<PAGE> 1
HOMESTEAD FUNDS
ANNUAL REPORT
DECEMBER 31, 1998
[cover photo]
- Daily Income
- Short-Term Government
Securities
- Short-Term Bond
- Value
- Small Company Stock
[HOMESTEAD FUNDS LOGO]
<PAGE> 2
[PHOTO]
Table of contents
PERFORMANCE EVALUATION
Daily Income 4-5
Short-Term Government Securities 6-7
Short-Term Bond 8-9
Value 10-12
Small Company Stock 13-14
REPORT OF INDEPENDENT AUDITORS 15
PORTFOLIO OF INVESTMENTS
Daily Income 16-19
Short-Term Bond 20-28
Short-Term Government
Securities 29-30
Small Company Stock 31-32
Value 33-35
FINANCIAL STATEMENTS 36-39
FINANCIAL HIGHLIGHTS 40-44
NOTES TO FINANCIAL STATEMENTS 45-47
2
<PAGE> 3
Letter from the Investment Manager
Dear Shareholder:
I'm pleased to present the annual report for the Homestead Funds. This is our
first report to you in the new format, which is intended to provide you with
more details on fund management and portfolio composition and make it easier for
you to find the sections most relevant to you.
As you'll read, the investment climate in 1998 was characterized by extreme
volatility and wide performance disparities. Equity investors who withstood the
temptation to exit the market were rewarded with a fourth consecutive year of
double-digit gains, as measured by the Standard & Poor's 500 Stock Index. Bonds
also posted good returns, as the continued decline in interest rates caused
prices to rise. Money market securities offered low yields, reflecting the
current low interest rates, but were important vehicles for those seeking
shelter from riskier investments.
Some had predicted the financial turmoil abroad would have a severe negative
impact on the U.S. economy, but the economy showed surprising strength. Gross
Domestic Product grew last year by almost 4.0%, unemployment was below 5.0% and
inflation rose by a modest 1.6%. Ironically, financial instability in other
regions has helped to keep domestic inflation down, primarily by reducing import
prices. Additionally, the strong dollar and volatile international markets have
attracted foreign capital to our stock and bond markets. Lower interest rates,
in turn, have resulted in greater economic activity by making borrowing more
affordable for consumers and businesses.
We appreciate your investment in the Homestead Funds and hope you'll take a few
minutes to read about the steps your manager took to generate competitive
returns while keeping the degree of risk in line with the Funds' objectives.
Sincerely,
/s/ PETER R. MORRIS
Peter R. Morris
Director of Investments
February 8, 1999
3
<PAGE> 4
Daily Income Fund
MARKET CONDITIONS
The Federal Reserve maintained a wait and see approach during the first nine
months of 1998, taking no steps to either raise or lower interest rates. While
the Fed was concerned about the strength of the economy and potential for rising
inflation, policy makers ultimately decided the Asian financial crisis would
have a sufficient dampening effect on the domestic economy.
As the turmoil spread from Asia to Russia then Latin America, investors became
increasingly risk-averse, shifting assets from foreign markets and equities to
safer securities. U.S. Treasuries were the primary beneficiaries of this trend.
In late September, the Fed made the first of three separate reductions to the
Federal Funds rate, a key overnight bank lending rate, in an attempt to head off
a crisis and restore liquidity to the financial markets.
FUND PERFORMANCE AND STRATEGY
Reflecting the general decline in rates, the Daily Income Fund's seven-day
simple yield declined from 5.08% at the start of the year to 4.80% in October,
just after the Fed's move to lower interest rates. At the end of the year, the
Fund's seven-day simple yield had picked up slightly to 4.83%. The Fund posted a
12-month total return of 4.9% at December 31, 1998.
During the course of the year, we added to the Fund's holdings of high-quality,
short-term corporate bonds, which at year-end made up 33.6% of the Fund,
compared to 17.4% at the beginning of the year. Corporate issuers were forced to
offer yields a bit above Treasuries in order to entice buyers, who had become
extremely credit conscious. We increased investment to this sector to take
advantage of the better yields available.
OUTLOOK
Although inflation does not appear to be a threat, recent data suggests the
economy is continuing to grow at a robust rate. We don't anticipate the Fed will
take further stimulative measures. This Fund's short maturity will allow its
yield to quickly reflect any rise in rates.
4
[photo of scale]
<PAGE> 5
Daily Income Fund
PORTFOLIO COMPOSITION
SECURITY DIVERSIFICATION
<TABLE>
<CAPTION>
on 6/30/98 on 12/31/98
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper 58.4% 64.6%
- -----------------------------------------------------------------------------------------------------
Corporate bonds 37.0% 33.6%
- -----------------------------------------------------------------------------------------------------
U.S. Government obligations 4.2% 1.7%
- -----------------------------------------------------------------------------------------------------
Cash equivalents .4% .1%
- -----------------------------------------------------------------------------------------------------
Total 100% 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
on 6/30/98 on 12/31/98
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE WEIGHTED MATURITY 45 days 48 days
- -----------------------------------------------------------------------------------------------------
YIELD
Annualized 7-day compound yield (quoted 12/31/98) 4.87%
- -----------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
periods ended 12/31/98
<TABLE>
<CAPTION>
Since
Inception
1 Year 3 Year 5 Year (11/90)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daily Income Fund 4.9% 4.9% 4.7% 4.4%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
5
<PAGE> 6
Short-Term Government Securities Fund
MARKET CONDITIONS
Interest rates trended lower during 1998 on the belief that weakening economies
and markets abroad were acting to slow the pace of growth in the U.S., which
would help to keep inflation in check.
Events overseas had a further impact on U.S. securities markets. As the
financial turmoil spread beyond Asia, investors moved money out of foreign debt
and equity securities and in to very high-quality issues, primarily U.S.
Treasuries. In three separate steps beginning late in the third quarter, the Fed
lowered the Federal Funds rate, the rate banks charge each other on overnight
loans, by a total of .75%. The rate cuts sparked a fourth quarter rally in the
bond market.
FUND PERFORMANCE AND STRATEGY
For the year ended December 31, 1998, the Short-Term Government Securities Fund
generated a total return of 5.5%. Price appreciation as well as interest income
contributed to the Fund's total return. (Prices of fixed-income securities rise
when yields decline.)
The biggest boost to performance came in late summer, when the increased demand
for safe haven Treasury securities pushed yields lower. The Treasury securities
in our Portfolio benefited from the resulting price appreciation.
As the yield spread between Treasuries and other issues widened, we added to our
holdings of government-agency debt. By year-end, these issues comprised 49.3% of
the portfolio, compared to 16% at the beginning of the year. The Fund's average
weighted maturity was essentially unchanged. (See chart on page 7.)
OUTLOOK
This Fund maintains a relatively short maturity of three years or less. This
minimizes the effect of a rise in rates on the Fund's net asset value. Our
conservative approach looks to be well-suited for the current climate, as we
think it's not very likely the Fed will take further steps to reduce rates.
6
[photo of small eye glasses]
<PAGE> 7
Short-Term Government Securities Fund
PORTFOLIO COMPOSITION
SECURITY DIVERSIFICATION
<TABLE>
<CAPTION>
on 6/30/98 on 12/31/98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Government-guaranteed agencies 15.2% 49.3%
- -------------------------------------------------------------------------------------------------------------
U.S. Treasuries 66.3% 34.6%
- -------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 13.7% 12.0%
- -------------------------------------------------------------------------------------------------------------
Cash equivalents 4.8% 4.1%
- -------------------------------------------------------------------------------------------------------------
Total 100% 100%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
on 6/30/98 on 12/31/98
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE WEIGHTED MATURITY 1.93 years 2.06 years
- -------------------------------------------------------------------------------------------------------------
YIELD
Annualized 30-day SEC yield (quoted 12/31/98) 4.41%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
periods ended 12/31/98
<TABLE>
<CAPTION>
Since
Inception
1 Year (5/95)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-Term Government Securities Fund 5.5% 5.8%
- -------------------------------------------------------------------------------------------------------------
Merrill Lynch 1-4.99 Year U.S. Treasury Index 7.8% 7.3%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[PERFORMANCE COMPARISON GRAPH]
Comparison of the change in value of a $10,000 investment in the Fund
at inception and the Merrill Lynch 1-4.99 Year U.S. Treasury Index.
Past performance is not predictive of future performance. The
Short-Term Government Securities Fund average annual total returns are
net of any fee waivers and reimbursements.
7
<PAGE> 8
Short-Term Bond Fund
MARKET CONDITIONS
Global financial turmoil set the stage for market events in 1998. While the U.S.
economy appeared healthy, investors reasoned that currency devaluation in Asia
would crimp U.S. exports to these regions, increase price competition and, in
time, slow the pace of domestic growth. The Federal Reserve adopted a wait and
see position.
As the scope of the financial debacle widened, investors became increasingly
risk-averse and moved assets to safe-haven securities, primarily U.S.
Treasuries. Markets for less credit-worthy currencies and securities dried up,
prompting the Fed to ease interest rates to restore liquidity and investor
confidence. In three separate actions beginning in late September, the Fed cut a
key lending rate by a total of .75%. The continued decline in rates supported a
rally in the bond market.
FUND PERFORMANCE AND STRATEGY
The Short-Term Bond Fund returned 6.4% for the year ended December 31, 1998.
Reflecting the decline in interest rates, the Fund's 30-day Securities and
Exchange Commission yield, fell from 5.84% at the start of the year to 5.40% at
the end.
In the Treasury market, increased demand caused yields to fall considerably
below those of other fixed-income securities of comparable maturity. As the
yield spread widened, we shifted assets to higher yielding corporate bonds,
mortgage securities and asset-backed bonds. The Fund's maturity structure was
essentially unchanged during the year.
OUTLOOK
This Fund is managed to maintain a relatively short average weighted maturity of
three years or less. In our opinion, our conservative approach is well-suited
for the current climate. While we don't expect interest rates will move sharply
higher, a slight increase is probable given the strength of the economy and the
fact that rates are currently at low levels.
[PHOTO]
8
<PAGE> 9
Short-Term Bond Fund
PORTFOLIO COMPOSITION
SECURITY DIVERSIFICATION
<TABLE>
<CAPTION>
on 6/30/98 on 12/31/98
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate bonds 32.2% 39.6%
- -----------------------------------------------------------------------------------------------------
Mortgage-backed securities 23.7% 25.5%
- -----------------------------------------------------------------------------------------------------
Asset-backed securities 18.0% 15.8%
- -----------------------------------------------------------------------------------------------------
U.S. Government obligations 17.4% 13.6%
- -----------------------------------------------------------------------------------------------------
Commercial paper 8.5% 5.4%
- -----------------------------------------------------------------------------------------------------
Cash equivalents .2% .1%
- -----------------------------------------------------------------------------------------------------
Total 100% 100%
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
on 6/30/98 on 12/31/98
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE WEIGHTED MATURITY 2.85 years 2.86 years
- -----------------------------------------------------------------------------------------------------
YIELD
Annualized 30-day SEC yield (quoted 12/31/98) 5.38%
- -----------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
periods ended 12/31/98
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (11/90)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Bond Fund 6.4% 5.8% 6.1%
- -----------------------------------------------------------------------------------------------------------------
Merrill Lynch 1-4.99 Year Corp./Gov. Index 7.7% 6.3% 6.8%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[PERFORMANCE COMPARISON GRAPH]
Comparison of the change in value of a $10,000 investment in the Fund
at inception and the Merrill Lynch 1-4.99 Year Corp./Gov. Index. Past
performance is not predictive of future performance. The Short-Term
Bond Fund average annual total returns are net of any fee waivers and
reimbursements.
9
<PAGE> 10
Value Fund
MARKET CONDITIONS
The U.S. financial markets experienced both bull market optimism and bear market
uncertainty in 1998. During the first half of the year, investors ignored signs
of slowing corporate profits and the continuing economic problems in the Far
East. The strong stock market and growth in wages bolstered consumer confidence
and spending, which more than offset the weakness in the manufacturing sector.
Interest rates, meanwhile, continued to fall providing additional support for
stock valuations.
By mid-summer investors' attitudes changed abruptly. Asia's problems continued
to mount, while Russia effectively defaulted on its debt, leading some to
believe that the crisis would spread through Latin America. At home, the
collapse and subsequent bailout of a large investment partnership and
uncertainty over U.S. political leadership began to weigh on the capital
markets. After rising to a record high in mid July, the Standard & Poor's 500
Index had fallen by 19% by the end of August.
In late September, the Federal Reserve Board, recognizing the severity of the
deteriorating economy, initiated a series of interest rate cuts aimed at
providing liquidity and increasing overall investor confidence in the capital
markets. The Fed's timely actions were successful and capital once again
returned to the U.S. stock market. This allowed the S&P 500 Stock Index to
resume its upward path and, on the strength of a powerful fourth quarter, the
Index posted its fourth consecutive year of double-digit gains.
FUND PERFORMANCE AND STRATEGY
The Value Fund's 8.3% return did not keep pace with the S&P 500's 28.7% gain.
There were several reasons for the market's better showing. First, investors
shunned value stocks in favor of growth stocks. Second, performance was tightly
consolidated, with just a few sectors--most notably, technology and
pharmaceuticals--outshining the rest. And, within those arenas, a handful of
companies were responsible for the bulk of the gain.
The continued strong performance of a narrow group of companies thought to
possess pricing power because of some unique property or global brand has led to
valuation disparities of significant magnitude. We continue to avoid these
companies simply because they cost too much. Market leaders such as Microsoft,
Dell and Coca-Cola are excellent companies; however, by most traditional
valuation standards they have become overpriced. Moreover, highly profitable
companies such as these, have, in the past, had difficulty sustaining their
strong performance for long periods of time. When stock prices are based on
extreme optimism, any disappointment can lead to significant share price loss.
Technology stocks are at risk in this regard because they have had difficulty
producing superior results over long periods of time.
By contrast, companies with more moderate growth expectations offer superior
value today. This would include companies in the oil service and financial
sectors as well as certain cyclical companies with exposure to the emerging
markets. In addition, some companies
10
<PAGE> 11
Value Fund
experiencing profit weakness are likely to take actions towards improvement.
Corrective actions have already begun in companies we own such as Halliburton
Co., Citigroup Inc. and R.R. Donnelley & Sons Co. Other Fund holdings such as
Xerox Corp., Brinker International, Inc. and Maytag Corp. have undergone major
restructurings and are now reaping the benefits of such actions. Investing in
companies such as these with the financial strength to survive downturns is a
time-tested and reliable strategy.
OUTLOOK
Of course, we don't know when share prices for our holdings will fully rebound,
but history shows that prices typically rise sharply in response to the first
signs that the worst is over. Given their depressed levels and our expectation
of a continuing profit recovery, we believe that the Fund's portfolio as a whole
offers excellent long-term investment prospects.
[PHOTO]
11
<PAGE> 12
Value Fund
PORTFOLIO COMPOSITION
TOP HOLDINGS ON 12/31/98
<TABLE>
<CAPTION>
% of total
Industry market value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maytag Corp. Household appliances 3.3%
- -------------------------------------------------------------------------------------------------------------
Ruddick Corporation Grocery store retailer 3.1%
- -------------------------------------------------------------------------------------------------------------
Southwest Airlines Airline 2.9%
- -------------------------------------------------------------------------------------------------------------
Brinker International Restaurants 2.8%
- -------------------------------------------------------------------------------------------------------------
BellSouth Corporation Telephone communications 2.6%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
periods ended 12/31/98
<TABLE>
<CAPTION>
Since
Inception
1 Year 5 Year (11/90)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Fund 8.3% 17.3% 16.6%
- -----------------------------------------------------------------------------------------------------------------
S&P 500 Index 28.7% 24.1% 21.0%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[PERFORMANCE COMPARISON GRAPH]
Comparison of the change in value of a $10,000 investment in the Fund
at inception and the S&P 500 Index. Past performance is not predictive
of future performance. The Value Fund average annual total returns are
net of any fee waivers and reimbursements.
12
<PAGE> 13
Small Company Stock Fund
The Small Company Stock Fund began operations on March 4, 1998. The Fund seeks
long-term growth by investing primarily in the stocks of small- to
medium-sized companies that we believe are selling below their true fundamental
value. Given the volatility inherent in small stocks, the Fund's share price can
fluctuate significantly in the short-term, and as such, is only suitable for
those investors with long-term investment horizons.
MARKET CONDITIONS
If one looked only at year-end, broad market results, it would appear that the
investment climate for stocks was extremely favorable. The Standard & Poor's 500
Stock Index turned in its fourth straight year of double-digit returns. However,
this same Index was in negative territory for the year in the fall before
experiencing a spectacular fourth quarter rally. And, within the broad market,
there was a sharp split in investment returns.
The technology sector, which consists of roughly 20% of the S&P 500 returned
about 75%, while stocks in the basic industry sectors produced negative results
for the year. In fact, the median return for the S&P 500 was approximately 5%
for the year. Small stocks as a group significantly underperformed the major
market indices. The Russell 2000 Index, a measure of small stocks, declined by
3.2% for the year, and at one point, was down approximately 30% from its highs.
FUND PERFORMANCE AND STRATEGY
For the period from the Fund's inception March 4, 1998, through December 31,
1998, the Small Company Stock Fund earned a total return of -11.0% compared to
- -9.2% for the Russell 2000 Index.
Small stocks are thought to be more risky than large companies because earnings
growth is less predictable. But, in 1998, a bigger factor in the general decline
in small-cap stock prices was the flight toward the perceived safety of other
investments.
The disparities in returns between large capitalization companies and their
smaller counterparts, between value and so-called growth and between technology
stocks and all others, were as extreme as they have ever been. Investors who
used traditional valuation techniques missed the big gains, which came in stocks
that already looked vastly overpriced. Some believe that traditional security
analysis is no longer suited to a time when thorough analysis often means missed
opportunities. Investors often point to any number of factors to help explain
the direction of stock prices such as "a strong business model" or "short-term
earnings surprise." However, over the long-term, it is actual and expected
corporate earnings that hold the key to stock prices.
OUTLOOK
We continue to seek small- and medium-sized companies trading below their true
worth. While the market did not reward our approach in 1998, we believe the
Small Company Stock Fund offers excellent relative value and, over time, should
produce attractive investment returns for patient investors.
13
<PAGE> 14
Small Company Stock Fund
PORTFOLIO COMPOSITION
TOP HOLDINGS ON 12/31/98
<TABLE>
<CAPTION>
% of total
Industry market value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ruddick Corporation Grocery store retailer 4.1%
- -----------------------------------------------------------------------------------------------------------------
American Freightways Trucking 4.0%
- -----------------------------------------------------------------------------------------------------------------
Hughes Supply, Inc. Industrial products 3.9%
- -----------------------------------------------------------------------------------------------------------------
Cracker Barrel Restaurant 3.9%
- -----------------------------------------------------------------------------------------------------------------
Alberto-Culver Co. Toiletries and cosmetics 3.8%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
periods ended 12/31/98
<TABLE>
<CAPTION>
Since
Inception
(3/98)
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Small Company Stock Fund -11.0%
- -----------------------------------------------------------------------------------------------------------------
Russell 2000 Index -9.2%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[PERFORMANCE COMPARISON GRAPH]
Comparison of the change in value of a $10,000 investment in the Fund
at inception and the Russell 2000 Index. Past performance is not
predictive of future performance. The Small Company Stock Fund average
annual total returns are net of any fee waivers and reimbursements.
14
<PAGE> 15
report of independent auditors
To the Shareholders and Board of Directors of Homestead Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the Daily Income, Short-Term Bond,
Short-Term Government Securities and Value Funds of the Homestead Funds, Inc.
(the "Funds"), and the related statements of operations for the year then
ended, changes in net assets and financial highlights for the year then ended
and the year ended December 31, 1997. We also have audited the statement of
assets and liabilities, including the portfolio of investments, of the Small
Company Stock Fund of the Homestead Funds, Inc. as of December 31, 1998 and the
related statement of operations, changes in net assets and financial highlights
for the period March 4, 1998 (inception date) to December 31, 1998. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights of the Homestead Funds, Inc. for each of the periods in
the three year period ended December 31, 1996 were audited by other auditors
whose report, dated January 29, 1997, expressed an unqualified opinion on those
financial statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned at December 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Daily Income, Short-Term Bond, Short-Term Government Securities, Value, and
Small Company Stock Funds of the Homestead Funds, Inc. as of December 31, 1998
and the results of their operations, the changes in their net assets, and their
financial highlights for the period then ended and the year ended December 31,
1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 12, 1999
15
<PAGE> 16
portfolio of investments
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (64.6% of portfolio)
American Express Credit Corp. ........................ 6.10% 01/04/99 $ 600,000 $ 599,694
American Express Credit Corp. ........................ 5.85 01/06/99 490,000 489,602
American Express Credit Corp. ........................ 5.25 01/08/99 290,000 289,704
American Express Credit Corp. ........................ 6.00 01/11/99 690,000 688,850
American General Finance Corp. ....................... 5.60 01/11/99 440,000 439,316
American General Finance Corp. ....................... 5.28 01/20/99 530,000 528,523
American General Finance Corp. ....................... 5.50 01/29/99 480,000 477,947
Chevron USA, Inc. .................................... 5.22 01/07/99 850,000 849,260
Chevron USA, Inc. .................................... 5.30 01/12/99 1,000,000 998,381
CIT Group Holdings, Inc. ............................. 5.70 01/14/99 500,000 498,971
CIT Group Holdings, Inc. ............................. 5.25 01/28/99 1,635,000 1,628,562
CIT Group Holdings, Inc. ............................. 5.12 01/13/99 610,000 608,959
Coca-Cola Co. ........................................ 5.50 01/22/99 125,000 124,599
Coca-Cola Co. ........................................ 6.15 01/07/99 100,000 99,897
Commercial Credit Co. ................................ 5.33 01/13/99 1,700,000 1,696,980
Commercial Credit Co. ................................ 5.33 01/14/99 1,000,000 998,075
Consolidated Natural Gas Co. ......................... 5.10 01/19/99 1,000,000 997,450
Deere & Co. .......................................... 5.30 01/13/99 600,000 598,940
Deere & Co. .......................................... 5.45 01/27/99 1,115,000 1,110,611
E.I. Dupont de Nemours & Co., Inc. ................... 5.55 01/12/99 645,000 643,906
E.I. Dupont de Nemours & Co., Inc. ................... 5.75 01/12/99 250,000 249,561
E.I. Dupont de Nemours & Co., Inc. ................... 5.35 01/26/99 1,450,000 1,444,613
Exxon Corp. .......................................... 5.43 01/05/99 1,118,000 1,117,325
Exxon Corp. .......................................... 5.35 01/15/99 900,000 898,127
Ford Motor Credit Co. ................................ 5.80 01/06/99 710,000 709,428
Ford Motor Credit Co. ................................ 5.25 01/08/99 275,000 274,719
General Electric Capital Corp. ....................... 5.75 01/04/99 200,000 199,904
General Electric Capital Corp. ....................... 5.10 01/12/99 400,000 399,377
General Electric Capital Corp. ....................... 5.68 01/12/99 500,000 499,132
General Electric Capital Corp. ....................... 5.65 01/22/99 220,000 219,275
General Electric Capital Corp. ....................... 5.20 01/14/99 100,000 99,812
General Electric Capital Corp. ....................... 5.35 01/20/99 100,000 99,718
General Motors Acceptance Corp. ...................... 6.10 01/05/99 255,000 254,827
General Motors Acceptance Corp. ...................... 5.90 01/14/99 250,000 249,467
Household Finance Corp. .............................. 5.18 01/06/99 700,000 699,496
IBM Credit Corp. ..................................... 6.25 01/05/99 758,000 757,474
IBM Credit Corp. ..................................... 5.12 01/07/99 1,300,000 1,298,891
IBM Credit Corp. ..................................... 5.31 01/11/99 760,000 758,879
JC Penney Funding Corp. .............................. 5.25 01/27/99 500,000 498,104
JC Penney Funding Corp. .............................. 5.40 01/27/99 541,000 538,890
JC Penney Funding Corp. .............................. 5.30 02/19/99 280,000 277,980
Merrill Lynch & Co. .................................. 5.35 01/14/99 375,000 374,275
Merrill Lynch & Co. .................................. 5.42 01/19/99 300,000 299,187
Merrill Lynch & Co. .................................. 5.45 01/19/99 200,000 199,455
Merrill Lynch & Co. .................................. 5.65 01/20/99 200,000 199,404
Merrill Lynch & Co. .................................. 5.45 01/11/99 300,000 299,546
Northern Illinois Gas Co. ............................ 5.25 01/08/99 475,000 474,515
Norwest Financial, Inc. .............................. 5.78 01/07/99 1,000,000 999,037
Norwest Financial, Inc. .............................. 5.37 01/13/99 600,000 598,926
</TABLE>
16
<PAGE> 17
portfolio of investments
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER -- CONTINUED
Norwest Financial, Inc. .............................. 5.19% 01/05/99 $ 800,000 $ 799,539
Pacific Gas & Electric Co. ........................... 5.81 01/07/99 1,000,000 999,032
Pacific Gas & Electric Co. ........................... 5.38 01/11/99 1,000,000 998,506
Pacific Gas & Electric Co. ........................... 5.63 01/13/99 143,000 142,732
PepsiCo, Inc. ........................................ 5.03 01/12/99 400,000 399,385
Prudential Funding Corp. ............................. 5.50 01/04/99 100,000 99,954
Prudential Funding Corp. ............................. 5.36 01/12/99 575,000 574,058
Prudential Funding Corp. ............................. 5.17 01/13/99 1,190,000 1,187,949
Prudential Funding Corp. ............................. 5.21 01/14/99 225,000 224,577
Prudential Funding Corp. ............................. 5.40 01/14/99 100,000 99,805
Shell Oil Co. ........................................ 5.00 01/04/99 1,000,000 999,583
Texaco, Inc. ......................................... 5.78 01/04/99 500,000 499,759
Texaco, Inc. ......................................... 6.10 01/04/99 500,000 499,746
Texaco, Inc. ......................................... 5.32 01/06/99 800,000 799,409
Transamerica Finance Corp. ........................... 5.25 01/04/99 455,000 454,801
----------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $38,136,406)............................................... 38,136,406
----------------------------------------------------------------------------------------------------------
CORPORATE NOTES (33.6% of portfolio)
American Express Credit Corp. ........................ 7.38 02/01/99 771,000 772,003
American General Finance Corp. ....................... 6.88 07/01/99 295,000 296,762
Associates Corp. of North America..................... 6.00 03/15/99 80,000 80,096
Associates Corp. of North America..................... 6.25 03/15/99 314,000 314,518
Associates Corp. of North America..................... 6.63 07/15/99 280,000 281,229
Associates Corp. of North America..................... 7.25 09/01/99 135,000 136,623
Associates Corp. of North America..................... 6.75 10/15/99 160,000 161,574
Associates Corp. of North America..................... 6.82 08/11/99 25,000 25,217
Baltimore Gas & Electric Co........................... 8.40 10/15/99 117,000 119,688
Beneficial Corp. ..................................... 8.05 04/02/99 575,000 578,025
Campbell Soup Co. .................................... 5.50 01/08/99 1,782,000 1,781,943
CIT Group Holdings, Inc. ............................. 6.38 05/21/99 5,000 5,019
CIT Group Holdings, Inc. ............................. 6.63 06/28/99 50,000 50,329
CIT Group Holdings, Inc. ............................. 6.25 09/30/99 10,000 10,030
CIT Group Holdings, Inc. ............................. 6.25 10/25/99 20,000 20,147
Commercial Credit Co. ................................ 6.70 08/01/99 50,000 50,240
Consolidated Natural Gas Co. ......................... 8.75 06/01/99 100,000 101,392
E.I. Dupont de Nemours & Co., Inc. ................... 6.90 11/12/99 500,000 506,465
Eli Lilly & Co. ...................................... 6.75 11/15/99 20,000 20,236
Exxon Capital Corp. .................................. 6.50 07/15/99 70,000 70,450
Ford Motor Credit Co. ................................ 7.95 05/17/99 20,000 20,156
Ford Motor Credit Co. ................................ 8.88 06/15/99 110,000 111,709
Ford Motor Credit Co. ................................ 7.75 10/01/99 172,000 174,783
Ford Motor Credit Co. ................................ 5.63 01/15/99 740,000 739,942
Ford Motor Credit Co. ................................ 8.00 01/15/99 505,000 505,425
Ford Motor Credit Co. ................................ 7.25 05/15/99 50,000 50,251
General Electric Capital Corp. ....................... 6.93 11/19/99 100,000 101,411
General Electric Capital Corp. ....................... 7.35 03/15/99 8,000 8,031
General Electric Capital Corp. ....................... 7.38 03/15/99 25,000 25,078
General Electric Capital Corp. ....................... 6.60 07/23/99 20,000 20,086
General Electric Capital Corp. ....................... 7.38 09/15/99 4,000 4,041
</TABLE>
17
<PAGE> 18
portfolio of investments
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
CORPORATE NOTES -- CONTINUED
General Electric Capital Corp. ....................... 6.13% 03/04/99 $ 255,000 $ 255,281
General Electric Capital Corp. ....................... 8.10 01/26/99 30,000 30,046
General Motors Acceptance Corp. ...................... 7.75 01/15/99 962,000 962,710
General Motors Acceptance Corp. ...................... 5.63 01/25/99 30,000 29,998
General Motors Acceptance Corp. ...................... 5.63 02/01/99 152,000 152,008
General Motors Acceptance Corp. ...................... 5.70 02/09/99 15,000 15,003
General Motors Acceptance Corp. ...................... 5.95 02/12/99 100,000 100,009
General Motors Acceptance Corp. ...................... 6.77 06/01/99 20,000 20,113
General Motors Acceptance Corp. ...................... 7.13 06/01/99 275,000 276,654
General Motors Acceptance Corp. ...................... 7.50 06/01/99 100,000 100,854
General Motors Acceptance Corp. ...................... 8.63 06/15/99 394,000 399,052
General Motors Acceptance Corp. ...................... 5.88 07/15/99 20,000 20,054
General Motors Acceptance Corp. ...................... 8.00 10/01/99 85,000 86,549
General Motors Acceptance Corp. ...................... 5.80 10/15/99 10,000 10,036
General Motors Acceptance Corp. ...................... 8.40 10/15/99 20,000 20,422
General Motors Acceptance Corp. ...................... 6.55 04/23/99 5,000 5,017
Household Finance Corp. .............................. 6.58 05/17/99 355,000 356,327
Household Finance Corp. .............................. 7.63 06/15/99 30,000 30,246
Household Finance Corp. .............................. 8.95 09/15/99 140,000 143,439
Household Finance Corp. .............................. 7.75 06/01/99 110,000 110,820
Household Finance Corp. .............................. 6.32 06/21/99 165,000 165,337
John Deere Capital Corp. ............................. 6.00 02/01/99 900,000 900,169
John Deere Capital Corp. ............................. 6.30 06/01/99 50,000 50,095
John Deere Capital Corp. ............................. 6.50 09/20/99 100,000 100,948
John Deere Capital Corp. ............................. 8.08 12/22/99 10,000 10,256
Merrill Lynch & Co. .................................. 10.38 02/01/99 200,000 200,708
Merrill Lynch & Co. .................................. 0.00(a) 02/16/99 10,000 9,932
Merrill Lynch & Co. .................................. 5.50 02/16/99 100,000 99,980
Merrill Lynch & Co. .................................. 6.38 03/30/99 229,000 229,521
Merrill Lynch & Co. .................................. 8.25 11/15/99 55,000 56,280
Merrill Lynch & Co. .................................. 7.75 03/01/99 348,000 349,134
Mobil Corp. .......................................... 7.25 03/15/99 963,000 965,804
Norwest Financial, Inc. .............................. 6.25 03/15/99 250,000 250,461
Norwest Financial, Inc. .............................. 6.20 09/15/99 10,000 10,027
Norwest Financial, Inc. .............................. 6.88 12/15/99 5,000 5,073
Norwest Financial, Inc. .............................. 7.45 09/15/99 185,000 187,693
Pacific Gas & Electric Co. ........................... 5.50 06/01/99 500,000 500,000
PepsiCo, Inc. ........................................ 0.00(a) 05/25/99 43,000 42,012
PepsiCo, Inc. ........................................ 6.25 09/01/99 660,000 663,714
Phillip Morris Cos., Inc. ............................ 7.75 05/01/99 155,000 155,903
Phillip Morris Cos., Inc. ............................ 7.13 12/01/99 225,000 228,578
Phillip Morris Cos., Inc. ............................ 6.00 11/15/99 83,000 83,000
Phillip Morris Cos., Inc. ............................ 7.38 02/15/99 1,531,000 1,534,002
Phillip Morris Cos., Inc. ............................ 8.63 03/01/99 781,000 784,557
Texaco Capital Inc. .................................. 9.00 12/15/99 150,000 155,095
Texaco Capital Inc. .................................. 6.88 07/15/99 350,000 352,156
Transamerica Finance Corp. ........................... 6.80 03/15/99 569,000 570,124
Transamerica Finance Corp. ........................... 8.75 10/01/99 780,000 797,939
</TABLE>
18
<PAGE> 19
portfolio of investments
HOMESTEAD FUNDS, INC.
DAILY INCOME FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
CORPORATE NOTES -- CONTINUED
Wal-Mart Stores, Inc. ................................ 6.13% 10/01/99 $ 138,000 $ 138,863
----------------------------------------------------------------------------------------------------------
Total Corporate Notes (Cost $19,864,898)................................................ 19,864,898
----------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (1.7% of portfolio)
Federal Farm Credit Bank.............................. 5.35 01/11/99 15,000 14,978
Federal Farm Credit Bank.............................. 6.57 04/13/99 125,000 125,343
Federal Home Loan Bank................................ 5.16 01/06/99 350,000 349,749
Federal Home Loan Bank................................ 9.30 01/25/99 10,000 10,024
Federal Home Loan Bank................................ 5.59 02/02/99 50,000 49,997
Federal Home Loan Bank................................ 5.43 02/25/99 10,000 9,996
Federal Home Loan Bank................................ 6.26 08/09/99 15,000 15,066
Federal Home Loan Bank................................ 8.60 08/25/99 10,000 10,205
Federal Home Loan Mortgage Corp. ..................... 5.35 01/07/99 25,000 24,978
Federal Home Loan Mortgage Corp. ..................... 6.55 04/19/99 45,000 45,165
Federal Home Loan Mortgage Corp. ..................... 7.13 07/21/99 115,000 116,117
Federal National Mortgage Association................. 5.55 03/12/99 10,000 10,000
Federal National Mortgage Association................. 8.45 07/12/99 170,000 172,721
Federal National Mortgage Association................. 8.55 08/30/99 30,000 30,608
Federal National Mortgage Association................. 8.35 11/10/99 10,000 10,250
----------------------------------------------------------------------------------------------------------
Total U.S. Government Agency Obligations (Cost $995,197)................................ 995,197
----------------------------------------------------------------------------------------------------------
CORPORATE MASTER NOTE (0.1% of portfolio)
Associates Corp. of North America..................... 4.71(b) 70,000 70,000
----------------------------------------------------------------------------------------------------------
Total Corporate Master Note (Cost $70,000).............................................. 70,000
----------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNT
State Street Bank and Trust SSgA Fund................. 4.83(c) 7,779
----------------------------------------------------------------------------------------------------------
Total Money Market Account (Cost $7,779)................................................ 7,779
----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $59,074,280) -- 100%.................................. $59,074,280
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Zero coupon security, purchased at a discount.
(b) Variable coupon rate as of December 31, 1998.
(c) One day yield at December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
19
<PAGE> 20
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (39.5% of portfolio)
BASIC INDUSTRIES -- 7.6%
Allied Corp. ................................... 0.00%(a) 08/01/99 $ 109,000 $ 105,770
Allied Corp. ................................... 0.00(a) 08/15/00 334,000 304,895
Allied Corp. ................................... 0.00(a) 08/01/01 410,000 358,750
Allied Signal, Inc. ............................ 9.88 06/01/02 150,000 171,375
Archer Daniels Midland Co. ..................... 0.00(a) 05/01/02 200,000 168,250
Armstrong World Industries, Inc. ............... 6.35 08/15/03 500,000 508,125
Caterpillar, Inc. .............................. 7.98 01/14/02 800,000 856,000
Corning Glassworks, Inc. ....................... 7.10 08/14/00 100,000 103,125
Corning, Inc. .................................. 8.25 03/15/02 250,000 266,610
Corning, Inc. .................................. 6.00 08/15/03 500,000 513,750
Dow Chemical Co. ............................... 9.35 03/15/02 1,063,000 1,103,730
General Motors Corp. ........................... 9.13 07/15/01 200,000 217,500
McKesson Corp. ................................. 4.50 03/01/04 345,000 322,462
Monsanto Co. (b)................................ 5.38 12/01/01 500,000 497,500
Nabisco, Inc. .................................. 8.00 01/15/00 338,000 346,028
Occidental Petroleum Corp. ..................... 6.75 11/15/02 1,000,000 1,002,150
Occidental Petroleum Corp. ..................... 6.50 04/01/05 500,000 489,555
PHH Corp. ...................................... 7.02 11/09/01 1,250,000 1,263,225
Phillip Morris, Inc. ........................... 6.00 07/15/01 1,000,000 1,011,250
Ryder System, Inc. ............................. 7.56 08/15/00 85,000 87,338
Texaco Capital, Inc. ........................... 5.50(c) 06/01/99 150,000 150,311
Xerox Corp. .................................... 5.56(c) 10/23/01 1,250,000 1,250,125
---------------------------------------------------------------------------------------------------------
Total Basic Industries........................................................... 11,097,824
---------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLE GOODS -- 2.5%
Beverages
Anheuser-Busch Cos., Inc. ...................... 6.90 10/01/02 540,000 545,400
Processed Foods
McDonald's Corp. ............................... 7.38 07/15/02 630,000 635,513
Recreation
Walt Disney Co. ................................ 1.50 10/20/99 50,000 48,664
Walt Disney Co. (b)............................. 4.20 03/15/01 1,250,000 1,230,541
Retail
Sears Roebuck & Co. ............................ 9.50 06/01/99 175,000 177,717
Sears Roebuck Acceptance Corp. ................. 6.80 10/09/02 900,000 932,625
---------------------------------------------------------------------------------------------------------
Total Consumer Non-Durable Goods................................................. 3,570,460
---------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 0.7%
Healthcare
American Hospital Supply Finance Corp. ......... 0.00(a) 08/15/00 1,000,000 921,389
Hospital Corp. of America....................... 0.00(a) 06/01/99 111,000 107,830
---------------------------------------------------------------------------------------------------------
Total Consumer Services.......................................................... 1,029,219
---------------------------------------------------------------------------------------------------------
FINANCE -- 21.1%
Banks
BankAmerica Corp. .............................. 5.90(c) 05/17/99 400,000 399,824
BankAmerica Corp. .............................. 8.13 08/15/04 320,000 326,000
BankAmerica Corp. .............................. 8.95 11/15/04 725,000 746,696
Barclays N.A. Capital Corp. .................... 9.75 05/15/21 306,000 348,457
</TABLE>
20
<PAGE> 21
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
FINANCE -- continued
Chase Manhattan Corp. .......................... 7.88% 08/01/04 $ 800,000 $ 811,064
Chemical New York Corp. NV...................... 0.00(a) 02/16/00 100,000 91,258
CITICORP........................................ 6.50 09/16/01 75,000 77,122
CITICORP........................................ 8.63 11/01/04 465,000 475,462
Deutsche Bank Financial......................... 0.00(a) 02/01/00 200,000 189,000
First Chicago Corp. ............................ 5.34(c) 07/28/03 175,000 173,208
First Union Corp. .............................. 8.77 11/15/04 405,000 412,575
International Bank for Recon. & Dev............. 0.00(a) 02/15/99 732,000 728,340
International Bank for Recon. & Dev............. 0.00(a) 08/15/99 525,000 509,906
Irving Bank Corp. .............................. 8.50 06/01/02 146,000 146,172
National City Bank of Cleveland................. 7.10 09/25/12 800,000 819,919
Financial Services
ACC Consumer Finance............................ 10.25 12/01/03 1,237,000 1,309,674
American Express Credit Corp. .................. 0.00(a) 12/12/00 330,000 296,185
American Express Credit Corp.,.................. 6.25 08/10/05 200,000 202,224
Associates Corp. of North America............... 6.00 06/15/01 210,000 210,000
AT&T Capital Corp. ............................. 7.50 11/15/00 1,000,000 1,015,000
AVCO Financial Services, Inc. .................. 8.50 10/15/99 50,000 51,304
Bell Atlantic Financial Services, Inc. ......... 6.53 02/22/00 1,250,000 1,268,750
Beneficial Corp. ............................... 5.22(c) 02/01/99 200,000 199,978
Beneficial Corp. ............................... 9.50 03/08/01 450,000 483,750
CIT Group, Inc. ................................ 5.50 10/15/01 1,250,000 1,243,287
CM International................................ 0.00(a) 09/11/00 1,325,000 1,210,093
Dean Witter Discover Co. ....................... 5.11(c) 03/02/99 3,405,000 3,401,935
Ford Motor Credit Corp. ........................ 7.35 01/23/12 500,000 500,505
GATX Capital Corp. ............................. 6.36 12/16/02 450,000 457,312
General Motors Acceptance Corp. ................ 5.63(c) 12/03/01 1,250,000 1,250,675
Goldman Sachs Group............................. 5.90 01/15/03 1,000,000 988,750
Heller Financial, Inc. ......................... 5.58(c) 09/25/00 1,000,000 997,028
Household Finance Corp. ........................ 8.95 09/15/99 110,000 112,820
Household Finance Corp. ........................ 5.37(c) 08/01/01 1,000,000 994,348
Household Finance Corp. ........................ 6.13 07/15/12 315,000 314,093
Household Finance Corp. ........................ 8.00 08/15/04 450,000 456,899
Household Finance Corp. ........................ 8.55 10/15/04 180,000 184,176
Household Finance Corp. ........................ 6.08 03/08/06 487,500 493,409
Lincoln National Corp. ......................... 7.13 07/15/99 150,000 151,551
Morgan Stanley Group............................ 4.41(c) 03/22/99 1,000,000 998,510
Norwest Financial, Inc. ........................ 8.38 01/15/99 100,000 100,125
Salomon, Inc. .................................. 7.30 05/15/02 400,000 418,500
Transamerica Financial Corp. ................... 8.75 10/01/99 50,000 51,273
Transamerica Financial Corp. ................... 7.85 10/21/99 1,000,000 1,018,990
Transamerica Financial Corp. ................... 7.68 03/16/00 500,000 510,350
Transamerica Financial Corp. ................... 6.60 03/20/01 250,000 253,596
Transamerica Financial Corp. ................... 6.13 11/01/01 750,000 757,035
Xerox Credit Corp. ............................. 6.78 05/21/01 1,500,000 1,554,375
Insurance
Liberty Mutual Capital Corp. (b)................ 7.98 12/01/02 500,000 539,545
</TABLE>
21
<PAGE> 22
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
FINANCE -- continued
Security & Commodity Brokers
Lehman Brothers, Inc. .......................... 6.00% 02/26/01 $ 500,000 $ 496,250
---------------------------------------------------------------------------------------------------------
Total Finance.................................................................... 30,747,298
---------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 1.6%
Airlines
Delta Airlines, Inc. ........................... 9.60 05/26/00 50,000 52,164
Railroad
Atchison Topeka & Santa Fe RR Co. .............. 5.37 09/15/99 228,000 227,702
Consolidated Rail Corp. ........................ 6.89 07/01/00 100,000 102,500
CSX Corp. ...................................... 9.50 08/01/00 500,000 530,000
Norfolk & Western Railway Co. .................. 8.13 11/15/00 100,000 104,695
Union Pacific Co. .............................. 9.95 11/01/00 291,000 314,644
Union Tank Car Co. ............................. 6.63 10/03/04 1,000,000 1,034,200
---------------------------------------------------------------------------------------------------------
Total Transportation............................................................. 2,365,905
---------------------------------------------------------------------------------------------------------
UTILITIES -- 6.0%
Electric & Gas
Cleveland Electric Illuminating Co. ............ 7.63 08/01/02 100,000 105,613
Commonwealth Edison Co. ........................ 2.75 04/01/99 70,000 69,475
Commonwealth Edison Co. ........................ 7.50 01/01/01 400,000 401,500
Connecticut Light & Power Co. .................. 7.25 07/01/99 187,000 187,234
DTE Capital Corp. (b) .......................... 6.17 06/15/38 500,000 512,430
Energy Acquisition Corp. ....................... 6.15 03/01/02 1,000,000 1,021,250
Florida Power and Light Co. .................... 6.63 02/01/03 200,000 202,770
Idaho Power Co. ................................ 8.65 01/01/00 300,000 310,500
Michigan Consolidated Gas Co. .................. 5.75 05/01/01 350,000 352,058
New Orleans Public Service Co. ................. 7.00 03/01/03 500,000 510,000
New York State Electric & Gas Co. .............. 7.63 11/01/01 250,000 251,875
Pacific Gas & Electric Co. ..................... 6.88 12/01/99 181,000 181,365
Pacific Gas & Electric Co. ..................... 6.63 06/01/00 160,000 160,592
Texas Utilities Co. ............................ 9.50 08/01/99 300,000 307,125
Telephone
AT&T Corp. ..................................... 8.20 02/15/05 1,037,000 1,064,221
MCI Communications Corp. ....................... 6.25 03/23/99 375,000 375,469
NYNEX Corp. .................................... 9.55 05/01/10 172,754 201,160
Pacific Telephone & Telegraph Co. .............. 6.00 11/01/02 345,000 345,000
Pacific Telephone & Telegraph Co. .............. 6.50 07/01/03 1,190,000 1,191,488
Southwestern Bell Telephone Co. ................ 5.88 06/01/03 500,000 500,000
Southwestern Bell Telephone Co. ................ 5.75 09/01/04 500,000 502,755
---------------------------------------------------------------------------------------------------------
Total Utilities.................................................................. 8,753,880
---------------------------------------------------------------------------------------------------------
Total Corporate Bonds (Cost $57,057,263)......................................... 57,564,586
---------------------------------------------------------------------------------------------------------
FOREIGN BONDS (0.1% of portfolio)
Hydro-Quebec........................................ 6.50 07/16/03 100,000 103,698
Hydro-Quebec........................................ 6.27 01/03/26 80,000 82,200
---------------------------------------------------------------------------------------------------------
Total Foreign Bonds (Cost $174,238).............................................. 185,898
---------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (15.8% of portfolio)
American Express Master Trust 93-1.................. 5.38% 07/15/01 $ 100,000 $ 99,975
Americredit Automobile Receivables Trust 96-B....... 6.50 01/12/02 32,520 32,775
Arcadia Automobile Receivables Trust 97-C A2........ 6.05 11/15/00 123,252 123,575
Arcadia Automobile Receivables Trust 97-C A3........ 5.95 11/15/02 200,000 202,424
Banc One Auto Grantor Trust 97-A.................... 6.27 11/20/03 269,790 272,831
Bear Asset Trust Securities 97-1A (b)............... 6.69 06/15/03 392,667 397,787
Case Equipment Loan Trust 95-B...................... 6.15 09/15/02 166,891 167,076
Case Equipment Loan Trust 96-A...................... 5.50 02/15/03 125,995 126,154
Caterpillar Financial Asset Trust 97-A.............. 6.10 07/25/00 436,019 437,338
Centerior Energy Receivables Master Trust 96-1...... 7.20 04/15/02 90,000 94,466
Charming Shoppes Master Trust 94-1.................. 7.00 04/15/03 325,000 326,433
Chase Manhattan Auto Owner Trust 97-B............... 6.35 02/15/01 100,000 100,911
Chase Manhattan Credit Card Master Trust 96-4....... 6.73 02/15/03 110,000 110,606
Chase Manhattan Grantor Trust 95-A.................. 6.00 09/17/01 100,376 100,483
CIT RV Trust 94-A................................... 4.90 07/15/09 98,864 98,006
Citibank Credit Card Master Trust 96-1.............. 0.00(a) 02/07/03 340,000 299,289
Citibank Credit Card Master Trust 97-3.............. 6.84 02/10/04 750,000 757,028
Copelco Capital Funding Corp. 96-A.................. 6.34 07/20/04 168,636 169,665
CPS Auto Trust 97-2................................. 6.65 10/15/02 182,773 184,767
CTB Auto Grantor Trust 97-A (b)..................... 6.50 09/15/03 159,444 160,666
Discover Card Trust 93-2............................ 5.40 11/16/01 485,417 485,551
Discover Card Trust 97-2............................ 6.79 04/16/10 1,250,000 1,261,238
First Bank Corporate Card Master Trust 97-1......... 6.40 02/15/03 70,000 71,932
First Chicago Master Trust 97-T..................... 5.61(c) 10/15/02 260,000 259,581
First Security Auto Grantor Trust 95-A.............. 6.25 01/15/01 118,329 118,387
First Security Auto Grantor Trust 97-B.............. 6.10 04/15/03 399,814 403,040
First Security Auto Grantor Trust 98-A.............. 5.97 04/15/04 1,172,701 1,185,865
Fleetwood Credit Corp. 93-A......................... 6.00 01/15/08 217,021 218,195
Ford Credit Auto Owner Trust 98-A................... 5.65 10/15/01 90,000 90,414
Ford Credit Grantor Trust 95-B...................... 5.90 10/15/00 94,607 94,803
Green Tree Lease Finance 97-1....................... 6.17 09/20/05 1,010,000 1,016,944
Heller Equipment Asset Recievables Trust 97-1....... 6.39 05/25/05 390,198 393,749
Honda Auto Receivables Grantor Trust 97-A........... 5.85 02/15/03 691,609 694,345
Honda Auto Receivables Grantor Trust 97-B........... 5.95 05/15/03 666,134 665,621
Household Affinity Credit Card Master Trust 93-2.... 5.60 05/15/02 100,000 100,804
IBM Credit Receivables Lease Asset Master Trust
93-1.............................................. 4.55 11/15/00 53,482 53,445
ICI Funding Secured Assets Corp. 97-1............... 7.00 03/25/28 200,225 199,725
J.C. Penney Master Credit Card Trust C.............. 9.63 06/15/00 200,000 210,989
Keycorp Auto Grantor Trust 95-A..................... 5.80 07/15/00 34,756 34,926
MBNA Master Credit Card Trust 93-3.................. 5.40 09/15/00 112,000 111,846
Metlife Capital Equipment Loan Trust 97-A........... 6.85 05/20/08 1,715,000 1,791,618
Metris Master Trust 97-1............................ 6.87 10/20/05 880,000 917,515
MMCA Automobile Trust 95-1.......................... 5.70 11/15/00 31,706 31,740
Nationsbank Auto Owner Trust 96-A................... 6.38 07/15/00 23,890 24,022
Navistar Financial Corp. Owner Trust 96-A........... 6.35 11/15/02 209,396 210,818
Newcourt Receivables Asset Trust 97-1............... 6.04 06/20/00 126,397 127,049
Nissan Auto Receivables Grantor Trust 95-A.......... 6.10 08/15/01 40,568 40,761
Norwest Automobile Trust 96-A....................... 5.90 03/15/00 147,404 149,103
Olympic Automobile Receivables Trust 95-C........... 6.20 01/15/02 98,574 98,882
</TABLE>
23
<PAGE> 24
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES -- CONTINUED
Olympic Automobile Receivables Trust 95-D........... 6.15% 07/15/01 $ 200,000 $ 201,290
Olympic Automobile Receivables Trust 95-E........... 5.85 03/15/01 731,830 733,587
Olympic Automobile Receivables Trust 96-A........... 5.85 07/15/01 992,519 996,041
Olympic Automobile Receivables Trust 96-C........... 6.80 03/15/02 1,000,000 1,013,850
Olympic Automobile Receivables Trust 96-D........... 5.95 06/15/01 656,937 661,228
Onyx Acceptance Grantor Trust 96-1.................. 5.40 05/15/01 97,766 97,907
PNC Student Loan Trust I 97-2....................... 6.45 01/25/02 135,000 138,202
Premier Auto Trust 95-4............................. 6.00 05/06/00 71,250 71,327
Premier Auto Trust 96-2 A3.......................... 6.35 01/06/00 8,381 8,385
Premier Auto Trust 96-2 A4.......................... 6.58 10/06/00 115,000 115,861
Premier Auto Trust 97-2............................. 6.13 09/06/00 270,000 271,301
Railcar Trust 92-1.................................. 7.75 06/01/04 77,272 82,436
Sears Credit Account Master Trust 98-1.............. 5.80 08/15/05 450,000 451,472
Spiegel Master Trust 94-B........................... 8.15 06/15/04 200,000 205,557
Union Acceptance Corp. 95-C......................... 6.40 10/10/02 235,398 236,464
Union Acceptance Corp. 95-D......................... 5.97 01/07/03 188,150 188,744
Union Acceptance Corp. 96-D......................... 5.96 10/10/00 54,503 54,475
Union Acceptance Corp. 98-D......................... 5.81 03/08/04 450,000 454,781
Western Financial Grantor Trust 95-2................ 7.10 07/01/00 48,633 48,832
Western Financial Grantor Trust 95-4................ 6.20 02/01/02 390,790 392,014
WFS Financial Owner Trust 97-A...................... 6.50 09/20/01 57,703 58,172
WFS Financial Owner Trust 97-D...................... 6.25 03/20/02 400,000 403,140
World Omni Automobile Lease Securitization Trust
96-A.............................................. 6.55 06/25/02 807,421 807,894
---------------------------------------------------------------------------------------------------------
Total Asset Backed Securities (Cost $22,808,284)................................. 23,018,123
---------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES (25.5% of portfolio)
Access Financial Manufactured Housing Contract Trust
95-1.............................................. 6.10 05/15/21 156,592 157,270
Advanta Home Equity Loan Trust 92-3................. 6.05 09/25/08 145,107 145,160
Advanta Home Equity Loan Trust 92-4................. 7.20 11/25/08 42,700 43,050
Advanta Home Equity Loan Trust 93-2................. 6.15 10/25/09 75,834 77,969
Advanta Home Equity Loan Trust 93-3 A1.............. 4.90 01/25/10 88,536 86,474
Advanta Home Equity Loan Trust 93-3 A3.............. 4.75 02/25/10 264,789 262,107
Advanta Home Equity Loan Trust 93-4................. 5.70 03/25/25 220,759 219,850
Advanta Home Equity Loan Trust 94-1 A1.............. 6.30 07/25/25 739,979 744,145
Advanta Home Equity Loan Trust 94-1 A2.............. 6.30 07/25/25 428,254 430,742
AFC Home Equity Loan Trust 92-4..................... 6.20 10/11/07 54,701 54,661
American Financial Home Equity Loan 91-1............ 8.00 07/25/06 69,968 71,869
Amresco Residential Securities Mortgage Loan Trust
96-3.............................................. 7.55 02/25/23 110,000 115,476
Amresco Residential Securities Mortgage Loan Trust
97-3.............................................. 6.61 06/25/12 99,282 98,977
Bear Stearns Secured Investors Trust 87-2........... 9.95 10/20/18 126,340 139,612
Champion Home Equity Loan Trust 97-2................ 6.59 11/25/10 131,507 131,447
Chase Mortgage Finance Corp. 93-G................... 7.00 04/25/01 44,375 44,471
Chase Mortgage Finance Corp. 93-N................... 6.75 11/25/24 367,049 369,004
Chase Mortgage Finance Corp. 94-B................... 6.75 02/25/25 442,902 443,569
Chase Mortgage Finance Corp. 94-L................... 7.50 11/25/10 250,000 257,505
Chase Mortgage Finance Corp. 98-S4.................. 6.90 08/25/28 943,355 946,412
Chemical Mortgage Acceptance Corp. 88-2............. 7.11(c) 05/25/18 285,156 284,779
Citibank N.A. 86-4.................................. 10.00 11/25/16 85,516 86,468
CITICORP Mortgage Securities, Inc. 88-11............ 7.00(c) 08/25/18 670,418 666,959
</TABLE>
24
<PAGE> 25
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES -- CONTINUED
CITICORP Mortgage Securities, Inc. 88-17............ 6.87(c)% 11/25/18 $ 707,252 $ 719,352
CITICORP Mortgage Securities, Inc. 92-16............ 7.50 09/25/22 42,832 44,623
CITICORP Mortgage Securities, Inc. 96-1............. 7.50 12/25/26 1,000,000 1,007,510
CITICORP Mortgage Securities, Inc. 98-6............. 6.80 07/25/28 241,770 243,351
CITICORP Mortgage Trust 3........................... 9.00 01/25/20 100,000 99,632
Cityscape Home Equity Loan Trust 97-B............... 7.02 01/25/12 121,935 123,040
CMC Securities Corp. 92-D........................... 6.99(c) 12/25/23 27,145 27,378
CMC Securities Corp. 92-E........................... 7.00(c) 12/25/22 367,858 371,187
CMC Securities Corp. 93-E........................... 6.50 11/25/08 903,683 907,722
CMO Trust 14........................................ 8.00 01/01/17 150,726 154,296
CMO Trust 15........................................ 5.00 03/20/18 60,636 59,771
CMO Trust 17........................................ 7.25 04/20/18 47,969 48,742
CMO Trust 27........................................ 7.25 04/23/17 232,651 238,426
Corestates Home Equity Trust 94-1................... 6.65 05/15/09 326,415 331,299
Countrywide Asset-Backed Certificates 96-1.......... 6.53 02/25/14 156,126 156,448
Countrywide Asset-Backed Certificates 97-3.......... 6.58 10/25/15 398,457 398,441
Countrywide Funding Corp. 87-2...................... 6.98(c) 02/25/18 344,620 344,637
CS First Boston Mortgage Securities Corp. 96-2...... 6.62 02/25/18 200,000 206,084
DLJ Mortgage Acceptance Corp. 91-3.................. 6.87(c) 02/20/21 963,374 975,775
DLJ Mortgage Acceptance Corp. 95-8.................. 7.25 11/25/25 641,390 640,546
Empire Funding Home Loan Owner Trust 97-2........... 7.78 09/25/23 241,094 241,333
Equicon Home Equity Loan Trust 92-7................. 5.90 09/18/05 8,618 8,601
Equivantage Home Equity Loan Trust 95-2............. 6.85 05/25/22 501,917 505,852
FDIC REMIC Trust 96-C1.............................. 6.75 05/25/26 704,678 704,452
FHLMC 135........................................... 8.75 05/15/00 10,801 10,981
FHLMC 144........................................... 8.75 06/15/00 6,115 6,216
FHLMC 1330.......................................... 7.00 09/15/99 334,931 335,874
FHLMC 1458.......................................... 7.00 01/15/08 155,425 155,691
FHLMC 1547.......................................... 6.50 09/15/22 93,609 93,886
FHLMC 1662.......................................... 6.25 01/15/09 68,627 68,954
FHLMC 1663.......................................... 7.00 07/15/23 55,998 56,515
FHLMC 1714.......................................... 7.00 10/15/22 156,352 157,263
FHLMC 2006.......................................... 7.00 10/05/12 1,156,625 1,156,625
FHLMC 2023.......................................... 6.50 01/15/13 211,770 212,507
FHLMC 218209........................................ 8.50 06/01/02 51,110 52,707
FNMA REMIC 92-203................................... 6.50 11/25/07 70,125 70,136
FNMA REMIC 93-140................................... 7.00 07/25/12 63,947 64,671
FNMA REMIC 93-15.................................... 7.00 02/25/08 39,702 39,630
FNMA REMIC 93-68.................................... 6.00 05/25/08 86,435 85,608
FNMA REMIC 93-88.................................... 5.40 06/25/00 24,001 23,903
FNMA REMIC 94-4..................................... 6.50 12/25/06 333,837 335,072
First Alliance Mortgage Loan Trust 94-3............. 7.83 10/25/25 78,851 82,579
First Plus Home Loan Trust 97-2..................... 6.82 04/10/23 220,000 221,786
First Plus Home Loan Trust 98-1..................... 6.04 10/10/13 475,000 475,589
First Plus Home Loan Trust 98-2..................... 6.32 11/10/13 610,000 614,313
First Plus Home Loan Trust 98-4..................... 5.59(c) 01/10/11 189,922 189,832
GE Capital Mortgage Services, Inc. 94-1............. 6.50 03/25/24 125,000 125,926
GE Capital Mortgage Services, Inc. 94-5............. 5.50 02/25/24 40,604 40,435
GE Capital Mortgage Services, Inc. 94-13............ 6.50 04/25/24 971,345 969,720
</TABLE>
25
<PAGE> 26
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES -- CONTINUED
GE Capital Mortgage Services, Inc. 94-18............ 7.00% 08/25/24 $ 31,905 $ 31,821
GE Capital Mortgage Services, Inc. 96-17............ 7.00 12/25/26 14,525 14,504
GE Capital Mortgage Services, Inc. 97-4............. 7.50 05/25/27 500,000 507,292
GE Capital Mortgage Services, Inc. 98-8............. 6.20 04/25/28 1,000,000 991,020
GMBS Certificates 89-1.............................. 9.50 12/25/19 130,880 130,399
Green Tree Financial Corp. 95-5..................... 6.25 09/15/26 111,212 111,332
Green Tree Financial Corp. 95-7..................... 6.70 11/15/26 145,000 146,312
Green Tree Financial Corp. 96-1..................... 5.50 03/15/27 24,445 24,447
Green Tree Financial Corp. 97-B..................... 6.61 04/15/27 136,620 136,885
Green Tree Home Equity Loan Trust 98-C.............. 6.03 07/15/29 250,000 250,600
Headlands Mortgage Securities, Inc. 97-3............ 7.25 07/25/27 457,000 461,104
Housing Securities Inc. 92-EA....................... 7.50 10/25/07 451,000 460,703
Housing Securities Inc. 94-2........................ 6.50 07/25/09 175,804 177,144
Independent National Mortgage Corp. 96-E............ 6.93 05/25/26 493,951 493,977
Master Financial Asset Securitization Trust 97-1.... 6.63 11/20/10 450,000 450,243
Master Financial Asset Securitization Trust 98-2.... 6.34 10/20/12 1,000,000 1,007,610
Merrill Lynch Mortgage Investors, Inc. 93-G......... 5.40 12/15/13 102,888 102,305
Merrill Lynch Mortgage Investors, Inc. 94-A......... 6.40(c) 02/15/09 134,693 135,754
Mid State Trust 3 A................................. 7.63 04/01/22 124,316 128,796
Morgan Stanley Capital I 97-ALIC.................... 6.30 10/15/00 572,033 578,251
New Century Home Equity Loan Trust 97-NC6........... 7.01 05/25/26 165,000 171,006
Nomura Asset Securities Corp. 94-4.................. 8.30 09/25/24 27,066 27,635
Old Stone Credit Corp. Home Equity Trust 92-2....... 6.85 05/15/07 176,232 180,033
Old Stone Credit Corp. Home Equity Trust 92-3....... 6.30 09/25/07 112,398 113,699
Paine Webber Mortgage Acceptance Corp. 93-7......... 7.50 07/25/23 141,475 141,553
PNC Mortgage Securities Corp. 97-8.................. 7.00 12/25/27 196,548 197,074
Prudential Home Mortgage Securities 91-9............ 7.86(c) 08/25/21 95,186 95,261
Prudential Home Mortgage Securities 93-9............ 7.05 03/25/08 371,647 374,114
Prudential Home Mortgage Securities 93-10........... 6.50 02/25/00 27,916 27,868
Prudential Home Mortgage Securities 93-29........... 6.75 08/25/08 37,362 37,385
Prudential Home Mortgage Securities 93-32........... 6.50 08/25/23 261,496 260,816
Prudential Home Mortgage Securities 93-41........... 6.00 10/25/00 31,383 31,266
Prudential Home Mortgage Securities 93-51........... 6.10 12/25/23 42,921 42,809
Prudential Securities 18............................ 7.00 06/25/19 18,896 18,932
Residential Accredit Loans, Inc. 95-QS1............. 7.30 06/25/21 488,502 487,495
Residential Asset Securities Corp. 98-KS2........... 6.24 02/25/17 325,000 324,132
Residential Asset Securitization Trust 97-A2........ 7.13 04/25/27 132,193 131,900
Residential Funding Mortgage Securities I 93-S25.... 6.50 07/25/08 38,360 38,458
Residential Funding Mortgage Securities I 95-S18.... 7.00 11/25/10 101,685 101,668
Residential Funding Mortgage Securities I 97-S6..... 7.00 05/25/25 72,844 72,744
Residential Funding Mortgage Securities I 97-S13.... 7.25 09/25/27 828,936 834,025
Resolution Trust Corp. 92-2......................... 7.94(c) 08/25/21 183,207 182,546
Ryland Acceptance Corp. 26-C........................ 9.00 12/01/16 187,098 197,633
Ryland Mortgage Securities Corp. 93-4............... 7.50 08/25/24 150,565 156,179
Salomon Brothers Mortgage Securities 96-LB2......... 7.25 10/25/26 175,000 176,334
Salomon Brothers Mortgage Securities 97-LB2......... 6.82 12/25/27 165,000 170,081
Saxon Asset Securities Trust 96-2................... 6.48 11/25/20 106,534 106,766
Southern Pacific Secured Assets Corp. 98-H1......... 6.41 01/25/29 1,250,000 1,260,125
Structured Mortgage Asset Residential Trust 93-5.... 6.87(c) 06/25/24 214,115 217,489
</TABLE>
26
<PAGE> 27
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES -- CONTINUED
TMS Home Equity Trust 92-A.......................... 6.95% 01/15/07 $ 57,601 $ 58,107
TMS Home Equity Trust 93-B.......................... 5.40 08/15/05 82,584 83,211
TMS Home Equity Trust 93-C.......................... 5.75 10/15/22 92,223 91,862
TMS Home Equity Trust 93-D.......................... 5.68 02/15/09 74,747 74,762
TMS Home Equity Trust 94-D.......................... 8.93 06/15/22 393,000 417,474
TMS Home Equity Trust 96-B A7....................... 7.55 02/15/20 360,000 377,023
TMS Home Equity Trust 96-B A10...................... 5.60 10/15/27 295,438 293,848
TMS Home Equity Trust 96-C.......................... 7.69 05/15/24 394,000 408,831
TMS Home Equity Trust 97-A.......................... 7.24 05/15/28 263,000 269,439
TMS Home Equity Trust 97-C.......................... 6.59 02/15/15 541,000 563,212
UCFC Home Equity Loan 95-A1......................... 8.55 01/10/20 550,000 572,249
UCFC Home Equity Loan 96-D1......................... 6.38 07/15/10 10,548 10,526
UCFC Manufactured Housing Contract 98-2............. 6.16 08/15/19 1,000,000 1,000,938
Vanderbilt Mortgage Finance 95-B.................... 6.68 05/07/06 250,000 255,542
Zions Home Refinance Loan Trust 93-1................ 5.15 09/25/03 45,918 45,914
---------------------------------------------------------------------------------------------------------
Total Mortgage Backed Securities (Cost $36,723,908).............................. 37,123,356
---------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (13.5% of portfolio)
Banco Centroamericano Promissory Note............... 5.78 05/30/01 954,284 964,924
Chattanooga Valley Corp. ........................... 0.00(a) 01/01/01 256,000 231,040
Chattanooga Valley Corp. ........................... 0.00(a) 07/01/01 204,000 178,679
Federal Farm Credit Bank............................ 5.79 03/01/99 1,141,304 1,141,328
Federal Farm Credit Bank............................ 5.90 08/06/01 1,000,000 1,004,926
Federal Farm Credit Bank............................ 6.09 08/05/02 1,000,000 1,000,309
Federal Home Loan Bank.............................. 5.62 03/25/99 69,371 69,385
Federal Home Loan Bank.............................. 6.00 02/07/01 500,000 500,266
Federal Home Loan Bank.............................. 6.00 04/01/02 1,000,000 1,001,887
Federal National Mortgage Assn. .................... 7.12 04/19/02 500,000 502,955
Federal National Mortgage Assn. .................... 7.08 05/06/02 250,000 251,684
Federal National Mortgage Assn. .................... 6.33 03/10/03 1,000,000 1,001,399
Federal National Mortgage Assn. .................... 6.31 05/07/03 500,000 501,351
Federal National Mortgage Assn. .................... 6.20 07/07/03 1,250,000 1,250,775
Government Export Trust 93-1........................ 6.00 03/15/05 364,583 375,584
Small Business Administration 92-10................. 7.15 09/01/02 226,526 239,257
Student Loan Marketing Assn. ....................... 4.85(c) 02/08/99 100,000 99,971
Student Loan Marketing Assn. ....................... 4.84(c) 02/22/99 75,000 74,966
U.S. Treasury Note.................................. 5.00 01/31/99 750,000 750,222
U.S. Treasury Note.................................. 6.38 05/15/99 500,000 503,159
U.S. Treasury Note.................................. 6.75 06/30/99 1,250,000 1,263,375
U.S. Treasury Note.................................. 6.00 08/15/99 500,000 504,161
U.S. Treasury Note.................................. 7.13 02/29/00 250,000 256,813
U.S. Treasury Note.................................. 6.38 05/15/00 800,000 818,057
U.S. Treasury Note.................................. 5.75 10/31/00 2,250,000 2,293,742
U.S. Treasury Note.................................. 6.38 03/31/01 500,000 518,398
U.S. Treasury Note.................................. 5.88 11/30/01 1,750,000 1,808,962
U.S. Treasury Note.................................. 6.00 07/31/02 500,000 521,094
---------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations (Cost $19,348,442).................. 19,628,669
---------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM BOND FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (0.1% of portfolio)
Rhode Island Housing & Mortgage Finance Corp. ...... 6.62% 04/01/02 $ 105,000 $ 108,413
---------------------------------------------------------------------------------------------------------
Total Municipal Bonds (Cost $104,354)............................................ 108,413
---------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (5.4% of portfolio)
American Express Credit Corp. ...................... 5.85 01/04/99 1,000,000 999,513
American Express Credit Corp. ...................... 6.00 01/11/99 1,000,000 998,333
American General Finance Corp. ..................... 5.46 01/07/99 1,000,000 999,090
Chevron USA, Inc. .................................. 5.53 01/08/99 1,000,000 998,925
Merrill Lynch & Co. ................................ 5.00 01/04/99 2,956,000 2,954,768
Norwest Financial, Inc. ............................ 5.60 01/11/99 1,000,000 998,444
---------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $7,949,073)......................................... 7,949,073
---------------------------------------------------------------------------------------------------------
CORPORATE MASTER NOTE (0.1% of portfolio)
Associates Corp. of North America................... 4.71(c) 100,000 100,000
---------------------------------------------------------------------------------------------------------
Total Corporate Master Note (Cost $100,000)...................................... 100,000
---------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNT
State Street Bank & Trust SSgA Fund................. 4.83(d) 1,832
---------------------------------------------------------------------------------------------------------
Total Money Market Account (Cost $1,832)......................................... 1,832
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $144,267,394) -- 100%............................... $145,679,950
---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Zero coupon security, purchased at a discount.
(b) 144A Security.
(c) Variable coupon rate as of December 31, 1998.
(d) One day yield at December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
<PAGE> 29
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM GOVERNMENT SECURITIES FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST MATURITY FACE
RATE DATE AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSET BACKED SECURITIES (3.1% of portfolio)
Government Export Trust 93-1........................... 6.00% 03/15/05 $ 260,417 $ 268,274
Guaranteed Export Certificates 93-D.................... 5.23 05/15/05 66,383 66,553
Guaranteed Trade Trust 92-A A.......................... 7.02 09/01/04 175,000 187,679
Small Business Administration 92-10 A.................. 6.70 01/01/02 70,647 71,912
Small Business Administration 92-10 C.................. 7.15 09/01/02 135,916 143,554
-----------------------------------------------------------------------------------------------------------
Total Asset Backed Securities (Cost $707,192)............................................ 737,972
-----------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES (12.0% of portfolio)
GNMA 94-1.............................................. 7.63 08/16/23 99,000 98,859
GNMA 96-6.............................................. 6.50 10/16/08 190,997 191,172
GNMA 97-4 A............................................ 7.00 11/20/11 299,604 300,509
GNMA 97-4 B............................................ 7.00 08/20/26 155,567 155,011
GNMA 97-4 N............................................ 7.50 02/16/27 41,924 41,956
GNMA 97-8.............................................. 7.00 05/16/23 500,000 508,991
GNMA 97-13............................................. 6.00 11/16/22 396,458 396,613
GNMA 98-1.............................................. 7.00 05/20/25 426,456 431,162
Vendee Mortgage Trust 97-1............................. 7.50 09/15/17 500,000 511,708
Vendee Mortgage Trust 97-2............................. 7.50 01/15/13 225,000 228,172
-----------------------------------------------------------------------------------------------------------
Total Mortgage Backed Securities (Cost $2,852,128)....................................... 2,864,153
-----------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS
(80.8% of portfolio)
Banco Centroamericano Promissory Note.................. 5.78 05/30/01 279,635 282,753
Interlake Steamship Co................................. 5.45 07/15/01 371,000 371,052
PEFCO Finance Corp. (c)................................ 5.31 11/15/03 1,000,000 996,870
Private Export Funding Corp. (c)....................... 4.92(a) 02/28/99 250,000 249,975
Private Export Funding Corp............................ 9.50 03/31/99 3,527,000 3,562,270
Private Export Funding Corp............................ 9.45 12/31/99 5,000,000 5,212,500
Private Export Funding Corp............................ 8.35 01/31/01 25,000 26,656
Private Export Funding Corp............................ 5.48 09/15/03 150,000 151,125
U.S. Department of Housing and Urban Development....... 6.36 08/01/04 30,000 31,602
U.S. Treasury Bill..................................... 4.37 01/21/99 600,000 598,750
U.S. Treasury Note..................................... 7.00 04/15/99 450,000 452,997
U.S. Treasury Note..................................... 6.38 05/15/99 50,000 50,316
U.S. Treasury Note..................................... 6.00 08/15/99 800,000 806,658
U.S. Treasury Note..................................... 5.88 11/15/99 1,200,000 1,212,401
U.S. Treasury Note..................................... 5.63 11/30/99 300,000 302,625
U.S. Treasury Note..................................... 6.38 05/15/00 100,000 102,257
U.S. Treasury Note..................................... 5.50 05/31/00 500,000 505,891
U.S. Treasury Note..................................... 5.75 10/31/00 100,000 101,944
U.S. Treasury Note..................................... 6.38 03/31/01 50,000 51,840
U.S. Treasury Note..................................... 5.88 11/30/01 2,600,000 2,687,600
U.S. Treasury Note..................................... 6.63 04/30/02 750,000 794,080
U.S. Treasury Note..................................... 6.00 07/31/02 100,000 104,219
U.S. Treasury Note..................................... 5.50 01/31/03 500,000 514,525
Victoria Steamship Corp................................ 6.85 11/15/03 197,650 197,668
-----------------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations (Cost $19,251,817).......................... 19,368,574
-----------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
portfolio of investments
HOMESTEAD FUNDS, INC.
SHORT-TERM GOVERNMENT SECURITIES FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTEREST
RATE VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET ACCOUNT (4.1% of portfolio)
Vanguard Money Market Reserves U.S. Treasury........... 4.40%(b) $ 986,115
-----------------------------------------------------------------------------------------------------------
Total Money Market Account (Cost $986,115)............................................... 986,115
-----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $23,797,252) -- 100%................................... $23,956,814
-----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Variable coupon rate as of December 31, 1998.
(b) Seven day yield at December 31, 1998.
(c) 144A Security.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
30
<PAGE> 31
portfolio of investments
HOMESTEAD FUNDS, INC.
SMALL COMPANY STOCK FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (91.0% of portfolio)
BASIC INDUSTRIES -- 1.0%
Forest Products
Pope & Talbot, Inc...................................... 8,500 $ 71,187
------------------------------------------------------------------------------------------------------
Total Basic Industries.......................................... 71,187
------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 32.7%
Construction Supplies & Fixtures
Chicago Bridge & Iron Co. .............................. 16,700 205,619
Hughes Supply, Inc. .................................... 9,700 283,725
Industrial Machinery
Aeroquip-Vickers, Inc. ................................. 8,000 239,500
Applied Industrial Technologies, Inc. .................. 15,700 217,837
Flowserve Corp. ........................................ 13,000 215,312
Manitowoc Co., Inc. .................................... 6,000 266,250
Regal-Beloit Corp. ..................................... 11,000 253,000
Manufacturing-Diverse
CLARCOR, Inc. .......................................... 13,300 266,000
Lydall, Inc. (a)........................................ 18,700 222,062
Standex International Corp. ............................ 8,800 231,000
------------------------------------------------------------------------------------------------------
Total Capital Goods............................................. 2,400,305
------------------------------------------------------------------------------------------------------
CONSUMER DURABLE GOODS -- 5.7%
Household Appliances & Furnishings
Juno Lighting, Inc. .................................... 9,100 212,713
Housewares
Oneida Ltd. ............................................ 13,900 205,894
------------------------------------------------------------------------------------------------------
Total Consumer Durable Goods.................................... 418,607
------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLE GOODS -- 24.3%
Auto Parts
Cooper Tire & Rubber Co. ............................... 10,300 210,506
Cosmetics & Toiletries
Alberto Culver Co. (Class A)............................ 11,000 277,750
Food Processing
J.M. Smucker Co. (Class B).............................. 11,600 256,650
Retail
Charming Shoppes, Inc. (a).............................. 54,000 232,875
Claire's Stores, Inc. .................................. 12,500 256,250
Longs Drug Stores, Corp. ............................... 6,900 258,750
Ruddick Corp. .......................................... 12,800 294,400
------------------------------------------------------------------------------------------------------
Total Consumer Non-Durable Goods................................ 1,787,181
------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 3.8%
Restaurants
Cracker Barrel Old Country Store, Inc................... 12,000 279,750
------------------------------------------------------------------------------------------------------
Total Consumer Services......................................... 279,750
------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
portfolio of investments
HOMESTEAD FUNDS, INC.
SMALL COMPANY STOCK FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/
FACE AMOUNT VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY -- 3.6%
Oil Well Services & Equipment
Helmerich & Payne, Inc. ................................ 13,700 shs. $ 265,438
------------------------------------------------------------------------------------------------------
Total Energy.................................................... 265,438
------------------------------------------------------------------------------------------------------
FINANCE -- 9.7%
Banks
CNB Bancshares, Inc. ................................... 5,600 261,100
UMB Financial Corp. .................................... 4,300 197,263
Insurance
Ohio Casualty Corp. .................................... 6,100 250,863
------------------------------------------------------------------------------------------------------
Total Finance................................................... 709,226
------------------------------------------------------------------------------------------------------
GENERAL BUSINESS -- 3.1%
Linen Supply
Superior Uniform Group, Inc. ........................... 15,500 224,750
------------------------------------------------------------------------------------------------------
Total General Business.......................................... 224,750
------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 3.9%
Trucking
American Freightways Inc. .............................. 25,000 288,281
------------------------------------------------------------------------------------------------------
Total Transportation............................................ 288,281
------------------------------------------------------------------------------------------------------
UTILITIES -- 3.2%
Gas & Pipeline
Questar Corp. .......................................... 12,200 236,375
------------------------------------------------------------------------------------------------------
Total Utilities................................................. 236,375
------------------------------------------------------------------------------------------------------
Total Common Stock (Cost $7,223,216)............................ 6,681,100
------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (2.7% of portfolio)
Household Finance Corp., 5.45%, due 01/04/99................ $100,000 99,955
Norwest Financial Inc., 5.19%, due 01/05/99................. 100,000 99,942
------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $199,897).......................... 199,897
------------------------------------------------------------------------------------------------------
CORPORATE MASTER NOTE (4.5% of portfolio)
Associates Corp. of North America, 4.71% (b)................ 330,000 330,000
------------------------------------------------------------------------------------------------------
Total Corporate Master Note (Cost $330,000)..................... 330,000
------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNT (1.8% of portfolio)
State Street Bank & Trust SSgA Fund, 4.83% (c)........................... 129,580
------------------------------------------------------------------------------------------------------
Total Money Market Account (Cost $129,580)...................... 129,580
------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $7,882,693) -- 100%................ $7,340,577
------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing.
(b) Variable coupon rate at December 31, 1998.
(c) One day yield at December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
<PAGE> 33
portfolio of investments
HOMESTEAD FUNDS, INC.
VALUE FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.2% of portfolio)
BASIC INDUSTRIES -- 10.6%
Aluminum
Alcan Aluminum Ltd..................................... 231,200 $ 6,256,850
Chemicals
Avery Dennison Corp. .................................. 192,600 8,679,037
Nalco Chemical Co. .................................... 332,300 10,301,300
Forest Products
Pope & Talbot, Inc. ................................... 140,500 1,176,687
Weyerhaeuser Co. ...................................... 96,500 4,903,406
Packaging/Containers
Bemis, Inc. ........................................... 138,300 5,246,756
Paper
Champion International Corp. .......................... 114,000 4,617,000
International Paper Co. ............................... 142,000 6,363,375
-------------------------------------------------------------------------------------------------------
Total Basic Industries......................................... 47,544,411
-------------------------------------------------------------------------------------------------------
CAPITAL GOODS -- 6.4%
Construction Supplies & Fixtures
Hughes Supply, Inc. ................................... 356,800 10,436,400
Industrial Machinery
Aeroquip-Vickers, Inc. ................................ 221,100 6,619,181
Applied Industrial Technologies, Inc. ................. 541,700 7,516,087
Parker-Hannifin Corp. ................................. 132,975 4,354,931
-------------------------------------------------------------------------------------------------------
Total Capital Goods............................................ 28,926,599
-------------------------------------------------------------------------------------------------------
CONSUMER DURABLE GOODS -- 9.0%
Household Appliances & Furnishings
Juno Lighting, Inc. ................................... 365,100 8,534,212
Maytag Corp. .......................................... 241,400 15,027,150
Housewares
Oneida Ltd. ........................................... 491,700 7,283,306
Rubbermaid, Inc. ...................................... 314,800 9,896,525
-------------------------------------------------------------------------------------------------------
Total Consumer Durable Goods................................... 40,741,193
-------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLE GOODS -- 23.9%
Auto Parts
Cooper Tire & Rubber Co. 507,000 10,361,813
Genuine Parts Co. ..................................... 243,600 8,145,375
Drugs & Health Care
American Home Products Corp. .......................... 120,000 6,757,500
Pharmacia & Upjohn, Inc. .............................. 145,000 8,210,625
SmithKline Beecham Plc................................. 86,000 5,977,000
Food Processing
J.M. Smucker Co. (Class B)............................. 405,600 8,973,900
Photography
Eastman Kodak Co. ..................................... 104,500 7,524,000
</TABLE>
33
<PAGE> 34
portfolio of investments
HOMESTEAD FUNDS, INC.
VALUE FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLE GOODS -- continued
Retail
Dillards Department Stores, Inc. ...................... 297,000 $ 8,427,375
K Mart Corp. (a)....................................... 355,700 5,446,656
Longs Drug Stores Corp. ............................... 258,700 9,701,250
May Department Stores Co. ............................. 127,500 7,697,813
Rite Aid Corp. ........................................ 128,900 6,388,606
Ruddick Corp. ......................................... 609,200 14,011,600
-------------------------------------------------------------------------------------------------------
Total Consumer Non-Durable Goods............................... 107,623,513
-------------------------------------------------------------------------------------------------------
CONSUMER SERVICES -- 5.1%
Restaurants
Brinker International, Inc. (a)........................ 441,900 12,759,863
Wendy's International, Inc. ........................... 470,200 10,256,238
-------------------------------------------------------------------------------------------------------
Total Consumer Services........................................ 23,016,101
-------------------------------------------------------------------------------------------------------
ENERGY -- 5.3%
Domestic Oil
Atlantic Richfield Co. ................................ 61,800 4,032,450
International Oil
Chevron Corp. ......................................... 55,000 4,561,563
Texaco, Inc. .......................................... 83,400 4,409,775
Petroleum Services
Halliburton Co. ....................................... 364,000 10,783,500
-------------------------------------------------------------------------------------------------------
Total Energy................................................... 23,787,288
-------------------------------------------------------------------------------------------------------
FINANCE -- 15.3%
Banks
Banc One Corp. 204,180 10,425,941
BankAmerica Corp. ..................................... 95,054 5,715,122
BB&T Corp. ............................................ 124,800 5,031,000
Chase Manhattan Corp. ................................. 128,400 8,739,225
Citigroup, Inc. ....................................... 151,250 7,486,875
Commerce Bancshares, Inc. ............................. 176,807 7,514,298
Insurance
Allstate Corp. ........................................ 192,000 7,416,000
Chubb Corp. ........................................... 111,000 7,201,125
Ohio Casualty Corp. ................................... 115,200 4,737,600
Transamerica Corp. .................................... 42,300 4,885,650
-------------------------------------------------------------------------------------------------------
Total Finance.................................................. 69,152,836
-------------------------------------------------------------------------------------------------------
GENERAL BUSINESS -- 4.6%
Business Services
Deluxe Corp. .......................................... 256,100 9,363,656
Donnelley, R.R. & Sons Co. ............................ 261,800 11,470,112
-------------------------------------------------------------------------------------------------------
Total General Business......................................... 20,833,768
-------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 35
portfolio of investments
HOMESTEAD FUNDS, INC.
VALUE FUND (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/
FACE AMOUNT VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 3.4%
Aerospace
Sundstrand Corp. ...................................... 98,000 shs. $ 5,083,750
Computers & Business Equipment
Xerox Corp. ........................................... 85,500 10,089,000
-------------------------------------------------------------------------------------------------------
Total Technology............................................... 15,172,750
-------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 2.9%
Air Travel
Southwest Airlines Co. ................................ 578,400 12,977,850
-------------------------------------------------------------------------------------------------------
Total Transportation........................................... 12,977,850
-------------------------------------------------------------------------------------------------------
UTILITIES -- 6.7%
Gas & Pipeline
Questar Corp. ......................................... 506,600 9,815,375
Sonat, Inc. ........................................... 288,000 7,794,000
Telephone
BellSouth Corp. ....................................... 252,000 12,568,500
-------------------------------------------------------------------------------------------------------
Total Utilities................................................ 30,177,875
-------------------------------------------------------------------------------------------------------
Total Common Stock (Cost $294,341,926)......................... 419,954,184
-------------------------------------------------------------------------------------------------------
PREFERRED STOCKS (0.3% of portfolio)
K Mart Corp., 7.75% Convertible Preferred ................. 25,200 1,460,025
-------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $1,281,750)....................... 1,460,025
-------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (5.8% of portfolio)
American Express Credit Corp., 6.10%, due 01/08/99......... $10,000,000 9,988,139
General Motors Acceptance Corp., 5.81%, due 01/05/99....... 8,000,000 7,994,836
Merrill Lynch & Co., 5.0%, due 01/04/99.................... 8,329,000 8,325,530
-------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $26,308,505)...................... 26,308,505
-------------------------------------------------------------------------------------------------------
CORPORATE MASTER NOTE (0.7% of portfolio)
Associates Corp. of North America, 4.71% (b)............. 3,000,000 3,000,000
-------------------------------------------------------------------------------------------------------
Total Corporate Master Note (Cost $3,000,000).................. 3,000,000
-------------------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNT
State Street Bank and Trust SSgA Fund, 4.83% (c)........................ 9,803
-------------------------------------------------------------------------------------------------------
Total Money Market Account (Cost $9,803)....................... 9,803
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES (COST $324,941,984) -- 100%............. $450,732,517
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) Non-income producing.
(b) Variable coupon rate at December 31, 1998.
(c) One day yield at December 31, 1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
35
<PAGE> 36
statements of assets and liabilities
Homestead Funds, Inc.
December 31, 1998
<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: $59,074,280;
$144,267,394 $23,797,252;
$7,882,693 $324,941,984)....... $59,074,280 $145,679,950 $23,956,814 $7,340,577 $450,732,517
Receivables
Dividends and interest......... 516,435 1,434,426 222,401 7,730 515,439
Capital shares sold............ 27,342 970,711 904 258,403 618,369
Due from Manager............... -- -- -- 570 --
Prepaid expenses................. 15,748 22,465 7,400 1,886 44,727
------------------------------------------------------------------------------------------------------------
Total assets..................... 59,633,805 148,107,552 24,187,519 7,609,166 451,911,052
------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables
Investment securities
purchased.................... 770,205 1,284,128 202,878 -- 873,410
Accrued expenses............... 77,798 125,585 43,096 46,751 235,986
Due to Manager................. 26,030 64,880 5,443 -- 226,232
Due to Custodian............... -- 16,040 -- -- --
Capital shares redeemed........ 175,533 226,707 442 -- 1,252,775
Dividends...................... 7,091 39,842 5,535 386 320,703
------------------------------------------------------------------------------------------------------------
Total liabilities................ 1,056,657 1,757,182 257,394 47,137 2,909,106
------------------------------------------------------------------------------------------------------------
NET ASSETS....................... $58,577,148 $146,350,370 $23,930,125 $7,562,029 $449,001,946
------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Unrealized appreciation
(depreciation) of
investments.................... $ -- $ 1,412,556 $ 159,562 $ (542,116) $125,790,533
Accumulated realized loss........ (1,709)
Paid-in-capital applicable to
outstanding shares of
58,577,148 of Daily Income
Fund, 28,105,300 of Short-Term
Bond Fund, 4,700,521 of
Short-Term Government
Securities Fund, 854,657 of
Small Company Stock Fund, and
16,940,963 of Value Fund....... 58,577,148 144,937,814 23,770,563 8,105,854 323,211,413
------------------------------------------------------------------------------------------------------------
NET ASSETS....................... $58,577,148 $146,350,370 $23,930,125 $7,562,029 $449,001,946
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE........ $1.00 $5.21 $5.09 $8.85 $26.50
------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36
<PAGE> 37
statements of operations
Homestead Funds, Inc.
For the Year Ended December 31, 1998
<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......................... $3,101,330 $8,081,467 $1,150,337 $ 27,555 $ 1,543,453
Dividends........................ -- -- -- 68,003 8,113,607
------------------------------------------------------------------------------------------------------------
Total income....................... 3,101,330 8,081,467 1,150,337 95,558 9,657,060
------------------------------------------------------------------------------------------------------------
Expenses
Management fees.................. 277,225 772,075 90,170 31,553 2,423,588
Custodian and accounting fees.... 97,769 149,242 55,956 48,688 183,253
Shareholder servicing............ 50,644 68,386 32,188 25,803 255,143
Registration expense............. 26,777 32,054 17,458 187 63,241
Communication.................... 8,557 11,368 2,815 2,264 50,426
Legal and audit fees............. 6,524 15,149 2,207 5,161 46,431
Insurance........................ 4,002 8,933 1,363 189 27,899
Printing......................... 3,853 8,300 1,510 1,796 27,579
Directors fees................... 1,906 4,446 747 157 14,108
Other expenses................... 4,792 7,610 2,069 1,221 26,533
------------------------------------------------------------------------------------------------------------
Total expenses..................... 482,049 1,077,563 206,483 117,019 3,118,201
Less fees waived and expenses
reimbursed by Manager............ (38,513) (113,610) (56,429) (60,463) --
------------------------------------------------------------------------------------------------------------
Net expenses....................... 443,536 963,953 150,054 56,556 3,118,201
------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.............. 2,657,794 7,117,514 1,000,283 39,002 6,538,859
------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on
investments...................... -- 141,690 7,472 (1,709) 11,857,449
Net change in unrealized
appreciation (depreciation)...... -- 603,728 86,126 (542,116) 12,942,414
------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS..... -- 745,418 93,598 (543,825) 24,799,863
------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS........... $2,657,794 $7,862,932 $1,093,881 ($504,823) $31,338,722
------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period beginning March 4, 1998 (inception date) to December 31,
1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
37
<PAGE> 38
statements of changes in net assets
Homestead Funds, Inc.
For the Years Ended December 31,
<TABLE>
<CAPTION>
DAILY INCOME FUND SHORT-TERM BOND FUND
--------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income.......................... $ 2,657,794 $ 2,718,220 $ 7,117,514 $ 5,537,665
Net realized gain (loss) on investments........ -- -- 141,690 103,298
Net change in unrealized appreciation
(depreciation)............................. -- -- 603,728 570,361
--------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations................................. 2,657,794 2,718,220 7,862,932 6,211,324
--------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.......................... (2,657,794) (2,718,220) (7,117,514) (5,537,665)
Net realized gain on investments............... -- -- (141,690) (103,298)
--------------------------------------------------------------------------------------------------------
Total distributions to shareholders............ (2,657,794) (2,718,220) (7,259,204) (5,640,963)
--------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS, NET................ 5,543,754 (4,838,085) 36,848,869 26,857,500
--------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS................................... 5,543,754 (4,838,085) 37,452,597 27,427,861
NET ASSETS
Beginning of year.............................. 53,033,394 57,871,479 108,897,773 81,469,912
--------------------------------------------------------------------------------------------------------
END OF YEAR.................................... $58,577,148 $53,033,394 $146,350,370 $108,897,773
--------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
38
<PAGE> 39
statements of changes in net assets
Homestead Funds, Inc.
For the Years Ended December 31,
<TABLE>
<CAPTION>
SHORT-TERM GOVERNMENT SMALL COMPANY
SECURITIES FUND STOCK FUND* VALUE FUND
---------------------------------------------------------------------------------------------------------
1998 1997 1998 1998 1997
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income........... $ 1,000,283 $ 652,716 $ 39,002 $ 6,538,859 $ 5,078,979
Net realized gain (loss) on
investments................. 7,472 1,030 (1,709) 11,857,449 10,245,857
Net change in unrealized
appreciation
(depreciation).............. 86,126 61,648 (542,116) 12,942,414 56,564,101
---------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations...... 1,093,881 715,394 (504,823) 31,338,722 71,888,937
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income........... (1,000,283) (652,716) (39,002) (6,538,859) (5,078,979)
Net realized gain on
investments................... (7,472) (1,030) -- (11,857,449) (10,245,857)
---------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.................. (1,007,755) (653,746) (39,002) (18,396,308) (15,324,836)
---------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS,
NET........................... 7,657,272 8,432,668 8,105,854 57,438,372 83,506,879
---------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS.................... 7,743,398 8,494,316 7,562,029 70,380,786 140,070,980
NET ASSETS
Beginning of year............... 16,186,727 7,692,411 -- 378,621,160 238,550,180
---------------------------------------------------------------------------------------------------------
END OF YEAR..................... $23,930,125 $16,186,727 $7,562,029 $449,001,946 $378,621,160
---------------------------------------------------------------------------------------------------------
</TABLE>
* For the period beginning March 4, 1998 (inception date) to December 31,
1998.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
39
<PAGE> 40
financial highlights
Homestead Funds, Inc.
Daily Income Fund
For a Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................. $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------------------------------
Income from investment operations..................
Net investment income (a)...................... 0.05 0.05 0.05 0.05 0.04
----------------------------------------------------------------------------------------------------
Total from investment operations............... 0.05 0.05 0.05 0.05 0.04
----------------------------------------------------------------------------------------------------
Distributions
Net investment income.......................... (0.05) (0.05) (0.05) (0.05) (0.04)
----------------------------------------------------------------------------------------------------
Total distributions............................ (0.05) (0.05) (0.05) (0.05) (0.04)
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR....................... $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------------------------------------
TOTAL RETURN....................................... 4.91% 4.92% 4.81% 5.38% 3.63%
----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands)................ $58,577 $53,033 $57,871 $52,699 $36,668
Ratio of expenses to average net assets (a)........ 0.80% 0.80% 0.76% 0.75% 0.75%
Ratio of net investment income to average net
assets (a)................................ 4.80% 4.80% 4.71% 5.25% 3.66%
Ratio of gross expenses before voluntary expense
limitation to average net assets.......... 0.87% 0.83% 0.81% 0.87% 0.99%
</TABLE>
----------------------
(a) Excludes excess investment management fees and other expenses in
accordance with the Expense Limitation Agreement with the Manager.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
40
<PAGE> 41
financial highlights
Homestead Funds, Inc.
Short-Term Bond Fund
For a Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR............... $5.18 $5.15 $5.19 $4.95 $5.19
----------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income (a).................... 0.29 0.30 0.29 0.28 0.24
Net realized and unrealized gain (loss) on
investments................................ 0.03 0.03 (0.04) 0.24 (0.24)
----------------------------------------------------------------------------------------------------
Total from investment operations............. 0.32 0.33 0.25 0.52 0.00
----------------------------------------------------------------------------------------------------
Distributions
Net investment income........................ (0.29) (0.30) (0.29) (0.28) (0.24)
----------------------------------------------------------------------------------------------------
Total distributions.......................... (0.29) (0.30) (0.29) (0.28) (0.24)
----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR..................... $5.21 $5.18 $5.15 $5.19 $4.95
----------------------------------------------------------------------------------------------------
TOTAL RETURN..................................... 6.40% 6.62% 5.16% 10.81% 0.09%
----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands).............. $146,350 $108,898 $81,470 $62,125 $52,257
Ratio of expenses to average net assets (a)...... 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average net
assets (a).............................. 5.53% 5.75% 5.72% 5.49% 4.84%
Ratio of gross expenses before voluntary expense
limitation to average net assets........ 0.84% 0.87% 0.76% 0.86% 0.98%
Portfolio turnover rate.......................... 62% 55% 49% 35% 13%
</TABLE>
----------------------
(a) Excludes excess investment management fees and other expenses in
accordance with the Expense Limitation Agreement with the Manager.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
41
<PAGE> 42
financial highlights
Homestead Funds, Inc.
Short-Term Government Securities Fund
For a Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
MAY 1, 1995
(INCEPTION
YEAR ENDED DECEMBER 31, DATE) TO
--------------------------------------------------------------------------------------- DECEMBER 31,
1998 1997 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR......................... $5.07 $5.05 $5.09 $5.00
------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income (a).............................. 0.25 0.26 0.26 0.18
Net realized and unrealized gain (loss) on
investments.......................................... 0.02 0.02 (0.04) 0.09
------------------------------------------------------------------------------------------------------
Total from investment operations....................... 0.27 0.28 0.22 0.27
------------------------------------------------------------------------------------------------------
Distributions
Net investment income.................................. (0.25) (0.26) (0.26) (0.18)
------------------------------------------------------------------------------------------------------
Total distributions.................................... (0.25) (0.26) (0.26) (0.18)
------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR............................... $5.09 $5.07 $5.05 $5.09
------------------------------------------------------------------------------------------------------
TOTAL RETURN............................................... 5.51% 5.73% 4.46% 5.44%(b)
------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands)........................ $23,930 $16,187 $7,692 $2,658
Ratio of expenses to average net assets (a)................ 0.75% 0.75% 0.75% 0.75%(c)
Ratio of net investment income to average net assets (a)... 5.00% 5.19% 5.16% 5.18%(c)
Ratio of gross expenses before voluntary expense limitation
to average net assets............................. 1.03% 1.27% 2.30% 6.21%(c)
Portfolio turnover rate.................................... 57% 12% 21% 7%
</TABLE>
----------------------
(a) Excludes excess investment management fees and other expenses in
accordance with the Expense Limitation Agreement with the Manager.
(b) Aggregate total return for the period.
(c) Annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42
<PAGE> 43
financial highlights
Homestead Funds, Inc.
Small Company Stock Fund
For a Share Outstanding Throughout The Period
<TABLE>
<CAPTION>
MARCH 4, 1998
(INCEPTION
DATE) TO
DECEMBER 31,
1998
---------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
---------------------------------------------------------------------------
Income from investment operations
Net investment income (a)............................... 0.05
Net realized and unrealized loss on investments......... (1.15)
---------------------------------------------------------------------------
Total from investment operations........................ (1.10)
---------------------------------------------------------------------------
Distributions
Net investment income................................... (0.05)
---------------------------------------------------------------------------
Total distributions..................................... (0.05)
---------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR................................ $ 8.85
---------------------------------------------------------------------------
TOTAL RETURN................................................ (11.02)%(b)
---------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands)......................... $7,562
Ratio of expenses to average net assets (a)................. 1.50%(c)
Ratio of net investment income to average net assets (a).... 1.04%(c)
Ratio of gross expenses before voluntary expense limitation
to average net assets................................ 3.11%(c)
Portfolio turnover rate..................................... 17%
</TABLE>
----------------------
(a) Excludes excess investment management fees and other expenses in
accordance with the Expense Limitation Agreement with the Manager.
(b) Aggregate total return for the period.
(c) Annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
43
<PAGE> 44
financial highlights
Homestead Funds, Inc.
Value Fund
For a Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.............. $25.50 $20.99 $18.44 $14.50 $14.54
-----------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income (a)................... 0.40 0.37 0.39 0.41 0.29
Net realized and unrealized gain on
investments............................... 1.72 5.22 2.91 4.47 0.07
-----------------------------------------------------------------------------------------------------
Total from investment operations............ 2.12 5.59 3.30 4.88 0.36
-----------------------------------------------------------------------------------------------------
Distributions
Net investment income....................... (0.40) (0.37) (0.39) (0.41) (0.29)
Net realized gain........................... (0.72) (0.71) (0.36) (0.53) (0.11)
-----------------------------------------------------------------------------------------------------
Total distributions......................... (1.12) (1.08) (0.75) (0.94) (0.40)
-----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR.................... $26.50 $25.50 $20.99 $18.44 $14.50
-----------------------------------------------------------------------------------------------------
TOTAL RETURN.................................... 8.31% 26.70% 17.94% 33.78% 2.50%
-----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (thousands)............. $449,002 $378,621 $238,550 $147,506 $91,612
Ratio of expenses to average net assets (a)..... 0.72% 0.79% 0.73% 0.84% 1.15%
Ratio of net investment income to average net
assets (a)............................. 1.52% 1.59% 2.08% 2.50% 2.19%
Ratio of gross expenses before voluntary expense
limitation to average net assets....... n/a n/a n/a n/a 1.15%
Portfolio turnover rate......................... 10% 6% 5% 10% 4%
</TABLE>
----------------------
(a) Excludes excess investment management fees and other expenses in
accordance with the Expense Limitation Agreement with the Manager.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
44
<PAGE> 45
notes to financial statements
Homestead Funds, Inc.
1. ORGANIZATION
Homestead Funds, Inc. (Homestead Funds) is a Maryland corporation registered
with the Securities and Exchange Commission under the Investment Company Act of
1940 as a no-load, open-end diversified management investment company. Homestead
Funds currently consists of 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 Homestead Funds as well as the nature and risks of the
investment activities of each Fund are set forth more fully in the Homestead
Funds' Prospectus and Statement of Additional Information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security valuation: 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: 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 Homestead 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 December 31, 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.
At December 31, 1998, the Small Company Stock Fund has a capital loss
carryforward of $1,709 which expires on December 31, 2006.
At December 31, 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 $1,473,572 $173,742 $314,904 $133,703,307
Gross unrealized
depreciation 61,016 14,180 857,020 7,912,774
---------- -------- --------- ------------
Net unrealized
appreciation
(depreciation) $1,412,556 $159,562 ($542,116) $125,790,533
========== ======== ========= ============
</TABLE>
45
<PAGE> 46
notes to financial statements
Homestead Funds, Inc. (Continued)
4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term and U.S.
Government securities, for the period ended December 31, 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 $101,843,356 $2,120,637 $7,956,212 $98,827,748
Proceeds from
sales $ 53,434,599 $1,407,404 $ 731,246 $40,752,698
</TABLE>
Purchases and proceeds from sales of long-term U.S. Government securities, for
the year ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT
SHORT-TERM SECURITIES
BOND FUND FUND
----------- -----------
<S> <C> <C>
Purchases $18,174,191 $11,921,028
Proceeds from
sales $18,893,293 $ 7,531,141
</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, $38,513 of management fees for
the Daily Income Fund were waived, $113,610 of management fees for the
Short-Term Bond Fund were waived, $56,429 of management fees were waived for the
Short-Term Government Securities Fund, and $31,553 of management fees were
waived and $28,910 of operating expenses of the Small Company Stock Fund were
reimbursed by the Manager for the year ended December 31, 1998.
At December 31, 1998 certain officers and directors of the Homestead Funds, and
NRECA and its affiliates owned 4% of the Daily Income Fund shares outstanding,
5% 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.
46
<PAGE> 47
notes to financial statements
Homestead Funds, Inc. (Continued)
6. CAPITAL SHARE TRANSACTIONS
As of December 31, 1998, 300 million shares of $.01 par value capital shares
are authorized 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.
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>
YEAR ENDED DECEMBER 31, 1998
In Dollars
Daily Income Fund................... $50,754,909 $2,545,721 $53,300,630 ($47,756,876) $5,543,754
Short-Term Bond Fund................ $63,541,739 $6,831,113 $70,372,852 ($33,523,983) $36,848,869
Short-Term Government Securities
Fund.............................. $13,125,555 $936,286 $14,061,841 ($6,404,569) $7,657,272
Small Company Stock Fund*........... $8,897,919 $39,024 $8,936,943 ($831,089) $8,105,854
Value Fund.......................... $136,947,678 $18,005,072 $154,952,750 ($97,514,378) $57,438,372
In Shares
Daily Income Fund................... 50,754,909 2,545,721 53,300,630 (47,756,876) 5,543,754
Short-Term Bond Fund................ 12,219,972 1,313,728 13,533,700 (6,449,494) 7,084,206
Short-Term Government Securities
Fund.............................. 2,582,187 184,187 2,766,374 (1,259,834) 1,506,540
Small Company Stock Fund *.......... 941,021 4,410 945,431 (90,774) 854,657
Value Fund.......................... 5,106,585 674,375 5,780,960 (3,686,922) 2,094,038
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 (inception date) to December 31,
1998.
47
<PAGE> 48
[PHOTO]
Homestead Funds, Inc.
c/o PFPC, Inc.
P.O. Box 8987
Wilmington, DE 19899
1-800-258-3030
