Horizons 2nd Quarter 2010 Newsletter

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

Client service associates aim to provide helpful, friendly serviceto Homestead Funds’ investors

that is modifying forms or working on a mailing.

We are close to our shareholders and can work

to address concerns fairly easily,” Parris explains.

The emphasis on service never changesThe company’s longest-serving client service

associate, Brian Allen, is the phone group’s team

leader. Over the eight years

he’s been with Homestead

Funds, the assets under

management have dou-

bled, and the fund lineup

has been modified to

better meet shareholders’

needs. But some things

haven’t changed.

“When I started at

Homestead Funds, our

No.1 goal was to assist shareholders. That is

still our goal today, and it’ll be the same tomorrow,

too. We can put shareholders first because we

are a no-load mutual fund company—that means

we have a customer-first, no-pressure environment.

We never pressure shareholders to buy funds

because we don’t work on commission. We serve

the needs of the shareholders only,” Allen explains.

“There is a shareholder who calls and asks for me

every six months or so,” Allen recalls. “He calls to

do an investment check-up — he wants guidance

reviewing his portfolio. We review the funds, the

returns, what’s in his best interests, his needs and

the suitability of each investment. Going through

this process helps him feel more comfortable.”

As team leader, Allen wears a lot of hats, particu-

larly the “trainer” hat, in which he helps to ensure

that the phone representatives provide sharehold-

ers with correct information.

“I’m always training phone reps to have their

own unique style, while delivering a uniform

message,” says Allen. “Our phone reps don’t

work from a script. Instead, we meet as a group

weekly and talk about shareholders’ needs and

hammer out any problems.”

In between those weekly meetings, Allen monitors

phone calls to ensure quality control; then he

reviews each client service associate monthly

to make sure that everyone is working in line with

industry standards. In addition to ongoing regular

training, each team member must earn a FINRA

Series 6 and Series 63 license.

Just the right sizeSince the company was founded 20 years ago

with one stock fund and one money market

fund, it has grown its assets under management

to approximately $1 billion today. Of course, in

an industry that controls over $11 trillion, that’s

still small by comparison to many fund compa-

nies. In this era of megastores and megabanks,

Homestead Funds may be the just the right

size for shareholders.

Team leader Brian Allen views the firm’s smaller

size as a positive. “Our size gives us more control

over customer service, so we can quickly adapt

to changing shareholder needs,” he says. “Being

a smaller fund company makes us different.

We can reach out to shareholders more often.”

Brian Parris agrees. “We’re small enough that we

can create individual relationships with our share-

holders,” says Parris. “This year, as we mark our

20th year, many shareholders are telling us that

they were among our first investors. It’s a good

feeling having shareholders who have been with

us since the beginning.”

Daily Income Fund: Current YieldSeven-Day Effective Yield as of 06/01/2010 0.0100%

The total returns shown above represent pastper formance, which does not guarantee futureresults. Investment return and principal value of an investment will fluctuate. An investor’sshares, when redeemed, may be worth moreor less than their original cost. Current performance may be higher or lower than the performance data quoted.

Investments are subject to risk and market fluctuation. Losses could occur. Call us at 1-800-258-3030 to speak with one of our clientservice associates and request a prospectus.Investors are advised to consider fund objec-tives, risks, charges and expenses carefullybefore investing. The prospectus contains thisand other information. Read the prospectuscarefully before you invest or send money.

An investment in the Daily Income Fund is notinsured or guaranteed by the Federal DepositInsurance Corporation or any other governmentagency. Although the Fund seeks to preservethe value of your investment at $1.00 per share,it is possible to lose money by investing in thisFund. The Daily Income Fund is a money mar-ket fund. For money market funds, the yield

quotation more closely reflects the Fund’s cur-rent earnings than the total return quotation.

aNet Expense shown here differs from the ratio of expenses to average net assets shown in the Financial Highlights section of the prospectusbecause the expenses shown on this pageinclude Acquired Fund Fees and Expenses, andamounts shown in the Financial Highlights reflectthe operating expenses and do not include theAcquired Fund Fees and Expenses.

bExpenses are to be waived pursuant to anexpense limitation agreement between RE Advisersand the Fund. This contractual waiver is for a one-year period ending April 30, 2011. At that time,the waiver may be renewed. In addition, effectiveAugust 14, 2009, RE Advisers has voluntarilyagreed to waive fees or reimburse expenses to the extent necessary to assist the Fund in attempt-ing to maintain a positive yield. There is no guar-antee that the Daily Income Fund will maintain a positive yield. This voluntary arrangement may be revised, discontinued or recontinued at any time.

c Expenses are waived pursuant to an expenselimitation agreement between RE Advisers

and the Fund. The contractual waiver is for aone-year period ending April 30, 2011. At thattime, the waiver may be renewed.

dThe fees for the Stock Index Fund shown in thistable reflect expenses of both the feeder fund andthe Master Portfolio. The management fee repre-sents the total expenses of the Master Portfolio.

e“Other Expenses” for the Stock Index Fund includea 0.25% administrative fee paid to RE Advisers.

*Performance information for the Stock IndexFund reflects its investment experience in theS&P 500 Index Master Portfolio from October 15,2007, to period end. Prior to October 15, 2007,the Stock Index Fund invested all of its assets in a different master portfolio.

**Performance information for the Growth Fund(formerly the Nasdaq- 100 Index Tracking StockSM

Fund) reflects its previous investment strategy ofmatching, as closely as possible, before expenses,the performance of the Nasdaq-100 Index®. OnNovember 18, 2008, by the approval of sharehold-ers, the Fund revised its investment objective andthis change became effective on December 5, 2008.

Distributor RE Investment Corporation. 6/10

Fund Annual Operating ExpensesManagement

Fees Other ExpensesAcquired Fund Feesand Expenses

Total Annual FundOperating Expenses

Expenses Waivedby 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%

Serving Shareholders for 20 years, continued from page 1

63in this issueeServing Shareholders

for 20 Years . . . . . . . . . . . . . . . . .1eThe Market One Year Later . . . .2eSpotlight on the Value Fund . . .4eHouseholding Shareholder

Reports . . . . . . . . . . . . . . . . . . .5eFund Performance . . . . . . . . . . .6

continued on page 3

Horizons2nd Quarter 2010

A quarterly newsletter for Homestead Funds’ shareholdersItem number 00073893

Fund Total Returns For Period Ending 3/31/10Aggregate Year-to-Date

Average Annual 1 Year



Average Annual 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.

Serving Shareholders for 20 Years

CCCELEBBRAARATATA NG 20 YEEAE RRSSSSSCCCEEELLEEBBRRRARAAAAAATARRARAATAAATATA IINNGG 22200 YYYEEEYEEEAEYYEAAAAAEAEAEEAAAARRARSARRRSSS

Brian Parris and BrianAllen interact daily

to brainstorm pressingshareholder issues.

RESPOND ING TO YOUShareholders 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 thethought that for every shareholder who calls to ask, there are a hundred who didn’t!We encourage you to call our helpful associates with your questions, as well as tocheck here each quarter to see if your question is featured.

Householding Shareholder ReportsI recently received a letter from Homestead Funds about “householding” shareholder reports and would like to know what this means for me as a shareholder.

In May, we sent Homestead Funds’ shareholders a letter saying we will start “householding” shareholder reports with the semi-annualreport dated June 30, 2010. Householding refers to mailing share-

holders just one copy of the shareholder report to an address with two or more Homestead Funds’accounts. So, for example, if you have both an IRAand a Coverdell ESA with Homestead Funds regis-tered to the same address, we will be sending you just one copy of our reports, which include the prospectus, annual and semi-annual reports.

We are making this change to reduce the volumeof mail you receive from us and to help keepexpenses low. This change reduces the amountof paper required for printing.

Remember that we also offer electronic documentdelivery, which allows you to bypass the printedbooklets entirely. With this option, we send youan e-mail notice when documents are postedonline and available for you to view. You can signup for electronic delivery when you log into your

account at homesteadfunds.com. Go to the Portfolio Overviewpage and select “Sign up for electronic document delivery.”

If you do not want the mailing of these documents to be combinedwith those of other accounts at the same address or you needadditional copies of financial reports, please call Homestead Fundsat 1-800-258-3030. At any time, shareholders with multipleaccounts at one address may call and request to be sent morethan one report per address.

4 52

THE ABCS OF INVEST ING

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.

Spotlight on the Value Fund

Stuart TeachSr. EquityPortfolioManager

Long-time Homestead Funds’

shareholders probably know the

Value Fund is the firm’s flagship

equity fund. Aptly named, the fund

reflects many of traits sharehold-

ers have come to associate with

Homestead Funds.

The Value Fund promotes along-term outlook. The fund’sprimary objective is to seekcapital growth over the longterm. Its second objective is income. It invests mostly in stocks whose prices fluctu-ate with business, market and economic conditions.Because the fund is made up mostly of stocks, its shareprice can rise and fall evenover the short term, reflectingchanges in the value of the underlying investments.

“Investing in stocks ofteninvolves ups and downs inshare price. Investors saw an extreme example of that in the recent bear market,”explains portfolio managerStuart Teach. “Because of theinherent volatility involved withstock investing, the Value Fundis best suited for long-terminvestors.”

How the fund investsUnder ordinary conditions, the Value Fund will invest at least 80% of its total assetsin common stocks of estab-lished companies, most of

which are listed on a nationalsecurities exchange. TheValue Fund focuses on stocksof established companies with market capitalizations of $2 billion or greater. Marketcapitalization is a measure of the company’s total stockmarket value, which is calcu-lated by multiplying the shareprice by the number of sharesoutstanding.

The fund’s value approach The word “value” in the fund’sname means that the fundfavors stocks of companiesselling below what the portfoliomanager believes to be thestocks’ true price — meaningthey are selling at a bargain.Some reasons a stock may be trading at a discountinclude the possibility that theissuer is experiencing a tem-porary earnings decline, itsindustry may be out of favordue to short-term market oreconomic conditions, or it mayhave drawn unfavorable pub-licity. In any event, the portfoliomanager believes the share

prices of the stocks will even-tually rebound, resulting in ahealthy return.

The risks As with any investment, theValue Fund carries risk. Thereis a chance that the value ofany of the fund’s holdings willdecline in response to a com-pany, industry or market set-back. In addition, the ValueFund carries other risks relatedto its value orientation, such as the possibility value stockswill trail returns of stocks rep-resenting other styles or themarket overall.

OutlookAlong with Peter Morris andMark Ashton, the fund’s co-managers,Teach is pragmaticin his approach to pickingsecurities for the Value Fund,opting not to speculate aboutshort-term moves in the mar-ket. He says, “Regardless of market conditions, we con-tinue to search for investmentopportunities that have thepotential to reward sharehold-ers over the long term.”

Will CunninghamRegistered Representative

Next to retirement, educationis the most popular savingsgoal. If you are investing to pay for tuition, consideraccounts that offer tax bene-fits. (Of course, consult a taxprofessional for informationspecific to your situation.)

Homestead Funds offers twoaccounts that provide taxadvantages: the EducationSavings Account and theUGMA/UTMA account, whichis named for the UniformGifts/Transfers to Minors Act.The choice of which type of account is best for you may depend on how muchyou plan to invest and how youwill be making contributions—all at once or periodically overtime. For a side-by-side com-parison of these two accounts,read the Helpful Tips article“Saving for Education” athomesteadfunds.com underthe “Find a Document” tab.For more information, pleasecall 1- 800-258-3030 to speakwith a client service associate.

ComparingEducation Accounts

CUSTOMER SERV ICE T I P

For stock investors, the past few years havecertainly lived up to the comparison that invest-ing is a lot like riding a roller coaster. In 2007,before the first cracks appeared in the realestate bubble, few investors could have foreseenthe steep descent that lay ahead. By the end of2008 after a widespread decline in asset values,many investors were so discouraged that theywere afraid to open their year-end statements.Finally, in March 2009, the latest bear market hitwhat some believe to be its bottom.

Then, in a remarkable about-face, the stockmarket, as measured by the Standard & Poor’s500 Index, climbed nearly 69% over the next12 months from its lows. Although past perform-ance cannot predict future results, for investorswho wondered if there would be light at the endof the tunnel, the turnaround from March 2009to March 2010 was a welcome change.

So, investors are left wondering how to respondto recent events. To shed light on this subject,Horizons spoke with Homestead FundsPresident Peter Morris.

“Investors should make sure that their assetallocation is in line with their financial goals,”Morris explained. “That allocation should be consistent with their time horizon and risktolerance.*

“Looking ahead to the rest of 2010, there areobstacles on the path forward, U.S. unemploy-ment and the uncertain impact of Europeandebt chief among them. What we can usuallyexpect, regardless of the economic environ-ment, is a certain degree of market volatility.”Morris concluded, “But investors for the longterm can be rewarded for their patience.”

Then and Now: The Market One Year Later

Putting volatility in perspectiveThis 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 dailychanges in stock prices.

Source: Standard & Poor’s Financial Communications

Percentage of trading days with 1% or more increase

Percentage of trading days with 1% or more decline

19931990 1991 1992 1994 1995 1996 1997 1998 1999 20092003 2004 2005 2006 2007 2008

10%

5%

0

15%

20%

30%

25%

2000 2001 2002

For the period from January 1, 1990, through December 31, 2009. Stocks are represented by the daily price change ofStandard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of theU.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.

*While asset allocation may help reduce the overall volatility of your portfolio, there can be no guarantee that thisor any strategy or investment can eliminate risk, including the possible loss of principal.




this goal possible.
















financial future. Parris left a 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.







The emphasis on service never changesThe company’s longest-serving client service










haven’t changed.













do an investment check-up— he wants guidance



















































cExpenses are waived pursuant to an expenselimitation agreement between RE Advisers









Fees Other ExpensesAcquired Fund Fees

and ExpensesTotal Annual FundOperating Expenses


Daily Income 0.50% 0.23% 0.02% 0.75% 0.26%b 0.49%


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%



63in this issueeServing Shareholders for 20 Years . . . . . . . . . . . . . . . . .1eThe Market One Year Later . . . .2eSpotlight on the Value Fund . . .4eHouseholding ShareholderReports . . . . . . . . . . . . . . . . . . .5eFund Performance . . . . . . . . . . .6

continued on page 3








Daily Income 0.00% 0.18% 2.69% 2.43% 3.42% (11/90)


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)














4 52


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.










Homestead Funds.















Then, in a remarkable about-face, the stockmarket, as measured by the Standard & Poor’s500 Index, climbed nearly 69% over the next12 months from its lows. Although past perform-ance cannot predict future results, for investorswho wondered if there would be light at the endof the tunnel, the turnaround from March 2009to March 2010 was a welcome change.



“Looking ahead to the rest of 2010, there areobstacles on the path forward, U.S. unemploy-ment and the uncertain impact of Europeandebt chief among them. What we can usuallyexpect, regardless of the economic environ-ment, is a certain degree of market volatility.”Morris concluded, “But investors for the longterm can be rewarded for their patience.”






19931990 1991 1992 1994 1995 1996 1997 1998 1999 20092003 2004 2005 2006 2007 2008

10%

5%

0

15%

20%

30%

25%

2000 2001 2002











4 52


Investors should carefully consider fund objectives, risks, changes and expenses before investing. The prospectus contains this and other information and should be read carefully before investing.










Homestead Funds.















Then, in a remarkable about-face, the stockmarket, as measured by the Standard & Poor’s500 Index, climbed nearly 69% over the next12 months from its lows. Although past perform-ance cannot predict future results for investorswho wondered if there would be light at the endof the tunnel, the turnaround from March 2009to March 2010 was a welcome change.



“Looking ahead to the rest of 2010, there areobstacles on the path forward, U.S. unemploy-ment and the uncertain impact of Europeandebt chief among them. What we can usuallyexpect, regardless of the economic environ-ment, is a certain degree of market volatility.”Morris concluded, “But long term investors canbe rewarded for their patience.”






19931990 1991 1992 1994 1995 1996 1997 1998 1999 20092003 2004 2005 2006 2007 2008

10%

5%

0

15%

20%

30%

25%

2000 2001 2002






this goal possible.
















financial future. Parris left a 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.







The emphasis on service neverchangesThe company’s longest-serving client service










haven’t changed.













do an investment check-up — he wants guidance



















































c Expenses are waived pursuant to an expenselimitation agreement between RE Advisers









Fees Other ExpensesAcquired Fund Feesand Expenses

Total Annual FundOperating Expenses


Daily Income 0.50% 0.23% 0.02% 0.75% 0.26%b 0.49%


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%



63in this issueeServing Shareholders

for 20 Years . . . . . . . . . . . . . . . . .1eThe Market One Year Later . . . .2eSpotlight on the Value Fund . . .4eHouseholding Shareholder

Reports . . . . . . . . . . . . . . . . . . .5eFund Performance . . . . . . . . . . .6

continued on page 3








Daily Income 0.00% 0.18% 2.69% 2.43% 3.42% (11/90)


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)






Documents

Horizons 2nd Quarter 2010 Newsletter