This document provides a summary of articles in a quarterly newsletter for shareholders of Homestead Funds. The first article discusses how client service associates at Homestead Funds aim to provide helpful, friendly service to shareholders by treating them like family. The second article reviews stock market performance one year after major declines in 2008-2009. The third article spotlights the Value Fund and its long-term focus on undervalued stocks. The last section provides a summary of fund performance figures for the quarter.
1. eServing Shareholders
eThe Market One Year Later . . . .2
eSpotlight on the Value Fund . . .4
eHouseholding Shareholder
e
in this issue
for 20 Years . . . . . . . . . . . . . . . . .1
Horizons
2nd Quarter 2010
Reports . . . . . . . . . . . . . . . . . . .5
A quarterly newsletter for Homestead Funds’ shareholders Fund Performance . . . . . . . . . . .6
Item number 00073893
Serving Shareholders for 20 Years Client service associates aim to provide helpful, friendly service
to Homestead Funds’ investors
Homestead Funds’ client service associates strive to treat the company’s share-
holders with the same respect and care they would their own family. The company’s
size, loyal shareholder population and the Homestead Funds’ culture help to make
this goal possible.
If you’re a regular caller on the toll-free line, it’s likely you have spoken with the
same customer service associate more than once. It’s also possible you ask to
speak to that same representative regularly because you trust him or her and like
the continuity of service.
“A number of shareholders know me and ask to speak with me,” says the soft-
spoken Brian Parris. “Sometimes it’s like clockwork. For example, twice a year since
2005, a customer I helped with rolling over a pension plan account to a Homestead
Funds IRA gives me a call. I’ve worked with this person every step of the way, from
setting up direct deposit from her Homestead account to her bank account to
helping her rebalance the account assets. Now, she’s nearing the required minimum
distribution phase, so we’re talking about that.”
Parris is one of eight client service associates answering the phones from
Homestead Funds’ office in Arlington, Virginia. Along with 18 others in the NRECA
financial services area who also work closely with Homestead Funds shareholders,
he’s part of a team whose mission is to help investors like you prepare for their
financial future. Parris left a larger financial service firm more than six years ago to
work for Homestead Funds. He was drawn to the company because
of the opportunity to make a difference to shareholders.
“I am given a lot of freedom to solve problems, resolve issues
and make improvements—whether continued on page 3
RAT NG 20 YE
EBRATING 20 YEARS
RA
AT EA
CELEB
2. 2
Then and Now:
The Market One Year Later
For stock investors, the past few years have So, investors are left wondering how to respond
certainly lived up to the comparison that invest- to recent events. To shed light on this subject,
ing is a lot like riding a roller coaster. In 2007, Horizons spoke with Homestead Funds
before the first cracks appeared in the real President Peter Morris.
estate bubble, few investors could have foreseen
“Investors should make sure that their asset
the steep descent that lay ahead. By the end of
allocation is in line with their financial goals,”
2008 after a widespread decline in asset values,
Morris explained. “That allocation should
many investors were so discouraged that they
be consistent with their time horizon and risk
were afraid to open their year-end statements.
tolerance.*
Finally, in March 2009, the latest bear market hit
what some believe to be its bottom. “Looking ahead to the rest of 2010, there are
obstacles on the path forward, U.S. unemploy-
Then, in a remarkable about-face, the stock
ment and the uncertain impact of European
market, as measured by the Standard & Poor’s
debt chief among them. What we can usually
500 Index, climbed nearly 69% over the next
expect, regardless of the economic environ-
12 months from its lows. Although past perform-
ment, is a certain degree of market volatility.”
ance cannot predict future results, for investors
Morris concluded, “But investors for the long
who wondered if there would be light at the end
term can be rewarded for their patience.”
of the tunnel, the turnaround from March 2009
to March 2010 was a welcome change.
*While asset allocation may help reduce the overall volatility of your portfolio, there can be no guarantee that this
or any strategy or investment can eliminate risk, including the possible loss of principal.
Putting volatility in perspective
This chart shows that while daily moves of 1% or more have been relatively common over the last 30 years,
there have been wide variations from year to year. Investors should keep this in mind when evaluating daily
changes in stock prices.
Source: Standard & Poor’s Financial Communications
30%
Percentage of trading days with 1% or more increase
25%
Percentage of trading days with 1% or more decline
20%
15%
10%
5%
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
For the period from January 1, 1990, through December 31, 2009. Stocks are represented by the daily price change of
Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the
U.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.
3. 3
Serving Shareholders for 20 years, continued from page 1
that is modifying forms or working on a mailing. “I’m always training phone reps to have their
We are close to our shareholders and can work own unique style, while delivering a uniform
to address concerns fairly easily, Parris explains.
” message, says Allen. “Our phone reps don’t
”
work from a script. Instead, we meet as a group
The emphasis on service
never changes weekly and talk about shareholders’ needs and
The company’s longest-serving client service hammer out any problems.”
associate, Brian Allen, is the phone group’s team In between those weekly meetings, Allen monitors
leader. Over the eight years phone calls to ensure quality control; then he
he’s been with Homestead reviews each client service associate monthly
Funds, the assets under to make sure that everyone is working in line with
management have dou- industry standards. In addition to ongoing regular
bled, and the fund lineup training, each team member must earn a FINRA
has been modified to Series 6 and Series 63 license.
better meet shareholders’
Just the right size
needs. But some things
Since the company was founded 20 years ago
haven’t changed.
with one stock fund and one money market
“When I started at fund, it has grown its assets under management
Homestead Funds, our to approximately $1 billion today. Of course, in
Brian Parris and Brian
Allen interact daily
No. 1 goal was to assist shareholders. That is an industry that controls over $11 trillion, that’s
to brainstorm pressing still our goal today, and it’ll be the same tomorrow,
shareholder issues. still small by comparison to many fund compa-
too. We can put shareholders first because we nies. In this era of megastores and megabanks,
are a no-load mutual fund company — that means Homestead Funds may be the just the right
we have a customer-first, no-pressure environment. size for shareholders.
We never pressure shareholders to buy funds
Team leader Brian Allen views the firm’s smaller
because we don’t work on commission. We serve
size as a positive. “Our size gives us more control
the needs of the shareholders only, Allen explains.
”
over customer service, so we can quickly adapt
“There is a shareholder who calls and asks for me to changing shareholder needs, he says. “Being
”
every six months or so, Allen recalls. “He calls to
” a smaller fund company makes us different.
do an investment check-up — he wants guidance We can reach out to shareholders more often.”
reviewing his portfolio. We review the funds, the
Brian Parris agrees. “We’re small enough that we
returns, what’s in his best interests, his needs and
can create individual relationships with our share-
the suitability of each investment. Going through
holders, says Parris. “This year, as we mark our
”
this process helps him feel more comfortable.”
20th year, many shareholders are telling us that
As team leader, Allen wears a lot of hats, particu- they were among our first investors. It’s a good
larly the “trainer” hat, in which he helps to ensure feeling having shareholders who have been with
that the phone representatives provide sharehold- us since the beginning.”
ers with correct information.
4. 4
THE ABCS OF INVESTING
Spotlight on Stuart Teach
the Value Fund Sr. Equity
Portfolio
Manager
Long-time Homestead Funds’ The Value Fund promotes a which are listed on a national prices of the stocks will even-
shareholders probably know the long-term outlook. The fund’s securities exchange. The tually rebound, resulting in a
Value Fund is the firm’s flagship primary objective is to seek Value Fund focuses on stocks healthy return.
capital growth over the long of established companies
equity fund. Aptly named, the fund The risks
term. Its second objective with market capitalizations
reflects many of traits sharehold- As with any investment, the
is income. It invests mostly of $2 billion or greater. Market
ers have come to associate with Value Fund carries risk. There
in stocks whose prices fluctu- capitalization is a measure
is a chance that the value of
Homestead Funds. ate with business, market of the company’s total stock
any of the fund’s holdings will
and economic conditions. market value, which is calcu-
decline in response to a com-
Because the fund is made lated by multiplying the share
pany, industry or market set-
up mostly of stocks, its share price by the number of shares
back. In addition, the Value
price can rise and fall even outstanding.
Fund carries other risks related
over the short term, reflecting
The fund’s value approach to its value orientation, such
changes in the value of
The word “value” in the fund’s as the possibility value stocks
the underlying investments.
name means that the fund will trail returns of stocks rep-
“Investing in stocks often favors stocks of companies resenting other styles or the
involves ups and downs in selling below what the portfolio market overall.
share price. Investors saw manager believes to be the
Outlook
an extreme example of that stocks’ true price — meaning
Along with Peter Morris and
in the recent bear market, ” they are selling at a bargain.
Mark Ashton, the fund’s co-
explains portfolio manager Some reasons a stock may
managers,Teach is pragmatic
Stuart Teach. “Because of the be trading at a discount
in his approach to picking
inherent volatility involved with include the possibility that the
securities for the Value Fund,
stock investing, the Value Fund issuer is experiencing a tem-
opting not to speculate about
is best suited for long-term porary earnings decline, its
short-term moves in the mar-
investors.” industry may be out of favor
ket. He says, “Regardless
due to short-term market or
How the fund invests of market conditions, we con-
economic conditions, or it may
Under ordinary conditions, tinue to search for investment
have drawn unfavorable pub-
the Value Fund will invest opportunities that have the
licity. In any event, the portfolio
at least 80% of its total assets potential to reward sharehold-
manager believes the share
in common stocks of estab- ers over the long term.”
lished companies, most of
Investors should carefully consider fund objectives, risks, charges and expenses before investing.
The prospectus contains this and other information and should be read carefully before investing.
To obtain a prospectus, call 1-800-258-3030 or visit homesteadfunds.com.
5. 5
C U S TO M E R S E R V I C E T I P
Comparing
Education R E S P O N D I N G TO YO U
Accounts Shareholders like you call our client service associates with a lot of good questions.
In this column, we’ll share our responses to some of those questions with the
Next to retirement, education thought that for every shareholder who calls to ask, there are a hundred who didn’t!
is the most popular savings We encourage you to call our helpful associates with your questions, as well as to
goal. If you are investing check here each quarter to see if your question is featured.
to pay for tuition, consider
accounts that offer tax bene-
fits. (Of course, consult a tax
Householding
professional for information Shareholder Reports
specific to your situation.) I recently received a letter from Homestead Funds
Homestead Funds offers two about “householding” shareholder reports and would
accounts that provide tax like to know what this means for me as a shareholder.
advantages: the Education
Savings Account and the In May, we sent Homestead Funds’ shareholders a letter saying
UGMA/UTMA account, which we will start “householding” shareholder reports with the semi-annual
is named for the Uniform report dated June 30, 2010. Householding refers to mailing share-
Gifts/Transfers to Minors Act. holders just one copy of the shareholder report
The choice of which type to an address with two or more Homestead Funds’
of account is best for you accounts. So, for example, if you have both an IRA
may depend on how much and a Coverdell ESA with Homestead Funds regis-
you plan to invest and how you tered to the same address, we will be sending
will be making contributions — you just one copy of our reports, which include
all at once or periodically over the prospectus, annual and semi-annual reports.
time. For a side-by-side com-
We are making this change to reduce the volume
parison of these two accounts,
of mail you receive from us and to help keep
read the Helpful Tips article
expenses low. This change reduces the amount
“Saving for Education” at
of paper required for printing.
homesteadfunds.com under
the “Find a Document” tab. Remember that we also offer electronic document
For more information, please delivery, which allows you to bypass the printed
call 1-800-258-3030 to speak booklets entirely. With this option, we send you
with a client service associate. an e-mail notice when documents are posted
Will Cunningham online and available for you to view. You can sign
Registered Representative
up for electronic delivery when you log into your
account at homesteadfunds.com. Go to the Portfolio Overview
page and select “Sign up for electronic document delivery.”
If you do not want the mailing of these documents to be combined
with those of other accounts at the same address or you need
additional copies of financial reports, please call Homestead Funds
at 1-800-258-3030. At any time, shareholders with multiple
accounts at one address may call and request to be sent more
than one report per address.
6. 6
Fund Total Returns For Period Ending 3/31/10
Aggregate Average Annual Average Annual Average Annual Average Annual
Year-to-Date 1 Year 5 Year 10 Year Since Inception (date)
Daily Income 0.00% 0.18% 2.69% 2.43% 3.42% (11/90)
Short-Term Govt. Securities 0.86% 2.85% 3.91% 3.89% 4.29% (5/95)
Short-Term Bond 2.07% 15.83% 5.08% 4.77% 5.21% (11/91)
Stock Index* 5.34% 48.92% 1.33% -1.31% -0.18% (10/99)
Value 5.45% 53.16% 2.87% 5.59% 9.44% (11/90)
Growth** 3.59% 54.30% 4.76% N/A -4.96% (1/01)
Small-Company 9.62% 75.40% 6.35% 10.47% 7.09% (3/98)
International Value -0.83% 46.78% 4.78% N/A 2.75% (1/01)
For performance data current to the most recent month-end, call Homestead Funds at 1-800-258-3030 or visit homesteadfunds.com.
Fund Annual Operating Expenses
Management Acquired Fund Fees Total Annual Fund Expenses Waived
Fees Other Expenses and Expenses Operating Expenses by RE Advisers Net Expense a
Daily Income 0.50% 0.23% 0.02% 0.75% 0.26% b 0.49%
Short-Term Govt. Securities 0.45% 0.33% 0.01% 0.79% 0.03% c 0.76%
Short-Term Bond 0.60% 0.23% 0.01% 0.84% 0.03% c 0.81%
Stock Index* 0.05% d 0.70% 0.00% 0.75% 0.00% 0.75%
Value 0.56% 0.24% 0.00% 0.80% 0.00% 0.80%
Growth** 0.65% 1.09% 0.00% 1.74% 0.79% c 0.95%
Small-Company 0.85% 0.38% 0.01% 1.24% 0.00% 1.24%
International Value 0.75% 0.31% 0.01% 1.07% 0.07% c 1.00%
Daily Income Fund: Current Yield
Seven-Day Effective Yield as of 06/01/2010 0.0100%
The total returns shown above represent past quotation more closely reflects the Fund’s cur- and the Fund. The contractual waiver is for a
performance, which does not guarantee future rent earnings than the total return quotation. one-year period ending April 30, 2011. At that
results. Investment return and principal value a Net time, the waiver may be renewed.
Expense shown here differs from the ratio
of an investment will fluctuate. An investor’s d The fees for the Stock Index Fund shown in this
of expenses to average net assets shown in
shares, when redeemed, may be worth more
the Financial Highlights section of the prospectus table reflect expenses of both the feeder fund and
or less than their original cost. Current
because the expenses shown on this page the Master Portfolio. The management fee repre-
performance may be higher or lower than
include Acquired Fund Fees and Expenses, and sents the total expenses of the Master Portfolio.
the performance data quoted.
amounts shown in the Financial Highlights reflect e “Other
Expenses” for the Stock Index Fund include
Investments are subject to risk and market the operating expenses and do not include the
a 0.25% administrative fee paid to RE Advisers.
fluctuation. Losses could occur. Call us at Acquired Fund Fees and Expenses.
1-800-258-3030 to speak with one of our client b Expenses are to be waived pursuant to an * Performance information for the Stock Index
service associates and request a prospectus. Fund reflects its investment experience in the
expense limitation agreement between RE Advisers
Investors are advised to consider fund objec- S&P 500 Index Master Portfolio from October 15,
and the Fund. This contractual waiver is for a one-
tives, risks, charges and expenses carefully 2007 to period end. Prior to October 15, 2007
, ,
year period ending April 30, 2011. At that time,
before investing. The prospectus contains this the Stock Index Fund invested all of its assets in
the waiver may be renewed. In addition, effective
and other information. Read the prospectus a different master portfolio.
August 14, 2009, RE Advisers has voluntarily
carefully before you invest or send money.
agreed to waive fees or reimburse expenses to ** Performance information for the Growth Fund
An investment in the Daily Income Fund is not the extent necessary to assist the Fund in attempt- (formerly the Nasdaq-100 Index Tracking StockSM
insured or guaranteed by the Federal Deposit ing to maintain a positive yield. There is no guar- Fund) reflects its previous investment strategy of
Insurance Corporation or any other government antee that the Daily Income Fund will maintain matching, as closely as possible, before expenses,
agency. Although the Fund seeks to preserve a positive yield. This voluntary arrangement may the performance of the Nasdaq-100 Index®. On
the value of your investment at $1.00 per share, be revised, discontinued or recontinued at any time. November 18, 2008, by the approval of sharehold-
it is possible to lose money by investing in this c Expenses are waived pursuant to an expense
ers, the Fund revised its investment objective and
Fund. The Daily Income Fund is a money mar- this change became effective on December 5, 2008.
limitation agreement between RE Advisers
ket fund. For money market funds, the yield Distributor RE Investment Corporation. 6/10