 14................................................ 8.00 01/01/17 176,944 182,169
CMO Trust 15................................................ 5.00 03/20/18 74,209 71,368
CMO Trust 17................................................ 7.25 04/20/18 56,349 57,128
CMO Trust 27................................................ 7.25 04/23/17 280,377 284,002
Corestates Home Equity Trust 94-1........................... 6.65 05/15/09 380,643 383,193
Countrywide Funding Corp. 87-2.............................. 7.58(b) 02/25/18 376,950 376,976
CS First Boston Mortgage Securities Corp. 96-2.............. 6.62 02/25/18 200,000 202,281
Daiwa Mortgage Acceptance 92-1.............................. 7.88 10/25/19 4,462 4,481
DLJ Mortgage Acceptance Corp. 95-8.......................... 7.25 11/25/25 1,049,712 1,050,212
EQCC Home Equity Loan Trust 95-3............................ 6.45 11/15/08 45,750 45,912
Equicon Home Equity Loan Trust 92-7......................... 5.90 09/18/05 15,766 15,739
Equicon Home Equity Loan Trust 94-1......................... 6.05 09/18/11 19,434 19,554
Equivantage Home Equity Loan Trust 95-2..................... 6.85 05/25/22 676,488 685,194
FHLMC 135................................................... 8.75 05/15/00 24,346 24,890
FHLMC 144................................................... 8.75 06/15/00 21,025 21,501
FHLMC 1330.................................................. 7.00 09/15/99 478,122 481,497
FHLMC 1458.................................................. 7.00 01/15/08 250,000 251,298
FHLMC 1459.................................................. 7.50 10/15/01 50,000 50,796
FHLMC 1547.................................................. 6.50 09/15/22 133,416 133,792
FHLMC 1662.................................................. 6.25 01/15/09 97,905 97,724
FHLMC 1663.................................................. 7.00 07/15/23 72,945 73,631
FHLMC 1714.................................................. 7.00 10/15/22 372,182 373,189
FHLMC 2023.................................................. 8.50 06/01/02 58,196 60,087
FHLMC 218219................................................ 6.50 01/15/13 396,081 397,919
FNMA 016782................................................. 6.00 09/01/99 594 578
FNMA REMIC 92-203........................................... 6.50 11/25/07 83,824 83,610
FNMA REMIC 93-140........................................... 7.00 07/25/12 95,031 95,138
</TABLE>
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13
<PAGE> 14
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES -- continued
FNMA REMIC 93-15............................................ 7.00% 02/25/08 $ 114,757 $ 115,317
FNMA REMIC 93-68............................................ 6.00 05/25/08 119,506 117,736
FNMA REMIC 93-88............................................ 5.40 06/25/00 299,610 296,820
FNMA REMIC 94-4............................................. 6.50 12/25/06 479,843 483,526
FNMA REMIC 97-38............................................ 7.50 02/17/12 183,824 182,615
FNMA REMIC 97-W1............................................ 7.00 10/18/10 139,887 139,743
First Alliance Mortgage Loan Trust 94-3..................... 7.83 10/25/25 102,974 106,651
GE Capital Mortgage Services, Inc. 94-1..................... 6.50 03/25/24 125,000 125,978
GE Capital Mortgage Services, Inc. 94-5..................... 5.50 02/25/24 87,873 86,137
GE Capital Mortgage Services, Inc. 94-18.................... 7.00 08/25/24 85,132 85,053
GE Capital Mortgage Services, Inc. 96-17.................... 7.00 12/25/26 132,493 132,884
GMBS Certificates 98-1...................................... 9.50 12/25/19 178,755 178,100
Headlands Mortgage Securities, Inc. 97-3.................... 7.25 07/25/27 457,000 462,742
Housing Securities Inc. 92-EA............................... 7.50 10/25/07 451,000 464,391
Housing Securities Inc. 92-NB1.............................. 7.25 01/25/07 49,478 50,390
Housing Securities Inc., 94-2............................... 6.50 07/25/09 191,238 192,223
Independent National Mortgage Corp. 96-E.................... 6.93 05/25/26 695,499 697,083
Merrill Lynch, Inc. 93-G.................................... 5.40 12/15/13 224,481 222,120
Merrill Lynch, Inc. 94-A.................................... 6.40(b) 02/15/09 146,028 146,687
Mid State Trust 3 A......................................... 7.63 04/01/22 160,160 163,834
Morgan Stanley Capital I 97-ALIC............................ 6.30 10/15/00 749,040 753,219
Morgan Stanley Mortgage Trust T 6........................... 8.75 07/20/19 166,345 170,852
Nomura Asset Securities Corp. 94-4.......................... 8.30 09/25/24 33,935 34,803
Old Stone Credit Corp. Home Equity Trust 92-2............... 6.85 05/15/07 214,694 217,380
Paine Webber Mortgage Acceptance Corp. 93-7................. 7.50 07/25/23 337,008 339,387
PNC Mortgage Securities Corp. 95-2.......................... 7.00 07/25/08 74,796 74,804
PNC Mortgage Securities Corp. 97-8.......................... 7.00 12/25/27 305,943 306,800
Prudential Home Mortgage Securities 91-9.................... 8.19(b) 08/25/21 182,291 184,685
Prudential Home Mortgage Securities 93-10................... 6.50 02/25/00 115,421 115,262
Prudential Home Mortgage Securities 93-29................... 6.75 08/25/08 51,713 51,751
Prudential Home Mortgage Securities 93-32................... 6.50 08/25/23 637,477 637,107
Prudential Home Mortgage Securities 93-41................... 6.00 10/25/00 58,444 58,110
Prudential Home Mortgage Securities 93-51................... 6.10 12/25/23 73,918 73,711
Prudential Home Mortgage Securities 93-9.................... 7.05 03/25/08 500,000 502,798
Prudential Securities 18.................................... 7.00 06/25/19 36,800 36,863
Residential Accredit Loans, Inc. 95-QS1..................... 6.90 01/25/20 104,723 104,327
RFMSI 93-S7................................................. 7.15 02/25/08 17,705 17,693
RFMSI 93-S25................................................ 6.50 07/25/08 54,976 55,073
RFMSI 95-S18................................................ 7.00 11/25/10 276,720 277,802
RFMSI 97-S6................................................. 7.00 05/25/25 326,045 325,758
Resolution Trust Corp. 92-2................................. 7.95(b) 08/25/21 209,481 208,614
Ryland Acceptance Corp. 26-C................................ 9.00 12/01/16 224,326 238,220
Ryland Mortgage Securities Corp. 92-18...................... 7.75 09/25/19 6,311 6,294
Ryland Mortgage Securities Corp. 93-4....................... 7.50 08/25/24 204,693 209,281
Salomon Brothers Mortgage Securities 96-LB2................. 7.25 12/25/01 175,000 178,673
Salomon Brothers Mortgage Securities 97-LB2................. 6.95 04/25/27 95,864 95,704
</TABLE>
- ----------------------------------------------------------------
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14
<PAGE> 15
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES -- continued
Saxon Asset Securities Trust 96-2........................... 6.48% 11/25/20 $ 190,000 $ 190,317
Structured Mortgage Asset Residential Trust 92-10........... 7.80 08/25/21 22,100 22,062
Structured Mortgage Asset Residential Trust 93-5............ 6.95(b) 06/25/24 341,145 335,987
TMS Home Equity Trust 92-A.................................. 6.95 01/15/07 70,013 71,161
TMS Home Equity Trust 93-B.................................. 5.40 08/15/05 154,451 154,419
TMS Home Equity Trust 93-C.................................. 5.75 10/15/22 110,819 109,879
TMS Home Equity Trust 93-D.................................. 5.68 02/15/09 91,058 89,465
TMS Home Equity Trust 94-D.................................. 8.93 06/15/22 393,000 427,675
TMS Home Equity Trust 96-B.................................. 7.55(b) 02/15/20 360,000 372,756
TMS Home Equity Trust 96-C.................................. 7.69 05/15/28 394,000 413,598
TMS Home Equity Trust 97-A.................................. 7.24 05/15/28 263,000 270,048
TMS Home Equity Trust 97-C.................................. 6.59 04/15/04 541,000 546,085
UCFC Home Equity Loan 95-A1................................. 8.55 01/10/20 550,000 582,283
UCFC Home Equity Loan 96-D1................................. 6.38 07/15/10 106,331 106,362
Vanderbilt Mortgage Finance 95-B............................ 6.68 05/07/06 250,000 253,235
Zions Home Refinance Loan Trust 93-1........................ 5.15 09/25/03 65,625 64,480
------------
Total Mortgage Backed Securities (Cost $27,118,271)................................................. 27,245,492
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (17.2% of portfolio)
Banco Centroamericano Promissory Note....................... 5.78 05/30/01 1,129,557 1,127,883
Chattanooga Valley Corp. ................................... 5.61(a) 07/01/98 158,000 158,000
Chattanooga Valley Corp. ................................... 5.78(a) 01/01/01 256,000 220,800
Chattanooga Valley Corp. ................................... 5.83(a) 07/01/01 204,000 171,095
Federal Farm Credit Bank.................................... 6.09 01/15/02 500,000 499,665
Federal Farm Credit Bank.................................... 5.79 03/01/99 1,141,304 1,141,593
Federal Home Loan Bank...................................... 3.00 08/10/98 100,000 99,699
Federal Home Loan Bank...................................... 7.20 07/02/01 400,000 400,000
Federal Home Loan Bank...................................... 6.00 04/01/02 1,000,000 999,550
Federal Home Loan Bank...................................... 6.33 11/12/03 500,000 499,922
Federal Home Loan Bank...................................... 7.00 02/01/11 200,000 199,988
Federal Home Loan Bank...................................... 5.62 03/25/99 124,610 124,537
Federal Home Loan Mortgage Corp. ........................... 7.12 09/30/05 300,000 300,387
Federal Home Loan Mortgage Corp. ........................... 5.50(b) 09/20/00 500,000 499,475
Federal Home Loan Mortgage Corp. ........................... 6.67 07/23/02 1,250,000 1,250,995
Federal Home Loan Mortgage Corp. ........................... 6.85 09/03/02 500,000 500,995
Federal Home Loan Mortgage Corp. ........................... 6.49 02/18/04 1,360,000 1,360,748
Federal National Mortgage Assn. ............................ 5.75(b) 02/09/99 250,000 250,005
Federal National Mortgage Assn. ............................ 7.12 04/19/02 500,000 504,945
Federal National Mortgage Assn. ............................ 7.08 05/06/02 250,000 252,787
Federal National Mortgage Assn. ............................ 6.64 10/21/02 500,000 501,034
Federal National Mortgage Assn. ............................ 6.40 02/05/03 500,000 499,370
Federal National Mortgage Assn. ............................ 6.33 03/10/03 1,000,000 1,001,480
Student Loan Marketing Assn. ............................... 5.32(b) 02/22/99 75,000 74,955
Student Loan Marketing Assn. ............................... 5.33 02/08/99 100,000 99,940
Tennessee Valley Authority.................................. 6.25 08/01/99 155,000 155,361
U.S. Treasury Note.......................................... 5.25 07/31/98 250,000 250,072
</TABLE>
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15
<PAGE> 16
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- continued
U.S. Treasury Note.......................................... 5.00% 01/31/99 $ 750,000 $ 748,050
U.S. Treasury Note.......................................... 6.38 05/15/99 500,000 503,505
U.S. Treasury Note.......................................... 6.75 06/30/99 1,250,000 1,264,950
U.S. Treasury Note.......................................... 6.00 08/15/99 500,000 502,645
U.S. Treasury Note.......................................... 7.13 02/29/00 250,000 256,218
U.S. Treasury Note.......................................... 6.38 05/15/00 800,000 811,800
U.S. Treasury Note.......................................... 5.75 10/31/00 2,250,000 2,260,485
U.S. Treasury Note.......................................... 6.38 03/31/01 500,000 510,460
U.S. Treasury Note.......................................... 5.88 11/30/01 1,750,000 1,766,817
U.S. Treasury Note.......................................... 6.00 07/31/02 500,000 508,438
------------
Total U.S. Government and Agency Obligations (Cost $21,692,630)..................................... 22,278,649
------------
MUNICIPAL BONDS (1.4% of portfolio)
Albany NY Industrial Development Agency IDR................. 7.38(b) 02/01/99 720,000 720,000
Energy Acquisition Corp..................................... 6.15 03/01/02 1,000,000 1,003,750
Rhode Island Housing & Mortgage Finance Corp................ 6.62 04/01/02 125,000 126,875
------------
Total Municipal Securities (Cost $1,842,095)........................................................ 1,850,625
------------
COMMERCIAL PAPER (8.5% of portfolio)
Merrill Lynch & Co.......................................... 6.12 07/01/98 5,000,000 5,000,000
Mobil Corp.................................................. 6.05 07/01/98 5,961,000 5,961,000
------------
Total Commercial Paper (Cost $10,961,000)........................................................... 10,961,000
------------
CORPORATE MASTER NOTE (0.2% of portfolio)
Associates Corp. of North America........................... 5.57(b) 250,000 250,000
------------
Total Corporate Master Note (Cost $250,000)......................................................... 250,000
------------
MONEY MARKET ACCOUNT
State Street Bank & Trust SSgA Fund......................... 5.26(c) 3,150
------------
Total Money Market Account (Cost $3,150)............................................................ 3,150
------------
TOTAL INVESTMENTS IN SECURITIES (COST $128,261,659) -- 100%............................................... $129,163,615
============
</TABLE>
- ---------------
(a) Yield-to-maturity at purchase.
(b) Variable coupon rate as of June 30, 1998.
(c) One day yield at June 30, 1998.
(d) 144A security.
(e) Private placement security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------
- ----------------------------------------------------
16
<PAGE> 17
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SHORT-TERM GOVERNMENT SECURITIES FUND
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Interest Maturity Face
Rate Date Amount Value
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (2.2% of portfolio)
Government Export Trust 93-2 A.............................. 4.61% 09/01/98 $ 20,000 $ 19,962
Guaranteed Trade Trust 92-A A............................... 7.02 09/01/04 189,583 196,056
Small Business Administration 92-10 A....................... 6.70 01/01/02 79,474 79,832
Small Business Administration 92-10 C....................... 7.15 09/01/02 142,958 147,448
-----------
Total Asset Backed Securities (Cost $431,977)............................................................. 443,298
-----------
MORTGAGE BACKED SECURITIES (13.7% of portfolio)
GNMA Pool 362840............................................ 6.75 12/15/98 2,174 2,233
GNMA 97-13.................................................. 6.00 11/16/22 439,669 438,455
GNMA 97-4 A................................................. 7.00 11/20/11 779,810 787,242
GNMA 97-4 B................................................. 7.00 08/20/26 165,619 167,472
GNMA 97-8................................................... 7.00 05/16/23 500,000 509,093
GNMA 94-1................................................... 7.63 08/16/23 99,000 100,563
Vendee Mortgage Trust 97-1.................................. 7.50 09/15/17 500,000 514,618
Vendee Mortgage Trust 97-2.................................. 7.50 01/15/13 225,000 228,413
-----------
Total Mortgage Backed Securities (Cost $2,729,176)........................................................ 2,748,089
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (79.3% of portfolio)
Banco Centroamericano Promissory Note....................... 5.78 05/30/01 330,995 330,506
Private Export Funding Corp................................. 9.10 10/30/98 1,050,000 1,061,556
Private Export Funding Corp. (c)............................ 5.41(a) 02/28/99 250,000 250,155
Private Export Funding Corp................................. 9.50 03/31/99 750,000 770,625
Private Export Funding Corp................................. 8.35 01/31/01 25,000 26,563
Private Export Funding Corp................................. 5.48 09/15/03 165,000 164,381
U.S. Treasury Bill.......................................... 4.98 07/23/98 100,000 99,697
U.S. Treasury Note.......................................... 5.25 07/31/98 1,800,000 1,800,522
U.S. Treasury Note.......................................... 4.75 10/31/98 5,400,000 5,388,605
U.S. Treasury Note.......................................... 5.75 12/31/98 500,000 501,045
U.S. Treasury Note.......................................... 7.00 04/15/99 450,000 455,121
U.S. Treasury Note.......................................... 6.38 05/15/99 50,000 50,351
U.S. Treasury Note.......................................... 6.00 08/15/99 800,000 803,750
U.S. Treasury Note.......................................... 5.88 11/15/99 1,200,000 1,205,460
U.S. Treasury Note.......................................... 6.38 05/15/00 100,000 101,475
U.S. Treasury Note.......................................... 5.75 10/31/00 100,000 100,466
U.S. Treasury Note.......................................... 6.38 03/31/01 50,000 51,046
U.S. Treasury Note.......................................... 5.88 11/30/01 2,600,000 2,624,986
U.S. Treasury Note.......................................... 6.00 07/31/02 100,000 101,688
-----------
Total U.S. Government and Agency Obligations (Cost $15,843,967) .......................................... 15,887,998
-----------
MONEY MARKET ACCOUNT (4.8% of portfolio)
Vanguard Money Market Reserves U.S. Treasury................ 4.99(b) 955,349
-----------
Total Money Market Account (Cost $955,349)................................................................ 955,349
-----------
TOTAL INVESTMENTS IN SECURITIES (COST $19,960,469) -- 100% .....................................................$20,034,734
===========
</TABLE>
- --------------
(a) Variable coupon rate as of June 30, 1998.
(b) Seven day yield at June 30, 1998.
(c) 144A security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
17
<PAGE> 18
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SMALL COMPANY STOCK FUND
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -----------
<S> <C> <C>
COMMON STOCKS (85.3% of portfolio)
BASIC INDUSTRIES - 5.9%
Chemicals
BetzDearborn Laboratories,
Inc. ...................... 3,500shs. $ 147,656
Forest Products
Pope & Talbot, Inc. ......... 9,000 105,187
----------
Total Basic Industries.................. 252,843
----------
CAPITAL GOODS - 27.3%
Industrial Machinery
Aeroquip-Vickers, Inc. ...... 2,100 122,587
Applied Industrial
Technology, Inc. .......... 6,000 123,375
Flowserve Corp. ............. 6,000 147,750
Manitowoc Co., Inc. ......... 3,300 133,031
Regal-Beloit Corp. .......... 4,400 125,400
Iron & Steel
Chicago Bridge & Iron Co. ... 8,200 127,100
Manufacturing-Diverse
Lydall, Inc. (a)............. 9,700 141,256
Standex International
Corp. ..................... 4,700 139,237
Manufacturing-Special
Superior Surgical
Manufacturing Co., Inc. ... 7,100 115,375
----------
Total Capital Goods..................... 1,175,111
----------
CONSUMER DURABLE GOODS - 10.8%
Construction Supplies & Fixtures
Hughes Supply, Inc. ......... 4,700 172,137
Household Appliances & Furnishings
Juno Lighting, Inc. ......... 6,100 144,113
Housewares
Oneida Ltd. ................. 4,900 150,063
----------
Total Consumer Durable Goods............ 466,313
----------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -----------
<S> <C> <C>
CONSUMER NON-DURABLE GOODS - 18.7%
Auto Parts
Cooper Tire & Rubber Co. .... 6,000 shs. 140,250
CLARCOR, Inc. ............... 6,050 127,050
Food Processing
J.M. Smucker Co. (Class B)... 5,500 134,063
Retail
Charming Shoppes, Inc. (a) 26,000 123,500
Longs Drug Stores Corp. ..... 4,700 135,713
Ruddick Corp. ............... 7,800 141,375
----------
Total Consumer Non-Durable Goods........ 801,951
----------
CONSUMER SERVICES - 3.5%
Restaurants
Lone Star Steakhouse &
Saloon, Inc. (a)........... 10,900 $ 150,556
----------
Total Consumer Services................. 150,556
----------
FINANCE - 8.5%
Banks
CNB Bancshares, Inc. ........ 2,500 120,000
UMB Financial Corp. ......... 2,750 136,125
Insurance
Ohio Casualty Corp. ......... 2,500 110,625
----------
Total Finance........................... 366,750
----------
TECHNOLOGY - 4.2%
Electronic-Instruments
Fluke Corp. ................. 5,500 180,813
----------
Total Technology........................ 180,813
----------
UTILITIES - 3.3%
Gas & Pipeline
Questar Corp. ............... 7,200 141,300
----------
Total Utilities......................... 141,300
----------
</TABLE>
- ----------------------------------------------------------------
- ----------------------------------------------------
18
<PAGE> 19
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
SMALL COMPANY STOCK FUND (CONTINUED)
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -----------
<S> <C> <C>
ENERGY - 3.1%
Oil Well Services & Equipment
Helmerich & Payne, Inc. ..... 6,000 shs. $ 133,500
----------
Total Energy............................ 133,500
----------
Total Common Stock (Cost $3,949,649).... 3,669,137
----------
U.S. GOVERNMENT & AGENCY (10.9% of portfolio)
U.S. Treasury Bill, 4.98%, due
09/17/98..................... $275,000 271,995
U.S. Treasury Bill, 5.02%, due
09/17/98..................... 75,000 74,174
U.S. Treasury Bill, 5.04%, due
09/17/98..................... 100,000 98,894
U.S. Treasury Bill, 5.07%, due
09/17/98..................... 25,000 24,722
----------
Total U.S. Government & Agency (Cost
$469,850)............................. 469,785
----------
CORPORATE MASTER NOTE (3.4% of portfolio)
Associates Corp. of North
America, 5.57% (b)........... $145,000 145,000
----------
Total Corporate Master Note (Cost
$145,000)............................. 145,000
----------
MONEY MARKET ACCOUNT (0.4% of portfolio)
State Street Bank & Trust SSgA Fund, 5.26%
(c)....................................... 16,636
----------
Total Money Market Account (Cost
$16,636).............................. 16,636
----------
TOTAL INVESTMENTS IN SECURITIES (COST
$4,581,135) -- 100%....................... $4,300,558
==========
</TABLE>
- --------------
(a) Non-income producing.
(b) Variable coupon rate at June 30, 1998.
(c) One day yield at June 30, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
19
<PAGE> 20
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC.
VALUE FUND
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -------------
<S> <C> <C>
COMMON STOCKS (92.9% of portfolio)
BASIC INDUSTRIES - 13.5%
Aluminum
Alcan Aluminum Ltd. ....... 231,200 shs. $ 6,386,900
Chemicals
Avery Dennison Corp. ...... 172,600 9,277,250
BetzDearborn Laboratories,
Inc. .................... 224,500 9,471,094
Dow Chemical Co. .......... 55,200 5,337,150
Nalco Chemical Co. ........ 223,300 7,843,412
Forest Products
Pope & Talbot, Inc. ....... 140,500 1,642,094
Weyerhaeuser Co. .......... 96,500 4,457,094
Packaging/Containers
Bemis Co., Inc. ........... 128,300 5,244,262
Paper
Champion International
Corp. ................... 114,000 5,607,375
International Paper Co. ... 142,000 6,106,000
------------
Total Basic Industries................ 61,372,631
------------
CAPITAL GOODS - 6.8%
Construction Supplies & Fixtures
Hughes Supply, Inc. ....... 195,800 7,171,175
Industrial Machinery
Aeroquip-Vickers, Inc. .... 166,400 9,713,600
Applied Industrial
Technology, Inc. ........ 480,600 9,882,337
Parker-Hannifin Corp. ..... 107,175 4,086,047
------------
Total Capital Goods................... 30,853,159
------------
CONSUMER DURABLE GOODS - 7.7%
Household Appliances & Furnishings
Juno Lighting, Inc. ....... 348,600 8,235,675
Maytag Corp. .............. 246,400 12,166,000
Housewares
Oneida Ltd. ............... 110,550 3,385,594
Rubbermaid, Inc. .......... 344,400 11,429,775
------------
Total Consumer Durable Goods.......... 35,217,044
------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -------------
<S> <C> <C>
CONSUMER NON-DURABLE GOODS - 21.9%
Auto Part
Cooper Tire & Rubber
Co. ..................... 474,500 shs. $ 9,786,562
Genuine Parts Co. ......... 206,700 7,144,069
Drugs & Health Care
American Home Products
Corp. ................... 120,000 6,210,000
Pharmacia & Upjohn,
Inc. .................... 145,000 6,688,125
SmithKline Beecham Plc. ... 86,000 5,203,000
Food Processing
J.M. Smucker Co. (Class
B)....................... 315,100 7,680,562
Photography
Eastman Kodak Co. ......... 104,500 7,635,031
Retail
Dillards Department Stores,
Inc. .................... 262,000 10,856,625
K Mart Corp. (a)........... 355,700 6,847,225
Longs Drug Stores Corp. ... 250,400 7,230,300
May Department Stores
Co. ..................... 127,500 8,351,250
Rite Aid Corp. ............ 178,000 6,686,125
Ruddick Corp. ............. 522,200 9,464,875
------------
Total Consumer Non-Durable Goods...... 99,783,749
------------
CONSUMER SERVICES - 4.3%
Restaurants
Brinker International, Inc.
(a)...................... 456,900 8,795,325
Wendy's International,
Inc. .................... 470,200 11,049,700
------------
Total Consumer Services............... 19,845,025
------------
ENERGY -- 7.0%
Domestic Oil
Atlantic Richfield Co. .... 61,800 4,828,125
International Oil
Amoco Corp. ............... 115,000 4,786,875
Chevron Corp. ............. 55,000 4,568,437
Texaco, Inc. .............. 83,400 4,977,937
Petroleum Services
Dresser Industries,
Inc. .................... 183,400 8,081,063
Halliburton Co. ........... 110,600 4,928,613
------------
Total Energy.......................... 32,171,050
------------
</TABLE>
- ----------------------------------------------------------------
- ----------------------------------------------------
20
<PAGE> 21
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
HOMESTEAD FUNDS, INC. (CONTINUED)
VALUE FUND
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -------------
<S> <C> <C>
FINANCE - 15.5%
Banks
Banc One Corp. ............ 169,180 shs. $ 9,442,359
BankAmerica Corp. ......... 84,000 7,260,750
BB&T Corp. ................ 67,400 4,557,925
Chase Manhattan Corp. ..... 128,400 9,694,200
CITICORP................... 50,500 7,537,125
Commerce Bancshares,
Inc. .................... 168,388 8,219,439
Insurance
Allstate Corp. ............ 84,817 7,766,057
Chubb Corp. ............... 81,000 6,510,375
Ohio Casualty Corp. ....... 115,200 5,097,600
Transamerica Corp. ........ 42,300 4,869,788
------------
Total Finance......................... 70,955,618
------------
GENERAL BUSINESS - 4.6%
Business Services
Deluxe Corp. .............. 256,100 9,171,581
Donnelley, R.R. & Sons
Co. ..................... 261,800 11,977,350
------------
Total General Business................ 21,148,931
------------
TECHNOLOGY - 3.2%
Aerospace
Sundstrand Corp. .......... 98,000 5,610,500
Computers & Business
Equipment
Compaq Computer Corp. ..... 57,533 1,632,485
Xerox Corp. ............... 70,500 7,164,563
------------
Total Technology...................... 14,407,548
------------
TRANSPORTATION - 2.5%
Air Travel
Southwest Airlines Co. .... 385,600 11,423,400
------------
Total Transportation.................. 11,423,400
------------
</TABLE>
<TABLE>
<CAPTION>
Shares/
Face Amount Value
----------- -------------
<S> <C> <C>
UTILITIES - 5.9%
Gas & Pipeline
Questar Corp. ............. 439,200 shs. $ 8,619,300
Sonat, Inc. ............... 253,000 9,772,125
Telephone
BellSouth Corp. ........... 126,000 8,457,750
------------
Total Utilities....................... 26,849,175
------------
Total Common Stock (Cost
$283,265,203)....................... 424,027,330
------------
PREFERRED STOCKS (0.4% of portfolio)
K Mart Corp., 7.75%
Convertible Preferred...... 25,200 1,764,000
------------
Total Preferred Stocks (Cost
$1,281,750)......................... 1,764,000
------------
COMMERCIAL PAPER (6.5% of portfolio)
Merrill Lynch & Co., 6.12%,
due 07/01/98............... $20,000,000 20,000,000
Mobil Corp., 6.05%, due
07/01/98................... 9,599,000 9,599,000
------------
Total Commercial Paper (Cost
$29,599,000)........................ 29,599,000
------------
CORPORATE MASTER NOTE (0.2% of portfolio)
Associates Corp. of North America, 5.57%
(b)..................................... 1,000,000
------------
Total Corporate Master Note (Cost
$1,000,000)......................... 1,000,000
------------
MONEY MARKET ACCOUNT
State Street Bank and Trust SSgA Fund,
5.26% (c)............................... 6,499
------------
Total Money Market Account (Cost
$6,499)............................. 6,499
------------
TOTAL INVESTMENTS IN SECURITIES (COST
$315,152,452) -- 100% $456,396,829
============
</TABLE>
- --------------
(a) Non-income producing.
(b) Variable coupon rate at June 30, 1998.
(c) One day yield at June 30, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
21
<PAGE> 22
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
HOMESTEAD FUNDS, INC.
JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
SHORT-TERM SMALL
DAILY INCOME SHORT-TERM GOVERNMENT COMPANY VALUE
FUND BOND FUND SECURITIES FUND STOCK FUND FUND
------------ ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value
(cost: $52,998,468; $128,261,659;
$19,960,469; $4,581,135;
$315,152,452)................................. $52,998,468 $129,163,615 $20,034,734 $4,300,558 $456,396,829
Receivables
Investment securities sold.................. - 2,522 - - -
Dividends and interest...................... 516,237 1,293,268 205,932 4,314 472,794
Capital shares sold......................... 21,369 130,789 10,002 96,360 420,904
Due from Manager............................ - - - 4,390 -
Prepaid expenses............................... 13,718 19,375 14,600 - 39,125
----------- ------------ ----------- ---------- ------------
Total assets................................ 53,549,792 130,609,569 20,265,268 4,405,622 457,329,652
----------- ------------ ----------- ---------- ------------
LIABILITIES
Payables
Investment securities purchased............. 355,267 2,670,898 - 10,712 428,500
Accrued expenses............................ 46,393 68,787 24,991 21,514 149,775
Due to Manager.............................. 19,954 60,671 1,239 - 217,875
Capital shares redeemed..................... 56,793 6,136 2,500 46,259 193,313
Dividends................................... 6,486 30,251 5,417 - 65,106
----------- ------------ ----------- ---------- ------------
Total liabilities........................... 484,893 2,836,743 34,147 78,485 1,054,569
----------- ------------ ----------- ---------- ------------
NET ASSETS........................................ $53,064,899 $127,772,826 $20,231,121 $4,327,137 $456,275,083
=========== ============ =========== ========== ============
NET ASSETS CONSIST OF:
Unrealized appreciation (depreciation) of
investments................................... $ - $ 901,956 $ 74,265 $(280,577) $141,244,377
Undistributed net income....................... - - - 10,640 -
Realized gain (loss)........................... - 61,534 1,053 (27) 5,195,736
Paid-in-capital applicable to outstanding
shares of 53,064,899 of Daily Income Fund,
24,627,859 of Short-Term Bond Fund, 3,991,071
of Short-Term Government Securities Fund,
454,739 of Small Company Stock Fund, and
16,469,020 of Value Fund...................... 53,064,899 126,809,336 20,155,803 4,597,101 309,834,970
----------- ------------ ----------- ---------- ------------
$53,064,899 $127,772,826 $20,231,121 $4,327,137 $456,275,083
=========== ============ =========== ========== ============
NET ASSET VALUE PER SHARE......................... $1.00 $5.19 $5.07 $9.52 $27.71
=========== ============ =========== ========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------
- ----------------------------------------------------
22
<PAGE> 23
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
HOMESTEAD FUNDS, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited)
<TABLE>
<CAPTION>
SHORT-TERM SMALL
DAILY INCOME SHORT-TERM GOVERNMENT COMPANY VALUE
FUND BOND FUND SECURITIES FUND STOCK FUND* FUND
------------ ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest........................................ $1,468,279 $3,795,180 $ 529,400 $ 10,798 $ 824,248
Dividends....................................... - - - 13,921 3,861,690
---------- ---------- --------- --------- -----------
Total income................................. 1,468,279 3,795,180 529,400 24,719 4,685,938
---------- ---------- --------- --------- -----------
Expenses
Management fees................................. 129,580 356,315 40,108 8,073 1,202,550
Custodian and accounting fees................... 43,998 69,128 27,074 19,505 88,556
Shareholder servicing........................... 27,589 36,049 17,634 8,261 122,012
Registration expense............................ 15,392 19,303 7,940 - 43,606
Communication................................... 5,016 5,850 1,336 333 18,162
Legal and audit fees............................ 2,961 6,929 1,088 239 22,705
Insurance....................................... 1,989 4,421 663 50 13,627
Printing........................................ 1,519 3,065 633 384 12,398
Directors fees.................................. 891 2,116 334 45 7,028
Other expenses.................................. 2,237 4,034 743 80 13,549
---------- ---------- --------- --------- -----------
Total expenses............................... 231,172 507,210 97,553 36,970 1,544,193
Less fees waived and expenses reimbursed by
Manager..................................... (23,867) (62,418) (30,823) (22,891) -
---------- ---------- --------- --------- -----------
Net expenses................................. 207,305 444,792 66,730 14,079 1,544,193
---------- ---------- --------- --------- -----------
NET INVESTMENT INCOME.............................. 1,260,974 3,350,388 462,670 10,640 3,141,745
---------- ---------- --------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments......... - 61,534 1,053 (27) 5,195,736
Net change in unrealized appreciation
(depreciation)................................. - 93,128 828 (280,577) 28,396,258
---------- ---------- --------- --------- -----------
NET GAIN (LOSS) ON INVESTMENTS..................... - 154,662 1,881 (280,604) 33,591,994
---------- ---------- --------- --------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS.......................... $1,260,974 $3,505,050 $ 464,551 $(269,964) $36,733,739
========== ========== ========= ========= ===========
</TABLE>
- --------------
* For the period beginning March 4, 1998 (commencement of operations) to June
30, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
23
<PAGE> 24
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
HOMESTEAD FUNDS, INC.
<TABLE>
<CAPTION>
DAILY INCOME FUND SHORT-TERM BOND FUND
---------------------------- ----------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
June 30, 1998 December 31, June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited) 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income.................................. $ 1,260,974 $ 2,718,220 $ 3,350,388 $ 5,537,665
Net realized gain (loss) on investments................ - - 61,534 103,298
Net change in unrealized appreciation (depreciation)... - - 93,128 570,361
----------- ----------- ------------ ------------
Increase (decrease) in net assets from operations...... 1,260,974 2,718,220 3,505,050 6,211,324
----------- ----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.................................. (1,260,974) (2,718,220) (3,350,388) (5,537,665)
Net realized gain on investments....................... - - - (103,298)
----------- ----------- ------------ ------------
Total distributions to shareholders.................... (1,260,974) (2,718,220) (3,350,388) (5,640,963)
----------- ----------- ------------ ------------
CAPITAL SHARE TRANSACTIONS, NET........................ 31,505 (4,838,085) 18,720,391 26,857,500
----------- ----------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................ 31,505 (4,838,085) 18,875,053 27,427,861
NET ASSETS
Beginning of period.................................... 53,033,394 57,871,479 108,897,773 81,469,912
----------- ----------- ------------ ------------
END OF PERIOD.......................................... $53,064,899 $53,033,394 $127,772,826 $108,897,773
=========== =========== ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------
- ----------------------------------------------------
24
<PAGE> 25
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
HOMESTEAD FUNDS, INC.
<TABLE>
<CAPTION>
SHORT-TERM GOVERNMENT SMALL COMPANY
SECURITIES FUND STOCK FUND VALUE FUND
---------------------------- ------------- ----------------------------
Six Months Year Period Six Months Year
Ended Ended ended Ended Ended
June 30, 1998 December 31, June 30, 1998 June 30, 1998 December 31,
(Unaudited) 1997 (Unaudited)* (Unaudited) 1997
------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income............... $ 462,670 $ 652,716 $ 10,640 $ 3,141,745 $ 5,078,979
Net realized gain (loss) on
investments....................... 1,053 1,030 (27) 5,195,736 10,245,857
Net change in unrealized
appreciation (depreciation)....... 828 61,648 (280,577) 28,396,258 56,564,101
----------- ----------- ---------- ------------ ------------
Increase (decrease) in net assets
from operations................... 464,551 715,394 (269,964) 36,733,739 71,888,937
----------- ----------- ---------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income............... (462,670) (652,716) - (3,141,745) (5,078,979)
Net realized gain on investments.... - (1,030) - - (10,245,857)
----------- ----------- ---------- ------------ ------------
Total distributions to
shareholders...................... (462,670) (653,746) - (3,141,745) (15,324,836)
----------- ----------- ---------- ------------ ------------
CAPITAL SHARE TRANSACTIONS, NET..... 4,042,513 8,432,668 4,597,101 44,061,929 83,506,879
----------- ----------- ---------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 4,044,394 8,494,316 4,327,137 77,653,923 140,070,980
NET ASSETS
Beginning of period................. 16,186,727 7,692,411 - 378,621,160 238,550,180
----------- ----------- ---------- ------------ ------------
END OF PERIOD....................... $20,231,121 $16,186,727 $4,327,137 $456,275,083 $378,621,160
=========== =========== ========== ============ ============
</TABLE>
- --------------
* For the period beginning March 4, 1998 (commencement of operations) to June
30, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
25
<PAGE> 26
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -----------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- ------- ------- ------- -------
Income from investment operations
Net investment income (a)................ 0.02 0.05 0.05 0.05 0.04 0.03
---------- -------- ------- ------- ------- -------
Total from investment operations......... 0.02 0.05 0.05 0.05 0.04 0.03
---------- -------- ------- ------- ------- -------
Distributions
Net investment income.................... (0.02) (0.05) (0.05) (0.05) (0.04) (0.03)
---------- -------- ------- ------- ------- -------
Total distributions...................... (0.02) (0.05) (0.05) (0.05) (0.04) (0.03)
---------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======= ======= ======= =======
TOTAL RETURN................................... 2.44%(C) 4.92% 4.81% 5.38% 3.63% 2.68%
========== ======== ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)....... $53,065 $53,033 $57,871 $52,699 $36,668 $25,159
Ratio of expenses to average net assets
(a)....................................... 0.80%(b) 0.80% 0.76% 0.75% 0.75% 0.75%
Ratio of net investment income to average
net assets (a)............................ 4.83%(b) 4.80% 4.71% 5.25% 3.66% 2.64%
Ratio of gross expenses before voluntary
expense limitation to average net
assets.................................... 0.88%(b) 0.83% 0.81% 0.87% 0.99% 1.11%
</TABLE>
- --------------
(a) Excludes excess investment management fees and other expenses in accordance
with the Expense Limitation Agreement with the Manager.
(b) Annualized.
(c) Aggregate total return for the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------
- ----------------------------------------------------
26
<PAGE> 27
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -----------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............. $ 5.18 $ 5.15 $ 5.19 $ 4.95 $ 5.19 $ 5.10
---------- -------- ------- ------- ------- -------
Income from investment operations
Net investment income (a)................ 0.15 0.30 0.29 0.28 0.24 0.24
Net realized and unrealized gain (loss)
on investments......................... 0.01 0.03 (0.04) 0.24 (0.24) 0.09
---------- -------- ------- ------- ------- -------
Total from investment operations......... 0.16 0.33 0.25 0.52 0.00 0.33
---------- -------- ------- ------- ------- -------
Distributions
Net investment income.................... (0.15) (0.30) (0.29) (0.28) (0.24) (0.24)
---------- -------- ------- ------- ------- -------
Total distributions...................... (0.15) (0.30) (0.29) (0.28) (0.24) (0.24)
---------- -------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................. $ 5.19 $ 5.18 $ 5.15 $ 5.19 $ 4.95 $ 5.19
========== ======== ======= ======= ======= =======
TOTAL RETURN................................... 3.03%(C) 6.62% 5.16% 10.81% 0.09% 6.62%
========== ======== ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)....... $127,773 $108,898 $81,470 $62,125 $52,257 $37,046
Ratio of expenses to average net assets
(a)....................................... 0.75%(b) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average
net assets (a)............................ 5.60%(b) 5.75% 5.72% 5.49% 4.84% 4.58%
Ratio of gross expenses before voluntary
expense limitation to average net
assets.................................... 0.85%(b) 0.87% 0.76% 0.86% 0.98% 1.16%
Portfolio turnover rate..................... 36% 55% 49% 35% 13% 14%
</TABLE>
- --------------
(a) Excludes excess investment management fees and other expenses in accordance
with the Expense Limitation Agreement with the Manager.
(b) Annualized.
(c) Aggregate total return for the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
27
<PAGE> 28
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
SHORT-TERM GOVERNMENT SECURITIES FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
May 1, 1995
Six Months Year Ended (Commencement
Ended December 31, of Operations) to
June 30, 1998 ------------------- December 31,
(Unaudited) 1997 1996 1995
------------- -------- -------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 5.07 $ 5.05 $ 5.09 $ 5.00
---------- ------- ------- -----------
Income from investment operations
Net investment income (a)............................. 0.13 0.26 0.26 0.18
Net realized and unrealized gain (loss) on
investments......................................... 0.00 0.02 (0.04) 0.09
---------- ------- ------- -----------
Total from investment operations...................... 0.13 0.28 0.22 0.27
---------- ------- ------- -----------
Distributions
Net investment income................................. (0.13) (0.26) (0.26) (0.18)
---------- ------- ------- -----------
Total distributions................................... (0.13) (0.26) (0.26) (0.18)
---------- ------- ------- -----------
NET ASSET VALUE, END OF PERIOD.............................. $ 5.07 $ 5.07 $ 5.05 $ 5.09
========== ======= ======= ===========
TOTAL RETURN................................................ 2.59%(c) 5.73% 4.46% 5.44%(c)
========== ======= ======= ===========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands).................... $20,231 $16,187 $7,692 $2,658
Ratio of expenses to average net assets (a).............. 0.75%(b) 0.75% 0.75% 0.75%(b)
Ratio of net investment income to average net assets
(a).................................................... 5.15%(b) 5.19% 5.16% 5.18%(b)
Ratio of gross expenses before voluntary expense
limitation to average net assets....................... 1.09%(b) 1.27% 2.30% 6.21%(b)
Portfolio turnover rate.................................. 12% 12% 21% 7%
</TABLE>
- --------------
(a) Excludes excess investment management fees and other expenses in accordance
with the Expense Limitation Agreement with the Manager.
(b) Annualized.
(c) Aggregate total return for the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------
- ----------------------------------------------------
28
<PAGE> 29
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
SMALL COMPANY STOCK FUND
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
March 4, 1998
(Commencement
of Operations) to
June 30, 1998
(Unaudited)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
Income from investment operations
Net investment income (a)............................. 0.04
Net realized and unrealized loss on investments....... (0.52)
------
Total from investment operations...................... (0.48)
------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.52
======
TOTAL RETURN................................................ (4.80)%(c)
======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands).................... $4,327
Ratio of expenses to average net assets (a).............. 1.50%(b)
Ratio of net investment income to average net assets
(a).................................................... 0.94%(b)
Ratio of gross expenses before voluntary expense
limitation to average net assets....................... 3.28%(b)
Portfolio turnover rate.................................. 0%
</TABLE>
- --------------
(a) Excludes excess investment management fees and other expenses in accordance
with the Expense Limitation Agreement with the Manager.
(b) Annualized.
(c) Aggregate total return for the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
----------------------------------------------------------------
- ----------------------------------------------------
29
<PAGE> 30
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
HOMESTEAD FUNDS, INC.
VALUE FUND
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1998 -------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........... $ 25.50 $ 20.99 $ 18.44 $ 14.50 $ 14.54 $ 12.49
---------- -------- -------- -------- ------- -------
Income from investment operations
Net investment income (a).............. 0.19 0.37 0.39 0.41 0.29 0.22
Net realized and unrealized gain on
investments.......................... 2.21 5.22 2.91 4.47 0.07 2.12
---------- -------- -------- -------- ------- -------
Total from investment operations....... 2.40 5.59 3.30 4.88 0.36 2.34
---------- -------- -------- -------- ------- -------
Distributions
Net investment income.................. (0.19) (0.37) (0.39) (0.41) (0.29) (0.22)
Net realized gain...................... -- (0.71) (0.36) (0.53) (0.11) (0.07)
---------- -------- -------- -------- ------- -------
Total distributions.................... (0.19) (1.08) (0.75) (0.94) (0.40) (0.29)
---------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD............... $ 27.71 $ 25.50 $ 20.99 $ 18.44 $ 14.50 $ 14.54
========== ======== ======== ======== ======= =======
TOTAL RETURN................................. 9.42%(c) 26.70% 17.94% 33.78% 2.50% 18.83%
========== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)..... $456,275 $378,621 $238,550 $147,506 $91,612 $53,616
Ratio of expenses to average net assets
(a)..................................... 0.71%(b) 0.79% 0.73% 0.84% 1.15% 1.25%
Ratio of net investment income to average
net assets (a).......................... 1.45%(b) 1.59% 2.08% 2.50% 2.19% 1.92%
Ratio of gross expenses before voluntary
expense limitation to average net
assets.................................. n/a n/a n/a n/a 1.15% 1.25%
Portfolio turnover rate................... 1% 6% 5% 10% 4% 2%
</TABLE>
- --------------
(a) Excludes excess investment management fees and other expenses in accordance
with the Expense Limitation Agreement with the Manager.
(b) Annualized.
(c) Aggregate total return for the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- ----------------------------------------------------------------
- ----------------------------------------------------
30
<PAGE> 31
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
HOMESTEAD FUNDS, INC. (unaudited)
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 (the Fund) currently consists of five funds: Daily Income Fund, Short-Term
Bond Fund, Short-Term Government Securities Fund, Small Company Stock Fund and
Value Fund. The Small Company Stock Fund commenced operations on March 4, 1998.
Each Fund is a separate investment portfolio with distinct investment
objectives, investment programs, policies and restrictions. The investment
objectives of the Fund 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: The Daily Income Fund values all money market instruments 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.
The Short-Term Bond Fund, the Short-Term Government Securities Fund, the Small
Company Stock Fund and the Value Fund value investments in common stocks,
preferred stocks, and convertible preferred stocks traded on national securities
exchanges and certain over-the-counter securities 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. 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. Income dividends for the Small Company Stock Fund are declared and
paid annually. Income dividends for the Value Fund are declared and paid
semi-annually. Capital gains dividends, if any, are declared and paid at the end
of each fiscal year.
Use of estimates in the preparation of financial statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other: The financial statements reflect all adjustments, which are of a normal
recurring nature, and which, in the opinion of management, are necessary to a
fair statement of results for the six months ended June 30, 1998. 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.
At June 30, 1998, the aggregate costs of investments for the Daily Income Fund,
the Short-Term Bond Fund, the Short-Term Government Securities Fund, the Small
Company Stock Fund and the Value Fund for federal income tax is the same as for
financial reporting purposes.
----------------------------------------------------------------
- ----------------------------------------------------
31
<PAGE> 32
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
HOMESTEAD FUNDS, INC. (CONTINUED)
(unaudited)
At June 30, 1998, net unrealized appreciation (depreciation) consisted of the
following:
<TABLE>
<CAPTION>
SHORT-TERM SMALL
GOVERNMENT COMPANY
SHORT-TERM SECURITIES STOCK
BOND FUND FUND FUND VALUE FUND
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Gross unrealized
appreciation $961,276 $77,932 $94,399 $148,724,864
Gross unrealized
depreciation 59,320 3,667 374,976 7,480,487
-------- ------- --------- ------------
Net unrealized
appreciation
(depreciation) $901,956 $74,265 ($280,577) $141,244,377
======== ======= ========= ============
</TABLE>
4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term and U.S.
Government securities, for the six months ended June 30,1998, were as follows:
<TABLE>
<CAPTION>
SHORT-TERM SMALL
GOVERNMENT COMPANY
SHORT-TERM SECURITIES STOCK
BOND FUND FUND FUND VALUE FUND
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Purchases $44,459,750 $1,346,809 $3,949,649 $50,639,506
Proceeds from sales $27,709,228 $1,018,261 -- $4,735,901
</TABLE>
Purchases and proceeds from sales of long-term U.S. Government securities, for
the six months ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT
SHORT-TERM SECURITIES
BOND FUND FUND
----------- ----------
<S> <C> <C>
Purchases $10,432,729 $2,652,265
Proceeds from sales $11,341,028 $725,433
</TABLE>
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. The annualized management fee rates
are: with respect to the Daily Income Fund, .50% of average daily net assets;
with respect to the Short-Term Bond Fund, .60% of average daily net assets; with
respect to the Short-Term Government Securities Fund, .45% of average daily net
assets; with respect to the Small Company Stock Fund, .85% of average daily net
assets up to $200 million and .75% of average daily net assets in excess of $200
million; with respect to the Value Fund, .65% of average daily net assets up to
$200 million, .50% of average daily net assets up to the next $200 million, .40%
of average daily net assets in excess of $400 million.
The Manager has agreed, as part of the Expense Limitation Agreements entered
into with Homestead Funds, with respect to each Fund, to waive its management
fee and/or reimburse for all Fund operating expenses, excluding certain
non-recurring expenses, which in any year exceed .80% of the average daily net
assets of the Daily Income Fund, .75% of the average daily net assets of the
Short-Term Bond Fund and the Short-Term Government Securities Fund, 1.50% of the
average daily net assets of the Small Company Stock Fund, and 1.25% of the
average daily net assets of the Value Fund.
Pursuant to the Expense Limitation Agreements, $23,867 of management fees for
the Daily Income Fund were waived, $62,418 of management fees for the Short-Term
Bond Fund were waived, $30,823 of management fees were waived for the Short-Term
Government Securities Fund, and $8,073 of management fees were waived and
$14,817 of operating expenses of the Small Company Stock Fund were reimbursed by
the Manager for the six months ended June 30, 1998.
At June 30, 1998 certain officers and directors of the Homestead Funds, and
NRECA and its affiliates owned 4% of the Daily Income Fund shares outstanding,
7% of the Small Company Stock Fund shares outstanding, and less than 1% of the
Short-Term Bond Fund, Short-Term Government Securities Fund, and Value Fund
shares outstanding.
- ----------------------------------------------------------------
- ----------------------------------------------------
32
<PAGE> 33
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
HOMESTEAD FUNDS, INC. (CONTINUED)
(unaudited)
6. CAPITAL SHARE TRANSACTIONS
As of June 30, 1998, 300 million shares for the Daily Income Fund, 200 million
shares for the Short-Term Bond Fund, the Small Company Stock Fund and the Value
Fund, and 100 million shares for the Short-Term Government Securities Fund of
$.01 par value capital shares are authorized. Transactions in capital shares
were as follows:
<TABLE>
<CAPTION>
Shares Issued Total Total Net
Shares In Reinvestment Shares Shares Increase
Sold of Dividends Issued Redeemed (Decrease)
------------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED JUNE 30, 1998
In Dollars
Daily Income Fund.............................. $22,218,049 $1,208,657 $23,426,706 ($23,395,201) $31,505
Short-Term Bond Fund........................... $33,348,406 $3,145,499 $36,493,905 ($17,773,514) $18,720,391
Short-Term Government Securities Fund.......... $6,124,693 $430,074 $6,554,767 ($2,512,255) $4,042,513
Small Company Stock Fund *..................... $4,955,127 -- $4,955,127 ($358,025) $4,597,101
Value Fund..................................... $82,370,995 $3,074,461 $85,445,456 ($41,383,527) $44,061,929
In Shares
Daily Income Fund.............................. 22,218,049 1,208,657 23,426,706 (23,395,201) 31,505
Short-Term Bond Fund........................... 6,426,840 606,551 7,033,391 (3,426,627) 3,606,765
Short-Term Government Securities Fund.......... 1,207,778 84,829 1,292,607 (495,518) 797,090
Small Company Stock Fund *..................... 490,846 -- 490,846 (36,106) 454,739
Value Fund..................................... 3,012,887 110,953 3,123,840 (1,501,745) 1,622,095
YEAR ENDED DECEMBER 31, 1997
In Dollars
Daily Income Fund.............................. $39,331,985 $2,614,275 $41,946,260 ($46,784,345) ($4,838,085)
Short-Term Bond Fund........................... $45,129,599 $5,246,887 $50,376,486 ($23,518,986) $26,857,500
Short-Term Government Securities Fund.......... $12,098,248 $596,198 $12,694,446 ($4,261,778) $8,432,668
Value Fund..................................... $124,815,460 $15,039,867 $139,855,327 ($56,348,448) $83,506,879
In Shares
Daily Income Fund.............................. 39,331,985 2,614,275 41,946,260 (46,784,345) (4,838,085)
Short-Term Bond Fund........................... 8,749,692 1,016,687 9,766,379 (4,560,947) 5,205,432
Short-Term Government Securities Fund.......... 2,396,315 118,030 2,514,345 (843,911) 1,670,434
Value Fund..................................... 5,235,806 594,106 5,829,912 (2,347,323) 3,482,589
</TABLE>
- ---------------
* For the period beginning March 4, 1998 (commencement of operations) to June
30, 1998.
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33
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<PAGE> 35
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<PAGE> 36
HOMESTEAD FUNDS, INC.
---------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
[HOMESTEAD FUNDS INC. LOGO]
c/o PFPC, Inc
PO Box 8987
Wilmington, DE 19899
1-800-258-3030
